The artificial intelligence (AI) market has expanded rapidly over the past few years as more companies realize the value of processing large amounts of data to make smarter decisions. Advertisers leverage AI algorithms to create better targeted ads, self-driving cars use AI to spot and avoid obstacles, and large companies use AI tools to complete tasks. We automated and streamlined operations.
The growing popularity of generative AI platforms that allow users to not only analyze existing data but also create new content, such as OpenAI’s ChatGPT and DALL-E, further reinforces the idea that there is plenty of room for expansion in the AI market. I did. According to Fortune Business Insights, the generative AI market is likely to grow at a staggering 47.5% compound annual growth rate (CAGR) from 2023 to 2030, so the right AI growth stocks will continue to reap big multibagger gains. may be produced.
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AI companies often fall into two categories: chip makers, who make chips to handle complex AI tasks, and software makers, who develop AI applications to collect and process all that data. Masu. So today I’m sharing my top chip manufacturing and software efforts in the burgeoning field of AI.
Top two chipmakers: Nvidia and Micron
Nvidia (NVDA 3.12%) is the world’s most important AI chip manufacturer. The company’s high-end data center graphics processing units (GPUs) are powered by OpenAI, microsoft (MSFT -0.15%), Amazonand alphabetGoogle.
Nvidia’s GPUs process a wide range of numbers simultaneously. Therefore, it is better suited for processing AI tasks than a traditional CPU, which processes one piece of data at a time. Rapid growth in the AI market fueled a buying frenzy for Nvidia’s top-of-the-line data center GPUs, driving revenue up 126% and adjusted EPS soaring 288% in fiscal 2024 (ending January of this year). Analysts expect the company’s sales and adjusted EPS to further increase by 81% and 90%, respectively, in fiscal 2025, but the company’s stock price remains at 38 times the expected P/E ratio due to rapid business growth. Looks like a reasonable value.
micron (MU 0.33%) is one of the world’s largest memory chip manufacturers. The company produces chips that are denser and more power efficient than its leading competitors, and its technological advantages make it ideal for data centers that want to handle AI tasks more efficiently. But in fiscal 2023, which ended last August, Micron faced a severe economic slowdown and saw its revenue decline 49%, posting a full-year net loss.
These declines were driven by the post-pandemic PC market slowdown, the end of the 5G upgrade cycle, macro headwinds to industrial markets, and regulatory challenges in China. But analysts expect revenue to rise 35% and losses to narrow in 2024 as core markets stabilize and more data centers upgrade their AI capabilities. So, now that the cyclical recession is over, now might be a good time to buy Micron, which looks pretty affordable at 6 times this year’s sales.
Top two software manufacturers: Microsoft and Snowflake
Microsoft is the top AI software maker for two simple reasons. First, the company is a major investor in OpenAI, the world’s hottest AI startup. Second, we integrate OpenAI’s generative AI tools directly into search engines, productivity software, and cloud-based services. These moves have allowed Microsoft to grow its cloud infrastructure platform, Azure, at a faster pace than its two biggest competitors, Amazon Web Services (AWS) and Google Cloud Platform (GCP). It also gave it a chance to break with Google’s search engine dominance while widening its moat to other enterprise software makers.
Analysts expect Microsoft’s revenue and adjusted EPS to grow 14% and 15%, respectively, in fiscal 2025, which begins in July of this year. At a forward P/E of 32x, it’s certainly not cheap, but its myriad strengths may justify its premium valuation.
A final look behind the scenes, snowflake (snow 0.40%) helps many large companies organize their data. Snowflake’s cloud-based data warehouse is used to aggregate data from various computing platforms and clean it all up so that it can be easily read by third-party data visualization and analysis applications.
Snowflake’s silo-breaking approach has made it popular with large and fragmented organizations, and its recently integrated generative AI tools should make processing all your data even easier. The company aims to generate $10 billion in product revenue by fiscal year 2029 (ending in January 2029), which could grow at a CAGR of 30% from fiscal year 2024 to fiscal year 2029. It means that.
Snowflake isn’t yet profitable and the stock looks a bit expensive at 15x this year’s sales, but its market is likely to continue to grow as organizations consume more data for AI applications. be.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Leo Sun has a position on his Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, and Snowflake. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
