The demand for artificial intelligence (AI) is growing rapidly, which is not surprising as this technology is expected to contribute significantly to the global economy in the long term. According to PwC, AI could contribute as much as $15.7 trillion to the global economy by 2030, driven by a rise in labor productivity and a jump in consumer use of this technology.
Not surprisingly, AI spending is expected to rise from an estimated $135 billion last year to a whopping $827 billion by 2030. As a result, now would be a good time to invest in top companies that can benefit from the growing adoption of this market and are likely to deliver solid returns for investors in the long term.
Advanced micro devices (NASDAQ: AMD) And Palantir Technologies (NYSE:PLTR) are two companies that can help investors capitalize on two fast-growing niches of the AI ​​market. Let’s take a look at the reasons why these two companies could prove to be the best AI choices in the long run.
1. Advanced micro devices
AMD may have fallen behind Nvidia in the race to develop AI chips, but it wouldn’t be a good idea to discount its prospects in this lucrative market. After all, the AI ​​chip market is currently in the early stages of growth, generating an estimated $52 billion in revenue last year. However, by 2032, AI chip revenues are expected to rise to a staggering $1.11 trillion.
AMD only needs to capture a small portion of this huge market to boost its long-term growth. Nvidia reportedly controlled 94% of the AI ​​server chip market last year. The company’s data center revenue reached a whopping $47.5 billion in fiscal 2024 (which coincided with most of the 2023 calendar year). In contrast, AMD’s data center revenue was $6.5 billion in 2023.
However, in the first quarter of 2024, AMD’s data center revenue rose an impressive 80% year over year to $2.3 billion as demand for its AI graphics cards increased. The company expects to sell AI chips worth at least $4 billion by 2024, and it’s worth noting that AMD has consistently increased its forecast for AI chip sales in recent quarters.
AMD’s 2024 revenue is expected to reach $25.5 billion, up 13% from last year. The company’s current estimate for AI chip revenues for this year suggests that this technology could contribute just over 15% to revenues in 2024. However, analysts predict stronger revenue growth from AMD in the future.
AMD revenue estimates for current fiscal year data according to YCharts.
AI will likely play a key role in this acceleration. That’s because AMD wants to make a dent in Nvidia’s dominant position in the field of AI chips. AMD recently unveiled its new AI chip known as the MI325X. The chipmaker claims this chip is 30% faster than Nvidia’s H200 processor, the successor to the company’s popular H100 chip.
AMD says this new chip will be available to customers in the fourth quarter of 2024. More importantly, the company is doubling the pace of AI chip development and plans to launch a new AI chip every year.
Such steps could help AMD enter the AI ​​chip market and increase its market share. Vijay Rakesh of Mizuho Securities believes that Nvidia’s market share in AI chips could fall to 75% by 2025 and 2026. With AMD pushing the boundaries in product development and Nvidia finding it difficult to produce enough chips to meet its customers’ demand, there’s a good chance AMD could play a major role in the AI ​​chip market in the long run , even if it plays second fiddle to Nvidia.
As such, AMD could become a top player in AI semiconductors in the long term. Therefore, investors would do well to buy its stock before it steps on the gas, after modest gains of just 13% in 2024 to date.
2. Palantir Technologies
AMD can help investors capitalize on the growing need for AI hardware. Palantir Technologies, on the other hand, appears to be a solid player in the growing need for AI software. S&P Global Market Intelligence estimates that the generative AI software market could be worth as much as $52 billion by 2028, with an annual growth rate of 58% through the end of the forecast period.
Palantir has begun to capitalize on this tremendous growth opportunity. In the first quarter of 2024, Palantir reported that its remaining performance obligations (RPO) increased to $1.3 billion, a significant increase of 38% from the prior year quarter. A company’s RPO refers to the total value of future contracts it must fulfill.
So the fact that this metric rose faster than Palantir’s 21% revenue growth during the quarter means the company is setting itself up for robust long-term growth by building a healthy revenue pipeline. The rapidly growing adoption of Palantir’s AI software platform, especially by commercial customers, is a key reason why the company is witnessing impressive growth in its RPO.
Palantir has made a name for itself as a provider of software platforms for US federal agencies, but the company is now also focusing on business customers to leverage the potential of AI software. This strategy is paying off, as Palantir’s commercial customer base increased by a whopping 53% year-over-year in the first quarter of 2024. Commercial revenues rose 27% year over year, surpassing Palantir’s total revenue growth.
Meanwhile, the company is also winning AI-related government contracts, including recently a contract from the Pentagon. All of this suggests that Palantir is pulling the right strings to capitalize on the lucrative potential of AI software.
Furthermore, Palantir’s revenues are expected to grow 85% annually over the next five years. The stock market could reward this impressive long-term growth with more upside potential, making Palantir a top AI stock to buy as it could add to the healthy 35% gains it has already posted through 2024.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
These Are My Best Artificial Intelligence (AI) Stocks to Buy Now was originally published by The Motley Fool
