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Innovative AI Stocks Poised for Steep Growth

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As we navigate the wild waters of the investment world, the beacon of artificial intelligence (AI) continues to shine ever brighter. The recent surge in AI interest, sparked by OpenAI’s ChatGPT release, has set the tech realm abuzz and beckoned numerous companies to dip their toes in the AI stream.

Grand View Research data reveals that the AI market surged to around $200 billion in 2023. Projections indicate a continued upward trajectory, hurtling at a compound annual growth rate of 37%, with estimates placing the industry at nearly $2 trillion by the decade’s end.

Discover Potential: Advanced Micro Devices

Advanced Micro Devices‘s (NASDAQ: AMD) emergence as a heavyweight in the AI domain showcases its latent capacity. While Nvidia darted ahead last year, capturing an estimated 90% AI chip market share, AMD is concocting a strategy to dethrone Nvidia and carve out its slice of this highly profitable pie.

Last December, AMD unveiled the MI300X AI graphics processing unit (GPU), aiming to rival Nvidia’s offerings. Major tech players like Microsoft and Meta have already hopped on the bandwagon, cementing AMD’s foothold in the industry.

AMD isn’t merely eyeing Nvidia’s GPU throne; it’s doubling down on AI-powered PCs. With IDC projecting a surge in AI-enabled PC shipments this year acting as a driving force, AMD is set to capitalize on this trend. Canalys forecasts that 60% of all PCs shipped in 2027 will boast AI capabilities.

AMD’s fourth-quarter 2023 earnings report, unveiled on Jan. 30, showcased a 10% year-over-year revenue bump to $6 billion, surpassing analysts’ projections by approximately $60 million. The company’s AI-focused data center segment witnessed a robust 38% revenue surge, while the PC market revamp propelled AMD’s client segment by a staggering 65%.

The stock’s future looks promising, with earnings per share estimates painting a rosy picture for potential investors.

AMD EPS Estimates for 2 Fiscal Years Ahead Chart

Data by YCharts

This chart displays AMD’s expected earnings surpassing $7 per share over the ensuing two fiscal years. Running this figure with the company’s forward price-to-earnings ratio (P/E) of 49 yields a forecasted stock price of $352, potentially doubling by fiscal 2026. Clearly, AMD’s stock is a tantalizing opportunity before it rockets skyward.

Unleashing Potential: Amazon

While AMD offers a hardware-focused AI investment avenue, Amazon (NASDAQ: AMZN) is swiftly carving its niche as a potent AI software player. Boasting e-commerce and cloud computing supremacy, Amazon is primed to exploit AI across multiple fronts to bolster its business.

Amazon’s AWS, the globe’s premier cloud platform commanding a hefty 31% cloud market share, sets the stage for Amazon’s AI prowess. Cloud computing, crucial for AI growth, enables companies like Amazon to steer the generative AI market using robust data centers.

Responding to the burgeoning AI demand, Amazon bolstered AWS since the dawn of 2023. Unveiling Bedrock, a toolkit flaunting models for crafting generative AI applications, Amazon is making strides. Furthermore, Amazon introduced CodeWhisperer, a platform generating code for developers, and HealthScribe, a feature transcribing patient-physician dialogues.

Amazon, with a 14% year-over-year revenue uptick hitting $170 billion in the last quarter, exceeded analyst projections by nearly $4 billion. The company witnessed a whopping 904% surge in free cash flow over the past year, underscoring its financial robustness.

AMZN EPS Estimates for 2 Fiscal Years Ahead Chart

Data by YCharts

Amazon’s AI potential shines over the long haul, with ample cash reserves for continued business investments. Projections peg the retail giant’s earnings edging toward $7 per share over the impending two fiscal years. Akin to AMD’s estimation, multiplying this figure by Amazon’s forward P/E of 42 yields a stock price of $294—a potential 68% hike by fiscal 2026. With its commanding AI presence, Amazon’s stock is a gem not to be overlooked in the current market.

Where to invest $1,000 right now

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They’ve just spilled the beans on the 10 best stocks for investors to seize now—with Advanced Micro Devices making the cut. But peek closely; there are 9 other stocks that may have slipped under your radar.

See the 10 stocks

*Stock Advisor returns as of February 26, 2024

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, hobnobs with The Motley Fool’s board. John Mackey, former Whole Foods Market CEO under the Amazon umbrella, also frequents The Motley Fool’s board. Dani Cook takes no stance on the stocks discussed. The Motley Fool stands by Advanced Micro Devices, Amazon, Meta Platforms, Microsoft, and Nvidia, lauding these as investment-worthy. Besides, The Motley Fool waxes lyrical on certain options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. Rest assured, The Motley Fool plays fair with its disclosure policy.

The insights and ideologies penned here are those of the author, distinct from Nasdaq, Inc.’s viewpoints.

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