Despite the remarkable advancements in artificial intelligence (AI) in the last decade, we stand at the brink of a significant transformation. The integration of AI is poised to permeate all sectors of society and industry, ushering in a new era of innovation. This article delves into the top AI stocks that investors should consider amidst this technological revolution.
As the volume of data continues to surge, the applications and capabilities of AI are expanding rapidly. The exponential growth of data necessitates effective ways for organizations to extract value from this abundance. The proliferation of internet-connected devices, social media platforms, and the Internet of Things (IoT) has led to a data deluge. However, AI technologies offer the ability to leverage this data for improved decision-making processes and enhanced customer experiences.
Artificial intelligence has emerged as a crucial competitive advantage for businesses. According to the Boston Consulting Group, 85% of C-suite executives are planning to ramp up their investments in AI and GenAI this year. This underscores the imperative for businesses to adopt AI technologies to stay ahead of the competition.
In anticipation of the escalating AI expenditure, the market has favored certain AI stocks, such as Nvidia (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT), propelling them to new heights. Despite their impressive performance, these companies remain attractive investment prospects. Let’s delve deeper into the specifics of these leading AI companies.
Arm Holdings (ARM)
Following a recent earnings report, Arm Holdings (NASDAQ: ARM) surprised market observers by surging over 50%. Investors were particularly impressed by the growth opportunities highlighted by the management team.
During the earnings call, management emphasized the revenue growth potential associated with customers transitioning from Armv8 to Armv9 products. The latter offers twice the royalty amount, translating to higher revenue streams as customers migrate to the new platform.
Furthermore, the company is benefiting from AI trends driven by data-center GPUs and the proliferation of AI-enabled devices. The introduction of edge devices with AI capabilities, such as the Samsung Galaxy S24 and Google’s Gemini Nano Pixel 6, has significantly boosted revenues. Additionally, in the data center domain, training GPUs like the Grace Hopper 200 are leveraging Arm’s architecture. As the demand for AI devices continues to rise, there is a projected growth in licensing revenues.
Another growth driver for Arm Holdings is the Compute Subsystems segment, where the company designs complete blocks of chip designs for its customers. The success of the first design, Microsoft Cobalt, can be attributed to its short validation period and quick time-to-market. Management foresees significant growth in this area.
With these favorable trends, management anticipates a 30% year-over-year growth in royalty revenues for Q4 FY2024. The energy-efficient computing solutions required for AI applications align with Arm’s core strengths. Additionally, the extensive developer community working on Arm’s platform further enhances its competitive position. These factors collectively position Arm Holdings as one of the top AI stocks to consider.
ServiceNow (NOW)
Originally rooted in IT service management, ServiceNow (NYSE: NOW) has evolved into a dominant force in AI-driven digital workflow solutions. The company’s software-as-a-service offering stands out for its seamless integration of AI to streamline business operations. Leveraging the robust Now Platform, NOW stock emerges as a compelling choice among AI stocks.
The Now Platform seamlessly integrates AI and analytics into digital workflows, automating mundane tasks efficiently. Moreover, its AI Search feature, powered by natural language understanding and machine learning, delivers personalized and context-aware responses to users. This capability not only enhances resolution times but also boosts user satisfaction levels.
ServiceNow is witnessing substantial growth as organizations rush to adopt its generative AI solutions. For example, Siemens AG (OTCMKTS: SIEGY) has implemented Now Assist in its human resource department to expedite the resolution of workforce-related issues. Additionally, developers are leveraging its text-to-code feature, leading to a 50% increase in productivity.
Driven by the AI capabilities embedded in the Now Platform, ServiceNow has experienced a surge in revenues, with 168 deals exceeding $1 million in net new annual contract value in Q4 2023. The company is also expanding its presence in the government sector, securing contracts with U.S. federal, state, and local authorities, as well as international governments like Australia and the U.K.
As AI products such as Now Assist, Vancouver, and Virtual Agent gain traction, management remains optimistic about achieving its \(10 billion ACV target. In FY2024, ServiceNow anticipates robust growth, with subscription revenues projected to range between \)10.555 billion and $10.575 billion, reflecting a 21.5% increase. The Now Platform is empowering organizations to accelerate growth and enhance productivity through AI-driven solutions, positioning NOW stock as a compelling investment opportunity.
Nvidia (NVDA)
Nvidia, a prominent player in the semiconductor industry, serves as a linchpin in AI research and applications. The company’s GPUs, including the A100 and the cutting-edge H100 Tensor Core GPU, play a foundational role in training complex AI models.
The H100, based on the Hopper architecture, represents a pinnacle of AI innovation for Nvidia. This hardware component offers unparalleled compute efficiency and scalability for a wide array of AI workloads. Demand for these leading-edge GPUs is soaring, driven by cloud service providers, governments, and organizations seeking to leverage advanced AI capabilities.
While competitors like Advanced Micro Devices (NASDAQ: AMD) strive to keep pace, Nvidia continues to forge ahead with next-generation releases. The unveiling of the Hopper GH200 in August 2023, with deliveries slated for the second quarter of 2024, underscores Nvidia’s commitment to innovation. Additionally, the upcoming Black GB200, as per the product roadmap, promises faster training of more sophisticated AI models across diverse applications.
Nvidia’s dominance extends beyond hardware to software, with CUDA, its parallel computing platform, emerging as the industry standard for developers training AI models. The integration of CUDA with software libraries tailored for AI practitioners has further solidified Nvidia’s competitive edge.
Despite NVDA stock’s impressive 40% year-to-date growth, it remains a top contender among AI stocks. Analysts project a remarkable 268% and 68% growth in earnings per share for FY2024 and FY2025, respectively. With an EPS estimate of $20.71 for the fiscal year ending January 2025, the company is valued at 35 times forward earnings.
Goldman Sachs maintains a conviction buy rating on NVDA stock, with analyst Toshiya Hari recently raising the price target from \(625 to \)800. The introduction of new product cycles and the expanding use cases for AI are expected to drive further revenue growth for Nvidia. As one of the best-positioned companies to capitalize on the AI landscape, Nvidia remains a compelling investment opportunity.
On the date of publication, Charles Munyi did not hold any positions (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are solely those of the writer, in accordance with the InvestorPlace.com Publishing Guidelines.
Charles Munyi boasts extensive writing experience across various industries, including personal finance, insurance, technology, wealth management, and stock investing. His work has been featured on a diverse range of financial websites, including Benzinga, The Balance, and Investopedia.
