With the exponential growth in interest in artificial intelligence (AI) following the introduction of OpenAI’s ChatGPT in November 2022, the AI market is projected to expand at a compound annual growth rate of 37% through 2030, exceeding $1 trillion (Grand View Research).
Companies like Nvidia (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT) have strategically positioned themselves to capitalize on this growth. As 2023 draws to a close, both companies are poised to make substantial gains from the AI market in the coming year.
Nvidia: The AI Hardware Pioneer
Nvidia has been at the forefront of AI hardware development. As a leading chipmaker, the company produces the essential hardware required to train and operate AI models, particularly graphics processing units (GPUs). This year, Nvidia’s stock soared by 237%, and in the third quarter of fiscal 2024, it recorded a staggering 206% year-over-year revenue growth and a 1,600% surge in operating income, primarily driven by a phenomenal 279% uptick in its data center segment fueled by AI GPU sales.
Nvidia’s dominance in the GPU market has resulted in a commanding 90% market share in AI chips since the beginning of 2023, outstripping competitors such as Advanced Micro Devices and Intel. While several chipmakers are set to introduce new AI GPUs in 2024, Nvidia’s stronghold and projected growth outlook remain formidable in the rapidly expanding AI market.
Microsoft: The AI Software Innovator
Microsoft, an early investor in AI, demonstrated its commitment by investing $1 billion in OpenAI in 2019, subsequently increasing its stake to 49%. Leveraging this partnership, Microsoft gained exclusive access to advanced AI technology, integrating AI features across its product portfolio, including Azure cloud platform, Bing search engine, and Office productivity services. The company’s introduction of AI tools and upgrades is a testament to its aggressive pursuit of AI-driven innovation.
In fiscal 2024’s first quarter, Microsoft reported a noteworthy 13% year-over-year revenue growth, surpassing analysts’ expectations by $2 billion and generating over $63 billion in free cash flow. With ample resources to further invest in research and development, Microsoft is well-positioned to expand its AI offerings and drive significant revenue growth in the forthcoming year.
Evaluating the Better AI Investment for 2024
Both Nvidia and Microsoft hold significant positions in the AI landscape, with Nvidia excelling in hardware and Microsoft dominating in AI software tools. However, projecting the future growth potential based on earnings per share and forward price-to-earnings ratios indicates that Nvidia’s stock could witness a remarkable 95% increase over the next two fiscal years, contrasting with Microsoft’s potential 32% increase. Thus, Nvidia emerges as the more promising AI stock for 2024 and beyond.
Data by YCharts
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The
Motley Fool Stock Advisor analyst team just identified
what they believe are the
10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow
blueprint for success, including guidance on building a portfolio,
regular updates from analysts, and two new stock picks each month.
The Stock Advisor service has more than tripled the return of
S&P 500 since 2002*.
*Stock Advisor returns as of December 18, 2023
Dani Cook has no position in any of the stocks mentioned. The Motley Fool
has positions in and recommends Advanced Micro Devices, Microsoft,
and Nvidia. The Motley Fool recommends Intel and recommends the
following options: long January 2023 $57.50 calls on Intel, long
January 2025 $45 calls on Intel, and short February 2024 $47 calls on
Intel. The Motley Fool has a
disclosure policy