Artificial intelligence (AI) stocks experienced remarkable growth last year, propelling the Nasdaq, S&P 500, and Dow Jones Industrial Average to impressive double-digit gains. This surge was fueled by investors’ confidence in AI’s potential to revolutionize various sectors, including automating business functions and accelerating drug discovery. These advancements are expected to significantly boost company revenue and stock performance. Investors, eager to capitalize on this trend, invested heavily in AI stocks, which frequently yielded substantial returns in 2024. This positive momentum persisted into the new year before facing recent headwinds.
Economic concerns and tariffs imposed by President Donald Trump on imports from Canada, China, and Mexico have influenced the stock market overall, particularly impacting growth stocks like AI companies. However, the underlying narrative for AI remains strong. Companies continue to make significant investments, pouring billions of dollars into AI infrastructure and platforms. Analysts project the current $200 billion AI market to reach $1 trillion by the end of the decade. Following recent price declines, there’s now an opportunity to acquire shares of these promising companies at what could be considered attractive valuations. Let’s examine two compelling stocks that present a prime opportunity to benefit from AI’s expansion.
Nvidia
Nvidia (NVDA) initially focused on offering graphics processing units (GPUs), the essential chips for critical AI tasks like training and inference. However, the company has evolved into a comprehensive AI provider. Nvidia now offers a complete suite of AI solutions, ranging from networking to software, supporting clients throughout their AI journey. This strategy has yielded significant financial results, with revenue experiencing substantial growth. In the latest full fiscal year, revenue surged 114% to a record $130 billion. Notably, the company maintains a high level of profitability, with a gross margin that consistently exceeds 70% on sales. Nvidia serves leading tech firms, including Meta Platforms and Microsoft, as they expand their AI infrastructure. These companies possess the financial resources to sustain their investments, further indicating their commitment to succeed in the AI landscape. Besides making high-performing AI chips, Nvidia’s dedication to innovation and its promise to update its GPUs annually suggest that the company’s market position is well-protected. Nvidia’s expansion provides a strong foundation for future growth that is necessary to excel in the AI market, particularly for the infrastructure build-out and the practical implementation of AI for real-world challenges. With its stock currently trading at 24 times earnings estimates, down from a recent high of 50, Nvidia represents a compelling opportunity for any AI investor.
Amazon
While many associate Amazon (AMZN) with e-commerce, the company has also emerged as a major player in the AI space. Amazon leverages AI both internally to improve efficiency in its e-commerce operations and by providing AI products and services through its Amazon Web Services (AWS) division. AI helps reduce the cost to serve e-commerce customers, for example, by optimizing delivery routes for speed and efficiency. Moreover, Amazon’s AI shopping assistant, Rufus, enhances the customer experience, encouraging repeat business. AWS plays a primary role in Amazon’s success. The unit’s annual revenue has reached an impressive $115 billion, driven by its AI offerings. Amazon’s offerings encompass a wide range of AI solutions, from high-end Nvidia chips to Amazon’s own lower-cost chips. It also offers a fully managed AI service, Amazon Bedrock, that helps clients create generative AI applications. Given AWS’s position as the leading cloud services provider, it has immediate access to a vast customer base. Amazon’s stock currently trades at 31 times earnings estimates, down from over 45 late last year. The company’s achievements in AI and its market position make it a compelling investment choice for those seeking to participate in the trillion-dollar AI market.
