Buying shares of leading companies benefiting from key technological trends is a great way to find long-term winners in the stock market. Here are two outstanding companies that are supplying the chips to enable the adoption of artificial intelligence (AI).
1. Nvidia
If you’re looking for stocks with the intent of holding for the long term but also offering attractive near-term upside, Nvidia (NASDAQ: NVDA) is a no-brainer.
It can be difficult to pull the trigger on a stock that continues to rocket to new highs, but Nvidia’s opportunities to sell more of its industry-leading graphics processing units (GPUs) to data centers might still be underestimated based on a new opportunity emerging for the company.
Bank of America analyst Vivek Arya recently issued a bullish note on Nvidia’s prospects following the company’s presentation at the Computex expo in Taiwan. The analyst notes that Nvidia is now targeting an opportunity of millions of GPU clusters for large data center operators by 2026.
Another example of Nvidia’s expanding addressable market is the growth in its non-GPU business. Management said on the most recent earnings call in May that networking revenue should return to sequential growth in the fiscal 2025 second quarter. Recently, it started shipping its new Spectrum-X Ethernet networking solution that is designed to handle the massive data streams from AI workloads.
Nvidia executives see Spectrum-X growing into a multibillion-dollar product line within one year. This opportunity, along with the robust demand for its AI chips (e.g., GPUs) makes it a no-brainer stock to hold right now.
Nvidia’s fiscal 2025 Q1 revenue more than tripled over the year-ago quarter, and the higher margins from sales of advanced data center chips drove an even bigger jump in earnings per share (EPS). The Wall Street consensus has Nvidia’s EPS growing at a rate of 37% on an annualized basis over the next several years, which should support new highs for the shares.
2. Advanced Micro Devices
Nvidia’s top GPU rival Advanced Micro Devices (NASDAQ: AMD) is another promising tech stock worth buying today. Nvidia can’t provide enough AI chips to fulfill demand, and that’s an opportunity for AMD. There are a few catalysts that could send the stock to new highs.
The first catalyst is a recovery in AMD’s gaming and embedded chip segments. AMD’s total revenue grew just 2% year over year in the first quarter. Growth was weighed down by weak demand for Radeon gaming GPUs, in addition to weak sales of embedded processors used for edge computing applications.
These markets are in a cyclical trough but will recover as they have in the past. In fact, management expects the embedded market to begin a recovery later this year.
The second catalyst is accelerating growth in the data center segment. Data center revenue jumped 80% year over year last quarter, driven by demand for its new Instinct MI300X GPUs. AMD also reported strong growth for its central processing units (CPUs) used in servers, where it continues to gain market share against Intel.
AMD is looking to accelerate its data center growth this year, and it’s off to a good start. As the other segments recover, investors should expect the stock to hit new highs.
Wall Street analysts expect the company’s EPS to reach $7.31 in 2026. That’s roughly double this year’s estimate and could also double the stock price, assuming the stock is still trading at the same valuation.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $750,197!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of June 3, 2024
Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Ballard has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Bank of America, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
2 Stocks That Can Help You Get Richer in 2024 was originally published by The Motley Fool
Signup bonus from
