After years of talking about its revolutionary potential, you may be tired of hearing about artificial intelligence (AI). However, it is likely to be far-reaching, capable of changing and enhancing a wide variety of industries, and its participants are likely to reap significant benefits in the long run.
The launch of OpenAI’s ChatGPT last November stunned the tech world with its ability to generate human-like interactions and kicked off a race for countless companies to pivot to AI development.As a result, market leaders such as NVIDIA (NVDA 1.11%) and C3.ai Since January 1st, we’ve seen stocks soar 80% and 100% respectively, driven almost entirely by the AI boom.
Various forms of AI have been utilized and developed over the years, but like industry stocks, the technology still has a long way to go. Here’s why now is a great time to consider investing in artificial intelligence stocks.
Artificial Intelligence Can Enhance Almost Any Industry
According to Grand View Research, the AI market will be valued at approximately $137 billion in 2022 and is projected to expand at a compound annual growth rate of 37.3% through 2030. Automotive, e-commerce, healthcare, and manufacturing are increasing their use of technology.
big companies such as Amazon, microsoftand Tesla are all implementing AI in their daily work. For example, Amazon uses AI in its e-commerce business to recommend products to consumers, track shopping trends, and run intelligent robots in its warehouses. Microsoft, the largest investor in OpenAI, uses software from startups like ChatGPT to power its cloud service Azure, search engine Bing, and Office productivity programs. AI, meanwhile, plays a key role in Tesla’s self-driving cars by collecting real-time data from the vehicle’s cameras.
But these aren’t really the best companies to invest in AI. Technology is virtually limitless, so choosing which AI business to invest in today is like trying to determine the most successful website in the early 2000s. Perhaps the most famous AI companies have yet to emerge. So it makes sense to invest in companies that manufacture the chips and hardware needed to run and develop AI software.
What are the best AI stocks?
Nvidia and Advanced Micro Devices (AMD -0.37%) Arguably the biggest AI company thanks to its powerful graphics processing unit (GPU) and central processing unit (CPU). These compute components are essential for running AI workloads.
In fact, Nvidia is the main supplier of GPUs to ChatGPT, and according to a TrendForce study, AI programs needed about 20,000 units in 2020. This number is projected to increase to 30,000 GPUs as ChatGPT is commercialized. The partnership saw data center revenue grow 41% in fiscal year 2022, thanks in large part to a thriving AI market, making artificial intelligence his No. 1 business at Nvidia.
Meanwhile, AMD last year acquired Xilinx, a company that makes specialized processors for the automotive, industrial and artificial intelligence markets. The acquisition has proven to be very beneficial for his AMD, with embedded segment growth in 2022 being driven almost entirely by Xilinx. The business reported revenue growth of over 1,700% to $4.6 billion.
The choice of whether to invest in Nvidia or AMD depends on which one is currently better. His staggering Nvidia share price rise this year was a little too high at 59x expected price earnings compared to AMD’s 30x. Nvidia’s recent rise means short-term growth in AI is already baked into the inventory for at least the next few years.
Additionally, AMD has a price-to-earnings ratio (PEG) ratio of 0.11 compared to Nvidia’s 0.3, indicating that AMD is currently undervalued given its potential earnings.
Artificial intelligence is likely to play a pivotal role in future technology across multiple industries, and related stocks are worth investing in now. And AMD is the premier value stock underpinning a booming sector.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no positions in any of the stocks mentioned. The Motley Fool has positions in and endorses Advanced Micro Devices, Amazon.com, Microsoft, Nvidia and Tesla. The Motley Fool recommends C3.ai. The Motley Fool’s U.S. headquarters has a disclosure policy.
