The fervor surrounding the artificial intelligence (AI) market has surged in the wake of OpenAI’s ChatGPT debut, propelling companies into a frenzy to claim their stake in a $200 billion domain. The AI sector is evolving at breakneck speed, with Grand View Research data forecasting a 37% compound annual growth rate (CAGR) en route to a staggering $2 trillion valuation by 2030. Consequently, a surge of investors has gravitated towards this futuristic realm. The soaring interest in AI catalyzed a remarkable 67% uptick in the Nasdaq-100 Technology Sector index last year, generating a bevvy of new millionaires along the way.
The AI landscape brims with promise, offering transformative potential across cloud computing, e-commerce, consumer goods, autonomous transportation, gaming, and more. This vibrant ecosystem beckons investors seeking to reap substantial rewards over the long haul.
The Dominant Force: Nvidia
The presence of Nvidia in this elite cohort should come as no shock, having seized a stranglehold over AI chips in recent times. In the year gone by, Nvidia clinched an estimated 90% market share in AI graphics processing units (GPUs), the indispensable engines for training and deploying AI models.
Nvidia’s long-standing supremacy in GPUs afforded it a head start in the AI domain, propelling its stock to a meteoric 214% surge over the past year, alongside soaring earnings.
Illustrating this momentum, the company witnessed a staggering 265% year-over-year revenue surge to $22 billion in its most recent quarter – the fourth quarter of fiscal 2024, culminating in January. Operating income skyrocketed by an astounding 983% to nearly $14 billion, primarily propelled by a fourfold uptick in data center revenue, emblematic of spiking AI GPU sales.
With the vast expanse of AI promising escalating chip demand, Nvidia appears firmly poised to extract significant gains from this burgeoning terrain.
The Tech Titan: Microsoft
Microsoft, having blossomed into a technological juggernaut, dethroned Apple earlier this year as the world’s most valuable company by market capitalization. The industry stalwart houses a constellation of iconic brands, including Windows, Office, Azure, Xbox, and LinkedIn.
The spotlight, however, pivoted towards Microsoft’s expanding footprint in AI this year. The company displayed foresight by funneling billions into OpenAI back in 2019, situating itself as an early AI aficionado. This savvy partnership catapulted Microsoft’s stock by over 45% year over year, powered by access to cutting-edge AI models and technologies.
Microsoft’s elevated price-to-earnings (P/E) ratio of 37 may not spell bargain territory, but its commanding stance in AI and a robust $67 billion in free cash flow endorse its ability to sustain investments and fortify its leadership. With a venerable array of AI tools interwoven into its product suite, Microsoft appears poised for a continued trajectory of wealth creation for discerning long-term investors.
The Rising Star: Advanced Micro Devices
Stepping into the limelight amidst the AI fervor is Advanced Micro Devices, a potent player in the chip realm. While Nvidia sprinted ahead of the pack in AI, AMD is charting its own course by delving into the sector and cultivating lucrative alliances that bode well for its AI aspirations.
AMD unveiled its MI300X AI GPU in December, a direct challenger to Nvidia’s offerings, which has already garnered illustrious clients such as Microsoft and Meta Platforms – underscoring AMD’s ascent in the AI universe.
With a strategic focus on AI-powered PCs, in alignment with IDC’s prognosis of a surge in PC shipments fueled by AI integration, and Canalys’ forecast that 60% of all PCs shipped by 2027 will be AI-enabled, AMD stands perched at the cusp of significant growth within the AI vista.
The predictive trajectory bodes well for AMD, with earnings slated to surpass $7 per share in the next two fiscal years. Multiplying this figure by the forward P/E of 47 unveils a price trajectory to $329. In light of these figures and the burgeoning prospects in AI, AMD emerges as a tantalizing prospect capable of ushering investors into the millionaires’ club.
Should you invest $1,000 in Nvidia right now?
Before leaping into Nvidia stock, contemplate the following: