The artificial intelligence (AI) market seduced Wall Street in 2023, with excitement surrounding the generative technology leading to a 50% surge in the Nasdaq-100 technology sector over the past year. The AI market is predicted to grow at a compound annual rate of 37% until 2030, reaching close to $2 trillion in expenditure.
Chipmaker Nvidia (NASDAQ: NVDA) has grabbed much of the attention in the AI realm, with its GPUs becoming the staple for developers globally. Despite a remarkable 220% surge in shares since last May, Nvidia lags only behind Microsoft and Apple in market cap.
However, the potential for greater gains in the future might lie in companies at earlier stages of AI exploration. So, rather than focusing on Nvidia, investors may want to look at these two AI stocks instead.
1. Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ: AMD) has seen its stock rise by 72% over the last year, benefiting from Nvidia’s success in AI and its own growing presence in the market. Despite being frequently compared to Nvidia, AMD is at a different developmental stage. This is evident in Nvidia’s market cap of $2.3 trillion compared to AMD’s $250 billion. Despite the difference, AMD holds the second-largest market share in GPUs, indicating significant AI potential.
AMD recently reported its Q1 2024 earnings, where revenue climbed 2% year over year, surpassing analysts’ expectations by $20 million. The company’s AI-focused data center segment saw an 80% revenue increase year over year, driven by heightened sales of its MI300X AI GPUs.
Furthermore, with a lower price-to-sales (P/S) ratio compared to Nvidia, AMD’s stock may offer better value to investors. Beyond AI prospects, AMD presents a compelling investment opportunity.
2. Alphabet (Google)
Alphabet’s stocks (NASDAQ: GOOG, GOOGL) have surged by 7% following its Q1 2024 earnings release on April 25. The company exceeded expectations across several fronts, showcasing the benefits of its significant investment in AI.
While chipmakers like Nvidia and AMD are enticing for AI investments due to hardware development, investing in firms creating software for broad AI integration could be equally rewarding. Alphabet shines in this regard.
Alphabet saw a 15% revenue increase year over year in Q1 2024, outperforming Wall Street estimates by nearly $2 billion. AI innovations are amplifying various segments of Alphabet’s business, notably its AI-powered ads, which are enhancing its advertising arm. Google Cloud, the company’s cloud computing platform, reported a 28% sales growth year over year with a massive 371% rise in operating income.
Like AMD, Alphabet displays a significantly lower P/S ratio than Nvidia, indicating superior value in its stock. With robust business fundamentals and substantial free cash flow, Alphabet stands to capitalize on AI trends for years to come.
Considering an Investment in Advanced Micro Devices?
Before diving into Advanced Micro Devices stock, take note:
The Motley Fool Stock Advisor team identified what they believe are the 10 best stocks for outstanding returns, with Advanced Micro Devices not making the cut. The stocks highlighted could yield substantial profits in the years ahead.
Reflecting on Nvidia’s inclusion on this list in April 2005, an investment of $1,000 at the recommendation time would have grown to an astonishing $543,758! Stock Advisor’s guidance has significantly outperformed the S&P 500 since 2002.
For potential investors seeking opportunities, exploring AMD may be a wise move. The future of AI holds immense promise, and AMD could be a lucrative path to ride the AI wave.
