Stocks to buy

3 Stocks to Make Sure You’re on the Right Side of the AI Boom

Every day, we hear about the tremendous innovation from artificial intelligence advancements. AI is transforming many industries, such as autonomous vehicles, industrial automation, molecule discovery and fraud detection, to name a few. This has led to an AI boom. You can participate in this new era through several AI stocks as these applications develop.

In terms of playing AI, there are several ways to do so. First are the picks and shovels that supply chips and data infrastructure required to build AI applications. For instance, semiconductor companies that make chips that can handle AI workloads. Or the data infrastructure players that will provide the storage and compute resources.

Secondly, companies leveraging AI to enhance their products are on the right side of the trend. Software companies can leverage AI to provide better insights and improve functionality. Furthermore, AI is accelerating product innovations and enabling these companies to deliver products that offer more value.

AI will revolutionize the world as we see it. Indeed, with the emergence of generative AI, we are just in the early innings of this growth cycle. Buy these top AI stocks for future AI gains.

Nvidia (NVDA)

Nvidia (NVDA) stock logo on a smartphone.

Source: Allmy / Shutterstock.com

This semiconductor company is the prominent force driving the AI revolution. Nvidia (NASDAQ:NVDA) had the vision to focus on accelerated computing more than a decade ago. Instead of building CPUs, they created graphics processing units (GPUs) for simulation, graphics and physics.

Initially, Nvidia GPUs were critical for gaming applications. Eventually, the company hoped that these chips would be useful for AI. The company has realized that vision and GPUs are essential in training AI models.

What’s more, Nvidia had the foresight to recognize that developers needed a software stack to develop, deploy and optimize AI applications. Thus, it created CUDA, its set of operating systems, frameworks, tools, drivers and libraries.

Due to its first-mover advantage, Nvidia has an unassailable lead in AI. First, it has over 80% market share in the global GPU market. While competitor Advanced Micro Devices (NASDAQ:AMD) expects $2 billion in revenues from AI chips next year, analysts estimate Nvidia will surpass $70 billion.

So far, results indicate these targets are reasonable. For instance, data center revenue was $32.6 billion in the trailing twelve months. Additionally, the segment’s growth accelerated in the third quarter of fiscal 2024, recording 279% year-over-year growth.

Besides the GPU leadership, CUDA is another competitive advantage. Today, millions of developers use the platform. Developers use it and Nvidia’s proprietary algorithms, such as Transformer Engine, Quantum-2 and InfiniBand network, to improve their models.

For FY2025, ending January 2025, analysts’ consensus estimate is for 53% revenue growth. Additionally, they see EPS growing from $12.30 in the current fiscal year to $19.72, a 60% increase. Based on these estimates, NVDA stock trades at 24 times FY2025 EPS. Indeed, it’s one of the cheapest and best AI stocks to buy today.

Microsoft (MSFT)

Source: Roland Magnusson / Shutterstock.com

Microsoft (NASDAQ:MSFT) is a leader in the artificial intelligence race due to its alliance with OpenAI. The deal granted access to all OpenAI models, enabling the company to position itself as the leading AI infrastructure provider. As a result, it is seeing an acceleration in revenues and earnings.

Today, the Redmond-based company has the best AI infrastructure for training and inference. Microsoft Azure is the second largest cloud provider and it’s taking share. Azure AI offers companies leading AI models from OpenAI, Microsoft, Meta Platforms (NASDAQ:META) and Hugging Face. At the end of Q1 FY2024, more than 18,000 organizations were using Azure OpenAI services.

Microsoft has also integrated AI across all its services and products to increase productivity. GitHub Copilot is enabling software developers to code faster. More than 37,000 organizations have subscribed to the service, increasing productivity by 55%.

The company is introducing co-pilot systems in business applications to deliver business process transformation. For instance, Dynamics 365 employs AI to personalize customer interactions based on insights from third-party customer relationship management systems. Additionally, Microsoft Copilot is now available across applications such as Word, Excel, Outlook, PowerPoint and Teams.

Today, more than 40% of Fortune 100 companies are already tapping into copilot services. Microsoft is integrating more AI capabilities into its hardware and software stack and optimizing its cloud infrastructure for AI. These innovations will help customers, partners and developers gain more value from its services.

Over the long term, Microsoft is betting that AI will support revenue growth. That’s why CEO Satya Nadella expects the company to double its revenues by FY2030, hitting $500 billion in revenue. So far, it is one of the AI stocks to watch.

Advanced Micro Devices (AMD)

Close up of AMD sign in Markham, Ontario, Canada. Advanced Micro Devices, Inc. (AMD) is an American multinational semiconductor company.

Source: JHVEPhoto / Shutterstock.com

In the AI chip race, Advanced Micro Devices (NASDAQ:AMD) is emerging as a challenger to Nvidia. Although the company is a bit late, it could still benefit as data center companies seek alternatives. During its Advancing AI event on December 6, it announced several AI solutions for PCs, the cloud and enterprise.

The highlight was the showcase of the Instinct M1300A accelerated processing unit (APU) and Instinct MI300X accelerator. These chips can train and run large language models. In a show of confidence, several companies have agreed to deploy the M1300X. Microsoft has installed the chip for its virtual machines and Meta will deploy the chips in its data centers.

Remarkably, these chips have some performance advantages over Nvidia’s H100 chips. For instance, the MI300A APU for data centers has 1.6 times the memory capacity. Lisa Su, the CEO, also highlighted that the MI300X performs better in inference. These early wins show AMD can become one of the top AI stocks.

Over the next fiscal year, Lisa Su expects solid demand for its AI chips. “We are seeing very strong demand for our new Instinct MI300 GPUs, which are the highest-performance accelerators in the world for generative AI.”

These early releases show the promise of AMD in AI. When releasing the M1300 chips, CEO Lisa Su noted they expect more than $2 billion in revenues and see an addressable market of $45 billion. Moreover, the company expects sustained demand, with the market growing to $400 billion by 2027.

On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.

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