AI Stocks Poised for Growth: Insights from Recent Market Analysis

Prediction: This Major Artificial Intelligence (AI) Stock Could Compete With Nvidia in the Not-Too-Distant Future | The Motley Fool

What happens when a company's largest customers become fierce competitors? Imagine that you own the largest chocolate chip company in the land. You sell to all the largest grocery chains because you have the best recipe. But every day, those stores pour money into finding the next-best recipe. If they create it, it could be a recipe for disaster (pardon the pun). This is Nvidia's reality now. Companies like Microsoft, Alphabet (GOOG 0.86%) (GOOGL 0.89%), Meta Platforms, and Amazon are spending billions on Nvidia GPUs while also spending billions developing competing products. The key for Nvidia is to stay one step ahead. But it won't be easy with such deep-pocketed competitors. As shown below, the four massive tech companies mentioned above reportedly account for nearly 40% of Nvidia's revenue, which exploded to $96 billion over the past 12 months. Of this, 85% comes from Nvidia's data center division. Whatever company can encroach on Nvidia's massive market share of reportedly 70% to 95% in artificial intelligence (AI) chips will benefit in two ways: increased income and reduced expenses. After all, much of that giant ramp in Nvidia's revenue, depicted above, comes from other big tech companies' pockets. Nvidia is leading due to its groundbreaking H100 GPU, which delivers unparalleled performance. These units are critical for data centers, large language models, and generative AI, so Nvidia can't keep up with demand and the margins are gigantic. Alphabet is developing and improving its competing AI product, the Tensor Processing Unit (TPU). It launched the sixth-generation TPU, Trillium, earlier this year. With five times more speed and 67% more energy efficiency, sixth-gen Trillium is a considerable leap over version five. Trillium doesn't compete directly on the open market with Nvidia. Instead, customers rent space on Google Cloud, allowing Alphabet a broader customer base. The ability to rent space will be intense competition for Nvidia as companies can choose to rent rather than make capital investments. And, of course, Alphabet uses it internally. Alphabet can pour capital into AI projects because it is hugely profitable and generates massive cash flow from its core advertising (Google Search and YouTube) and Google Cloud segments. These segments generated $84 billion in sales last quarter, a 14% year-over-year increase that came with $27 billion in operating cash flow. Also impressive is that the operating margin for Google Cloud increased from 5% to 11% year over year. The increase in margin is a clear indication of increased efficiency and growing demand. As you can see below, Google Cloud's growth has been remarkable in recent years. Even after growing nearly fourfold since 2020, AI will increase Google Cloud's sales. For Alphabet, investments in AI, Google Cloud, and generative chatbots that rival ChatGPT, like Gemini, are crucial to the long-term path. Microsoft Bing is challenging Google Search by harnessing ChatGPT through its billion-dollar investment in its creator, OpenAI. Plus, generative AI may encroach on the search market. However, there is no need to sound an alarm yet; Google Search grew 14% last quarter to $49 billion in revenue and remains far and away the market leader. Alphabet stock looks like a bargain in a market where many tech stocks are trading well above historical valuations. As shown below, Microsoft trades 14% above its five-year average price-to-earnings (P/E) ratio, while Alphabet trades 12% below. The historical undervaluation, quality core business, and potential to compete for part of Nvidia's market dominance make Alphabet stock an intelligent buy for tech investors and those looking for GARP (growth at a reasonable price) companies.

These "Magnificent Seven" Stocks Are Brilliant Artificial Intelligence (AI) Buys | The Motley Fool

Tremendous AI growth opportunities sent their share prices soaring and driven the broader market to new all-time highs. While some Magnificent Seven stocks are too expensive to justify buying them today, others could have room to run. Here are the four that are still brilliant AI buys today: AI models require powerful computing systems to process vast amounts of data. Nvidia's AI chips have become the runaway leader for big technology companies building these systems. The company's H100 chip series powered the AI revolution's early innings, and now Blackwell, its next-generation chip architecture, is set to be launched and could take AI to its next phase. So far, Nvidia has held on to its dominant market position in AI, and there aren't yet many indications that it will change. Analysts believe Nvidia will end its fiscal year with $125 billion in revenue and grow that by 40% next year to $175 billion. That should fuel rampant earnings growth; analysts estimate earnings will increase by more than 41% annually for the next three to five years. The stock trades at a price-to-earnings ratio (P/E) of 41 times this year's earnings estimates, arguably making Nvidia a bargain if its earnings grow anywhere near estimates. Alphabet is already one of the world's most influential companies, and AI is a case of the rich getting richer. The company possesses everything you need to unleash AI's potential: deep pockets to build data centers, gobs of first-party data to train its models, and a dominant product to distribute its technology. The company dominates internet search to the point that it was declared a monopoly, and now it is weaving AI features into search, YouTube, and throughout its business. These enhancements should help this multitrillion-dollar company grow well into the future. Analysts believe Alphabet will raise earnings by an average of 17% annually over the long term. Today, the stock trades at a forward P/E of just 21. That's a bargain for a business growing profits this fast, plus investors are getting a wide-moat business that many would agree justifies a premium valuation. Alphabet's quality and cheap valuation make it a table-pounding buy. Meta Platforms has a lot in common with Alphabet. It's virtually a cash-flow printing press that owns the computing, data, and distribution needed to become a force in AI over the coming years. Meta is one of the largest companies with a founder as CEO, and Mark Zuckerberg is still barely 40 years old. His vision helped Meta become the de facto leader in worldwide social media via Facebook, Instagram, WhatsApp, and Threads, and he could still have decades ahead at the helm. Zuckerberg strongly believes in AI as part of Meta's future, so it could be the most AI-centric stock investors will find on the market. It has already woven AI into its digital ads business, and LLama, its large language model, into its social media apps. The company was already growing via its ad business, but AI monetization could become a bigger story over time. Its price/earnings-to-growth ratio (PEG) of 1.4 indicates the stock is reasonably priced for what could be years of AI-driven growth. Analysts call for earnings increases averaging 19% annually over the long term. AI is improving the experience on Amazon's e-commerce platform; for example, it summarizes product reviews to give consumers quick feedback on items they're browsing. However, most of the company's AI opportunities will come as part of Amazon Web Services (AWS), its cloud business. Amazon is competing with other cloud providers like Microsoft to build the best platform for companies to deploy and manage AI applications. AWS is the world's leading cloud platform, and integrating AI capabilities is a logical evolutionary step in growing and protecting that business. As long as Amazon successfully competes, investors should be thrilled with the company's long-term performance. Analysts believe it will grow earnings by 27% annually over the next three to five years. Meanwhile, the stock trades at a forward P/E of 40. The company invests heavily in its business, which can skew earnings. The stock could be cheaper than it looks. If you value it on operating cash flow, it's nearly the cheapest it has been in a decade despite trading near its all-time highs.

2 Top Artificial Intelligence Stocks to Buy Right Now | The Motley Fool

With the AI industry surging, these two companies are among your best bets. The artificial intelligence (AI) market is going like gangbusters as businesses and individuals flock to generative AI systems including Alphabet's Bard and OpenAI's ChatGPT platform. According to Bloomberg Intelligence, the generative AI market is "poised to explode" from a market size of just $40 billion in 2022 to $1.3 trillion by 2032. How can you position your portfolio to take advantage of that? These two stocks are your best bets right now. During the California gold rush of the 1800s, the majority of prospectors made little to no money, but the shopkeepers around them did quite well. Thus, the adage was born: "During a gold rush, sell shovels." If this strategy fits with your investment style, your AI bets must include Nvidia (NVDA -1.59%). Right now, few companies are as important to the AI industry as Nvidia. It sells some of the most advanced GPUs (graphics processing units) on the market -- specialized chips capable of handling heavy computing loads through parallel processing. That's an essential capability for the servers that train and power AI models. Whether the use case is image recognition, natural language processing, or autonomous driving, AI systems require huge volumes of GPUs to function, and more will be needed to meet the growing demand for those AI services. According to various estimates, Nvidia is supplying between 70% and 95% of the world's AI chips. Of course, other chipmakers are not ignoring Nvidia's success. As CEO Jensen Huang recently said, "I don't think people are trying to put me out of business. I probably know they're trying to, so that's different." Intel and AMD are aggressively expanding their chip manufacturing capabilities, while start-ups like D-Matrix aim to shake up the market with new components that dramatically reduce the computing load AI models require. As was the case during previous chip wars, it's far from certain which companies will win over the long term. Right now, however, Nvidia has a dominant lead. Any bet on the rise of AI should start with the company supplying its most critical components. But if you're looking for maximum upside, the stock below might be a better pick. Nvidia is a great bet for those bullish on AI. But with a market cap north of $2.7 trillion, it's likely that the company's biggest days of growth are behind it. Looking for a company whose best days are ahead of it? Look no further than SoundHound AI (SOUN -0.80%). Compared to Nvidia, SoundHound AI is tiny, with a market cap of just $1.7 billion. But with an addressable market that is already worth more than $140 billion, it has a clear pathway to grow immensely. However, there are some serious risks for investors to consider before jumping into its stock. SoundHound's specialty is integrating AI into systems that can engage in verbal conversation with people. Its voice recognition and language processing technology is already in use across a variety of industries, allowing people to chat with their vehicles about maintenance issues or order fast food through an AI chatbot, for example. Major names like Hyundai and Applebee's are already SoundHound AI clients. With a growing list of customers and a portfolio of more than 200 patents, SoundHound AI could be a major player in the artificial intelligence space this decade. Yet that naturally leads to the question of why its valuation is still stuck below $2 billion. First, SoundHound AI may not have the capital necessary to compete with the tech giants that are also investing heavily in its niche. Its research and development budget of only $56 million per year, for example, is dwarfed by the budgets of competitors like IBM and Alphabet. So it's not clear if SoundHound's lead is sustainable. Second, the company is still losing money. Last quarter, it posted its biggest loss in history. That will be less of a problem if additional capital remains cheap and accessible. But if the market turns its back on SoundHound, that would hinder its already limited ability to compete head-to-head with better-financed companies. If SoundHound does succeed, there could be massive upside for patient shareholders. But there are major downside risks here as well. This is much more of a boom-or-bust investment than Nvidia, and is suitable only for aggressive investors seeking maximum upside.

Prediction: These 2 Artificial Intelligence (AI) Stocks Are About to See Massive Growth | The Motley Fool

Artificial intelligence (AI) stocks have roared higher in recent times -- and for good reason. This exciting technology already is driving enormous revenue growth at companies making AI products and services -- and customers are investing in these tools due to the promise of AI to revolutionize their businesses. For example, AI may accelerate the development of new and better drugs or make vehicles safer and easier to operate. Investors, recognizing this promise, have piled into AI stocks, and these players have helped the S&P 500 index climb nearly 20% so far this year. Though companies in the field of AI have seen their shares soar, it's not too late to get in on many compelling players. In fact, it's a great time to invest in two in particular -- my prediction is these AI companies are about to see massive growth. Let's check them out. Palantir Technologies (PLTR 1.00%) helps its customers aggregate their complex web of data and put it to work -- so they can integrate this data into their strategies and harness its power to make key decisions. For most of its history, the 20-year-old company counted on government contracts to drive revenue growth. But, in recent times, a new growth driver has emerged. Palantir's commercial business has taken off, helped by the company's investment in AI. Last year, Palantir launched its Artificial Intelligence Platform (AIP), an AI-powered system that helps customers quickly zoom in on their data and discover how it can help advance their business goals. The company even has created a genius way of selling the platform to potential customers -- by holding bootcamps that allow them to get a taste of its capabilities. And this long-established company's new bet is paying off. AIP is driving revenue in the government and commercial businesses -- and commercial now is its highest-growth business. In the most recent quarter, U.S. commercial revenue advanced 55% compared with a 24% gain for U.S. government revenue. Palantir had only 14 commercial clients four years ago, and today it has nearly 300, illustrating the progress made in a short period of time. AIP's rather recent launch, the high demand for the platform, and the commercial numbers we've seen so far suggest that explosive growth for Palantir may be right around the corner. And that means the stock could have plenty of room to run -- even after recent gains -- over the long haul. Super Micro Computer (SMCI 4.59%) is a key behind-the-scenes player in the world of AI. The company makes the equipment crucial to the operations of AI data centers -- from workstations to full-rack scale solutions. Supermicro isn't the only equipment maker around, but it has managed to grow five times faster than the industry average over the past 12 months. The reason for the company's success? It works hand-in-hand with the world's top chip designers -- including market leader Nvidia -- in order to immediately integrate their innovations into its products. Supermicro's building blocks technology -- with most products involving similar parts -- also favors speed. So, customers know they can quickly get a product tailored to their data centers with the latest technology when they order from Supermicro. This has driven major growth at the equipment company, with quarterly revenue this year soaring past the level of annual revenue as recently as 2021. In the most recent quarter, revenue came in at $5.3 billion, a gain of more than 140% year over year. On top of this, a new wave of growth may be ahead. Supermicro is well positioned to solve one of the biggest problems facing AI data centers, and that's the accumulation of heat. This is thanks to the company's direct liquid cooling (DLC) technology. Supermicro says that over the coming 12 months, as much as 30% of new data centers will be equipped with DLC -- and Supermicro will dominate that market. So, my prediction is this equipment giant that already has delivered growth is heading for yet a new wave of lasting revenue gains -- and that's reason to be optimistic about its stock performance over the long term.

2 Artificial Intelligence (AI) Stocks You Can Buy and Hold for the Next Decade | The Motley Fool

Artificial Intelligence (AI) stocks were battered over the summer. The VanEck Semiconductor ETF, which is chock-full of semiconductor stocks that are tied to the AI sector, fell as much as 25% from the all-time high it set in July. Nevertheless, I remain bullish on AI. Investors have only seen the beginning stages of how this technology will reshape the world, and additional innovations will take years and even decades to emerge. That is a strong case for owning AI stocks long term -- here are two I find particularly compelling. Topping my list is Palantir Technologies (PLTR 1.00%). The company, which provides AI-powered big data solutions, is riding high. Earlier this month, it was announced that Palantir would join the S&P 500 index. That news spurred a rally in the stock, which has already climbed by 113% year to date. Behind that excellent performance is the company's sterling fundamentals. Still a young company, Palantir is primarily focused on growing its customer base and revenue. As of the second quarter, its quarterly revenue increased to $678 million, up 27% from a year earlier. Similarly, Palantir's U.S. customer count is growing very rapidly. The company reported 295 American commercial customers last quarter, up 83% year over year. Moreover, Palantir is attracting larger customers as it closed 27 deals worth more than $10 million each during the period. Needless to say, Palantir is riding the wave of AI momentum. As CEO Alex Karp noted in his most recent shareholder letter, "Our growth across the commercial and government markets has been driven by an unrelenting wave of demand from customers for artificial intelligence systems that go beyond the merely performative and academic." In short, the company has caught the wave and is riding it well. Investors looking for an AI stock to buy and hold for the long term should strongly consider Palantir. That's great news for Nvidia, in particular, because its product is the go-to solution when it comes to building the "brains" of various AI models. It makes the graphic processing units (GPUs) most favored by AI developers The red-hot demand for AI-capable GPUs means Nvidia can charge top dollar for its products, including the H100 and its soon-to-debut Blackwell chip. It's important to remember why Nvidia's stock has surged more than 600% over the last two years: The company's revenue and profits are exploding. In its most recent quarter (ended July 28), revenue was $30.0 billion, up 122% from a year earlier. Over the last 12 months, the company has generated $96.3 billion in sales, up from $25.7 billion less than two years ago. Profits have similarly surged. The company's dominant position in AI has driven its share price to new heights, but even following its incredible two years of gains, Nvidia remains an AI stock I want to own for the next decade and beyond.

3 Artificial Intelligence Stocks Down More Than 50% From Their 52-Week Highs. Could They Be Bargain Buys Right Now? | The Motley Fool

These companies are still growing their businesses at high rates. It's hard not to get caught up in the hype with artificial intelligence (AI) when analysts are projecting so much growth. Grand View Research projects that by 2030, the AI market will be worth $1.8 trillion, up from approximately $279 billion this year. With growth like that, investors who don't own AI stocks could feel like they're missing out. But buying shares of chipmaker Nvidia or other AI stocks that have already generated massive returns may not be all that enticing given their lofty valuations. Buying at these high levels could limit the gains you make from a stock both in the short and long term. Another option is to consider AI stocks that haven't been doing so well recently. You may be taking on more risk but could net some strong gains if they eventually rebound. Snowflake (SNOW -3.29%), Super Micro Computer (SMCI 4.59%), and SoundHound AI (SOUN -0.80%) are all AI stocks down more than 50% from their 52-week highs. Below, I've ranked them based on how likely it is they can turn things around. Super Micro Computer, also known as Supermicro, was one of the hottest AI stocks to own earlier this year. But it has been struggling for weeks after its fiscal 2024 Q4 earnings release and a report from notable short seller Hindenburg research questioning the company's accounting practices. Although such reports may be biased and contain unproven allegations, investors have nonetheless been bearish on the stock following these developments. Today, Supermicro stock is trading at around $450 per share, more than 60% below its 52-week high of $1,229. The company's business has been booming as it provides customers with servers and IT infrastructure to help them grow their operations, particularly as they expand their AI products and services. For the fiscal year ended June 30, Supermicro's sales totaled $14.9 billion, up 110% year over year. Profits also jumped from $640 million to $1.2 billion. However, the latest earnings report alarmed investors as its gross margin has been shrinking, which could drastically hinder its earnings outlook should that trend continue. Supermicro makes for an intriguing contrarian buy because Hindenburg's short report and the latest quarterly results have managed to overshadow what's still an incredible growth streak. There is indeed risk from its shrinking margins, but it may be an AI stock worth taking a chance on right now. Data storage company Snowflake has been struggling in 2024 as it posted unimpressive results, and investors have been bearish since the company's CEO unexpectedly retired earlier in the year. It also didn't help the company was involved in a big data breach, which impacted many large customers. Down more than 40% year to date, Snowflake's decline has persisted since shares peaked in late 2021. For Snowflake to turn things around, it needs to deliver better numbers, particularly on the bottom line. While the company has been growing its business, that's not so encouraging when its losses have also been getting bigger. Through the first two quarters this year, Snowflake's operating loss grew 26% year over year to $703.9 million, nearly matching its 31% top-line growth over the same period. And to make matters worse, management reduced its margin guidance for full-year fiscal 2025. Until Snowflake can show there's hope of profitability in the future, I'd avoid the stock. Shares of SoundHound AI took off early in the year as investors learned Nvidia had invested in the company. While the stock has leveled off in recent months, it's still up more than 130% year to date, even after declining 52% from its high of $10.25. SoundHound's voice AI technology can help restaurants take orders and follow voice commands. While the business is growing, competition in this space is intense, and its numbers may not be high enough to suggest its share of the market is all that big. In the second quarter, the company's revenue rose 54% to $13.5 million, but its net loss ballooned 60% to $37.3 million. There's still a fair bit of uncertainty around SoundHound AI, and it's arguably the riskiest pick on this list given its sky-high valuation. I'd avoid it despite the sell-off.