Artificial intelligence (AI) has proven to be a huge catalyst for tech stocks over the past year or more, and that’s not surprising as companies and governments around the world open their wallets to adopt this technology, which is expected to help drive growth, to speed up. great importance for the world economy.
PwC expects AI to contribute as much as $15.7 trillion to the global economy by 2030. As a result, global spending on AI-related hardware, software and services is expected to reach as much as $900 billion by 2026. The good news for investors is that there are many ways they can benefit from the growing demand for AI.
Broadcom (NASDAQ:AVGO) And Oracle (NYSE: ORCL) are two such companies that are already benefiting from the proliferation of AI. Shares of both companies have risen impressively lately following their latest quarterly reports, and they seem all set to go parabolic. A parabolic move refers to a steep spike in a company’s stock price over a short period of time, similar to the right side of a parabolic curve.
Whether or not that happens, let’s look at some solid reasons why these two tech stocks would be good investments right now.
1. Broadcom
Semiconductors are in high demand thanks to the crucial role they play in training and deploying AI models, which is exactly why Broadcom just raised its full-year growth outlook. The company announced second-quarter fiscal 2024 results (for the three months ended May 5) on June 12 and raised its revenue guidance from AI chip sales to $11 billion for the full year, up from $10 billion.
Broadcom also raised its full-year revenue guidance to $51 billion from a previous estimate of $50 billion. The company attributes the improved outlook to robust demand for its networking solutions and custom AI chips deployed in data centers. As a result, the company’s AI revenues increased by a whopping 280% year-over-year in the previous quarter.
Large-scale cloud computing providers are increasing their investments in data centers to make them faster so they can tackle AI workloads. These investments will help Broadcom generate more revenue, with its hyperscale cloud customers choosing to deploy Broadcom’s next-generation custom AI accelerators.
The total custom chip market was estimated to be worth $30 billion last year, with a third of those chips about to be deployed in data centers. It is predicted that custom chips deployed in data centers could double revenue to $20 billion by 2025. Broadcom’s tremendous growth indicates that it is making the most of these opportunities.
Additionally, the number of network switches Broadcom sold last quarter doubled year-over-year thanks to the need for high-speed connectivity in data centers to handle AI workloads. With the market for AI-focused data center switches expected to grow 38% annually through 2029 and generate $19 billion in annual revenue by the end of the forecast period, Broadcom has some solid catalysts in place thanks to the growing adoption of AI.
This explains why analysts have increased their expectations for Broadcom’s revenue growth.
The market could reward Broadcom’s AI-driven growth with more upside potential. The stock made a significant jump after its latest quarterly report, and could maintain that momentum going forward.
2. Oracle
Oracle stock made an impressive jump after reporting its fourth-quarter fiscal 2024 results (for the three months ended May 31) on June 11. Investors cheered the huge jump in the company’s revenue pipeline, which was driven by growing demand for its generative AI. cloud infrastructure.
More specifically, Oracle’s remaining performance obligations (RPO) rose a whopping 44% year over year to $98 billion. That was faster than the 29% increase in that metric in the fiscal third quarter and also surpassed Oracle’s 4% revenue growth during the quarter to $14.3 billion.
Because RPO refers to the total value of a company’s future contracts, the healthy growth in this metric points toward better growth prospects for Oracle. This is evident from the graph:
Oracle’s revenue rose 6% to $53 billion in fiscal 2024. The graph shows that the economy will grow faster in the current fiscal and beyond. However, it should come as no surprise that Oracle is exceeding analyst expectations as the company makes solid progress in the cloud AI market.
CEO Safra Catz’s comments on the latest earnings conference call suggest as much:
First, as you saw, OpenAI has chosen Oracle to run deep learning and AI workloads on Oracle Cloud Infrastructure. Like many others, OpenAI chose OCI because it is the fastest and most cost-effective AI infrastructure in the world. In total, we signed more than thirty AI contracts worth more than $12 billion this quarter and almost $17 billion this year.
More importantly, Catz expects that “continued strong cloud demand will further increase Oracle sales and RPO and result in double-digit revenue growth this fiscal year,” driven by the company’s efforts to add more cloud capacity to grow its cloud infrastructure business. growing faster every quarter.
With demand for cloud AI services expected to grow nearly 31% annually through 2030, Oracle appears to be at the beginning of what could be a huge growth curve. That’s why investors should consider buying the shares, which trade at 22 times forward earnings, a discount to the Nasdaq-100 index’s forward earnings of 28 (using the index as a benchmark for technology stocks ).
This AI stock is up 31% so far in 2024, and much of that gain came after the results were announced. And as the company’s massive cloud AI opportunity and revenue pipeline indicate, it could maintain and even accelerate the newfound pace.
Should You Invest $1,000 in Broadcom Now?
Consider the following before buying shares in Broadcom:
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Oracle. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
2 Artificial Intelligence (AI) Stocks That Could Go Parabolic was originally published by The Motley Fool
