Many investors have turned to artificial intelligence (AI) stocks in recent years to capitalize on the growth of generative AI platforms such as OpenAI’s ChatGPT. That bullish rush pushed many tech stocks higher — even as inflation, high interest rates and other macroeconomic headwinds battered other, less resilient sectors.
But as the first half of 2024 draws to a close, some investors may be wondering whether the historic AI rally is coming to an end. I think investors need to be a little more selective with their AI stocks, but here are three of the most obvious choices: Nvidia (NASDAQ: NVDA), Supermicrocomputer (NASDAQ: SMCI)And Microsoft (NASDAQ: MSFT) — are still worth buying.
1. Nvidia
Nvidia is the largest producer of discrete graphics processing units (GPUs) in the world. It once generated most of its revenue from the PC gaming market, but sales of data center GPUs skyrocketed over the past two years to become its largest business segment.
The growth was entirely driven by the rapid expansion of the AI ​​market, as Nvidia’s high-end GPUs are widely used to accelerate machine learning and AI tasks. All the top Generative AI companies in the world, including OpenAI, Microsoft and AlphabetGoogle’s – is currently using its GPUs.
According to JPR, Nvidia now controls 88% of the discrete GPU market and market demand for its chips continues to exceed supply. As a result, analysts expect revenue and adjusted earnings to grow 98% and 109%, respectively, in fiscal year 2025 (which ends in January). The stock still seems fairly valued at less than 50 times forward earnings and could go even higher as the AI ​​market grows.
2. Super microcomputer
Super Micro Computer, also known as Supermicro, has carved out its own niche by producing powerful, liquid-cooled servers for demanding tasks. That’s why it wasn’t too surprising when Nvidia partnered with the company a few years ago and gave it access to its high-end data center GPUs before many of its larger competitors.
Thanks to Nvidia’s support, Supermicro was able to claim a 10% share of the dedicated AI server market. bank of America expects the share to grow to 17% over the next three years, while the broader market grows 150%.
Supermicro already generates about half of its revenue from AI servers, but that percentage should continue to rise as it gains ground against larger server makers and diversifies its business with new AI servers powered by Advanced micro devices‘cheaper chips.
For 2024, analysts expect Supermicro’s revenue and earnings to grow 110% and 102%, respectively. Those are incredible growth rates for a stock trading at just 23 times forward earnings, so it may still have plenty of room to run.
3.Microsoft-
Microsoft has become a growth stock again over the past decade as it expanded its cloud-based services and Azure, which became the world’s second-largest cloud infrastructure platform after 1999. Amazon Web Services (AWS). It also became the largest investor in OpenAI and subsequently integrated the startup’s generative AI tools into Azure, the Bing search engine and other cloud-based services.
The expansion of that AI ecosystem gave Azure a growth boost and widened its moat over Google in the search and advertising markets. Last year, it also acquired Activision Blizzard to strengthen its Xbox gaming business and capture more gamers in its subscription-based Game Pass and Cloud Gaming ecosystems.
Microsoft’s broader diversification makes it a balanced way to capitalize on the growth of the cloud, AI and gaming markets. Analysts expect the company’s revenue and adjusted earnings to grow 14% and 13%, respectively, in fiscal year 2025 (which ends in June). The stock may not seem cheap at 34 times forward earnings, but its strengths should justify the higher valuation.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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 has positions in Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Bank of America, Microsoft, and Nvidia. The Motley Fool recommends the following options: 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
