The artificial intelligence (AI) market has expanded rapidly over the past few years as more companies have recognized the value of processing large amounts of data to make smarter decisions. Advertisers used AI algorithms to create better targeted ads, autonomous vehicles used AI to spot and avoid obstacles, and large organizations used AI tools to automate tasks and streamline their operations.
The growing popularity of generative AI platforms such as OpenAI’s ChatGPT and DALL-E, which allow users to create new content instead of just analyzing existing data, further reinforced the idea that the AI market has plenty of room to expand. According to Fortune Business Insights, the generative artificial intelligence market could grow at a staggering compound annual growth rate (CAGR) of 47.5% from 2023 to 2030 — so the right AI growth stocks could still generate big gains from more bags.
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AI companies often fall into two categories: chip makers that make the chips to handle these complex AI tasks, and software makers that develop AI applications to collect and process all that data. So today I’m going to share my best results in making chips and software for the growing AI sectors.
The two best chip manufacturers: Nvidia and Micron
Nvidia (NASDAQ: NVDA) is the most important manufacturer of AI chips in the world. Its high-end data center graphics processing units (GPUs) are used to process complex AI tasks for most of the world’s leading AI companies, including OpenAI, Microsoft (NASDAQ: MSFT), Amazonand Alphabetis Google.
Nvidia GPUs process a large range of numbers simultaneously. This makes them better suited to handling artificial intelligence tasks than traditional CPUs, which still process one piece of data at a time. The rapid growth of the artificial intelligence market has sparked a buying frenzy of Nvidia’s high-end data center GPUs, and its revenue rose 126% in fiscal 2024 (which ended this January) while adjusted EPS jumped 288%. Analysts expect its revenue and adjusted EPS to jump an additional 81% and 90%, respectively, in fiscal 2025 — but its stock still looks reasonably valued at 38 times forward earnings in the context of tremendous business growth.
Micron (NASDAQ: MU ) is one of the world’s largest manufacturers of memory chips. It produces denser and more energy-efficient chips than its larger rivals, and this technological advantage makes it excellent for data centers that want to process artificial intelligence tasks more efficiently. But in fiscal 2023 (which ended last August), Micron’s revenue fell 49% and posted a full-year net loss as it grappled with a severe cyclical slowdown.
These declines were driven by the post-pandemic slowdown in the PC market, the end of the 5G upgrade cycle, macro headwinds for the industrial market and regulatory challenges in China. But for fiscal 2024, analysts expect revenue to grow 35% on a smaller loss as its core markets stabilize and more data centers upgrade their AI capabilities. So it could be a good time to buy Micron — which looks pretty affordable at six times this year’s sales — as its cyclical decline ends.
Two of the best software manufacturers: Microsoft and Snowflake
Microsoft is the leading producer of AI software for two simple reasons. First, it is a major investor in OpenAI, the most popular AI start-up in the world. Second, it integrates OpenAI’s generative AI tools directly into its search engine, productivity software, and cloud-based services. These moves have allowed Microsoft to develop its Azure cloud infrastructure platform at a faster pace than its two biggest competitors, Amazon Web Services (AWS) and Google Cloud Platform (GCP). It also gave it a chance to break Google’s dominance of the search engine while widening its moat against other enterprise software makers.
Analysts expect Microsoft’s revenue and adjusted EPS to grow 14% and 15%, respectively, in fiscal 2025 (which starts this July). It’s certainly not cheap at 32 times earnings, but its myriad upsides could justify that premium valuation.
In the end, if we look behind the scenes, we will see that Snowflake (NYSE: SNOW) helps many large companies organize their data. Snowflake’s cloud-based data warehouses are used to aggregate data from a wide range of computing platforms and then clean it all so that it can be easily read by third-party data visualization and analytics applications.
Snowflake’s silo-busting approach has made it a popular choice for large and fragmented organizations, and its recent integration of generative AI tools should make processing all that data even easier. It aims to generate $10 billion in product revenue by fiscal 2029 (which ends in January 2029), implying it could grow at a CAGR of 30% from fiscal 2024 to fiscal 2029.
Snowflake isn’t profitable yet, and its stock looks a bit expensive at 15 times this year’s sales, but its market could continue to expand as organizations ingest more data for their AI applications.
Should you invest $1000 in Nvidia right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, CEO of 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 Alphabet, Amazon, Microsoft, Nvidia and Snowflake. 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.
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