Investment Opportunities in AI: Top Stocks to Consider
The technology sector has produced some of the biggest winners in the Stock market in recent decades. With artificial intelligence (AI) continuing to evolve, investors who choose the right stocks may see significant returns.
If you’re looking to invest $3,000, consider distributing your funds evenly across these well-positioned companies. This strategy will cover both the hardware and software aspects of the AI market.
1. Nvidia
Nvidia’s graphics processing units (GPUs) are crucial for training AI models to process human language. Currently, Nvidia (NASDAQ: NVDA) is recognized as the leader in this technology, and growing demand makes its recent stock dip a buying opportunity.
Last year, Nvidia’s data center revenue more than doubled, now accounting for nearly 90% of its total business. Analysts predict that the company’s new Blackwell computing system could drive an estimated 54% revenue increase for the current fiscal year.
The Blackwell architecture offers significant enhancements over its predecessor, Hopper, making it essential as AI models from companies like OpenAI continue to become more advanced. These models will require up to 100 times more computational power for future tasks, positioning Nvidia to benefit significantly.
However, Nvidia faces competition, as some customers, such as OpenAI, are developing their own AI chips. This trend contributes to Nvidia’s year-to-date stock decline, yet concerns may be overstated.
Nvidia’s GPUs are versatile, used across multiple industries. For instance, the Mayo Clinic is utilizing Nvidia’s DGX computing platform for a digital pathology lab aimed at expediting diagnoses and treatments. The company’s robust profit margins—$73 billion in net income from $130 billion in revenue last year—further demonstrate its financial strength.
Analysts forecast annual earnings growth of 35% for Nvidia, making its current stock valuation attractive at 26 times this year’s earnings estimate.
2. Microsoft
As more companies embrace cloud solutions and AI services to boost productivity, Microsoft (NASDAQ: MSFT) stands out as a leading provider. Operating on over 1 billion devices globally, Microsoft’s latest results indicate substantial growth momentum.
Last quarter, Microsoft’s revenue rose 15% year-over-year, with earnings increasing by 19%, thanks to strong performance across all segments. Notably, Microsoft Azure, the company’s cloud service, experienced an impressive 35% year-over-year growth.
AI services have become integral to Azure’s success, contributing nearly half of its growth in the last quarter, more than double the revenue from AI one year prior. Companies like Abercrombie & Fitch, Coca-Cola, and ServiceNow have all expanded their partnerships with Azure.
Despite a recent sell-off in Microsoft’s stock due to earnings falling short of premium valuation expectations, the company is well-positioned to meet rising AI demand in the long run. Microsoft has substantial resources to invest in technology, sharpening its competitive edge.
Furthermore, the use of Microsoft’s Copilot AI assistant has surged, with the number of enterprise customers tripling since last year. The average size of new Copilot deals continues to expand.
Microsoft is a solid choice for investors, recently generating $96 billion in net income on $270 billion in revenue. Analysts project earnings growth of 12% annually, further supporting potential shareholder returns.
Conclusion
For investors seeking opportunities within the AI sector, both Nvidia and Microsoft represent compelling options. Each company offers unique strengths and growth potential aligned with the ongoing transformation of technology through AI.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
