Over the past few years, many investors have flocked to artificial intelligence (AI) stocks, hoping to capitalize on the growth of generative AI platforms like OpenAI's ChatGPT. This bullish investment has buoyed many tech stocks at a time when inflation, high interest rates and other macroeconomic headwinds have battered other less resilient sectors.
But some investors may wonder if the historic AI rally will lose steam after the first half of 2024. We think investors should be a bit more selective in their AI stocks, but here are three of the most obvious bets: NVIDIA (NASDAQ: NVDA), Super Microcomputer (NASDAQ:SMCI)and Microsoft (Nasdaq: MSFT) — Still worth buying.
1. NVIDIA
Nvidia is the world's largest maker of discrete graphics processing units (GPUs) and once derived most of its revenue from the PC gaming market, but over the past two years data center GPU sales have surged to become its largest business segment.
This growth was driven entirely by the rapid expansion of the AI market, as Nvidia's high-performance GPUs are widely used to accelerate machine learning and AI tasks. OpenAI, Microsoft, alphabetGoogle — now using GPUs.
According to JPR, Nvidia currently controls 88% of the discrete GPU market, and market demand for the company's chips continues to outpace supply. As a result, analysts expect the company's revenue and adjusted earnings to grow 98% and 109%, respectively, in fiscal 2025 (ending January next year). The company's stock still appears reasonably valued at less than 50 times expected earnings, and could rise further as the AI market expands.
2. Supermicrocomputer
Super Micro Computer (also known as Supermicro) has carved out a niche for itself by producing high-performance, liquid-cooled servers for demanding tasks, so it wasn't all that surprising when Nvidia partnered with the company a few years ago, giving it access to high-performance datacenter GPUs before its larger competitors.
Nvidia's support has helped Supermicro grab a 10% share of the dedicated AI server market. Bank of America The company expects its share to grow to 17% over the next three years, with the overall market growing by 150%.
Supermicro already derives about half of its revenue from AI servers, but that percentage is set to rise as it competes with major server makers and diversifies its business with new AI servers. Advanced Micro Devices' Cheaper chips.
Analysts expect Supermicro's revenue and profits to grow 110% and 102%, respectively, in 2024. That's an impressive growth rate for a stock that trades for just 23 times forward earnings, meaning there may still be plenty of room for growth.
3. Microsoft
Microsoft has become a growth stock again over the past decade, expanding its cloud-based services and Azure, which has become the world's second-largest cloud infrastructure platform after Microsoft. Amazon The company also became OpenAI's largest investor and has since integrated the startup's generative AI tools into its Azure, Bing search engine and other cloud-based services.
This expanding AI ecosystem has helped Azure accelerate its growth and widen its lead over Google in the search and advertising markets, and it also acquired Activision Blizzard last year to bolster its Xbox gaming business and bring more gamers into its subscription-based Game Pass and Cloud Gaming ecosystems.
Microsoft's broad diversification gives it a well-rounded way to benefit from growth in the cloud, AI, and gaming markets. Analysts expect the company's revenue and adjusted earnings to grow 14% and 13%, respectively, in fiscal 2025, which ends next June. The stock may not seem cheap at 34 times forward earnings, but the company's strengths should justify that high valuation.
Should I invest $1,000 in Nvidia right now?
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Advanced Micro Devices, Alphabet, Amazon, Bank of America, Microsoft, and NVIDIA. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
3 Artificial Intelligence (AI) Stocks to Buy in June 2024 was originally published by The Motley Fool.
