The artificial intelligence (AI) software market is expected to grow by 21% this year, while the overall AI market is predicted to grow at a 40% compound annual growth rate through 2028. Investors would be hard-pressed to find another market with that projected strength.
Among the top players in this market are Nvidia (NVDA 0.68%) and IBM (IBM 0.66%), both of which are developing advancements in this space for a more efficient, automated way of life with the potential to improve and save lives. The two can also provide your long-term investment portfolio with the foundational assets on which to build a fortune.
1. Nvidia's AI footprint continues to expand
The company's world-class graphics processing units and systems-on-a-chip are the backbones of a massive 80% share in the AI market, supporting a vast array of technological developments, including gaming consoles, automobiles, medical imaging technology, and the evolving metaverse, to name a few. The company's A-list of customers includes Amazon Web Services and Alphabet .
Many of us have used Waze or Google Maps when driving -- that data is supported by the Google Cloud Platform, which in turn is supported by Nvidia GPUs. Imagine what the next 10-plus years might bring, as AI will play a prominent role in navigation when autonomous vehicles become more abundant. And that's just one area of AI for Nvidia.
Over the decade ahead, businesses and society are taking the path that involves augmented reality, virtual reality, automation, predictability, and optimization to produce precise results in real-time. Nvidia's AI leadership puts it squarely on a path toward a $1 trillion total addressable market. In its fourth-quarter report, Nvidia displayed its growth with record-setting full-year revenue jumping by 61% year over year to $27 billion, supported by a year-over-year Q4 revenue increase of 53%.
The exceptional demand that CEO Jensen Huang sees for Nvidia is being driven by gaming, data center, and visualization platforms. The strong momentum across its businesses should continue, resulting in an expected first-quarter revenue jump of 45% over last year -- already an astounding 84% jump over the previous year.
A broader market decline led to 20% of its stock price being erased within one month of its Q4 results. It has since come roaring back but still sits only 5.5% above what it was when the company announced record quarterly and full-year revenue, along with a positive outlook. At $280 per share and an analysts' average price target of $352 -- a high of $410 -- Nvidia is one of my favorite stocks based on projected market growth, its leadership role, and superior products working toward a massive addressable market.
2. IBM goes from mainframes of the past to an AI mainstream of the present
If you've ever taken a test using Scantron sheets -- you know, the ones where you fill in the bubble with a No. 2 pencil -- those are scored by IBM machines using a process that dates back as far as 1937, and they are still used today. But the IBM of old is quickly becoming the IBM of new -- with an AI-focused future. It provides investors with an opportunity to process some gains that come with an extra reward.
The inventor of the floppy disk, hard disk drives, and the UPC barcode has been adapting and evolving to fit our changing work environment and growing reliance on automation, optimization, and data protection. In 2020, IDC recognized IBM for having a market-leading 13.7% share in AI lifecycle software, following its top ranking in worldwide AI software platforms for five years running. The highly reputable Gartner research firm is now touting it as a leader in cloud AI development, data science, and machine-learning platforms.
IBM offers a suite of scalable solutions under its Watson umbrella of AI products, including content search and analytics, data and risk management, and governance and compliance. These solutions help its customers become leaner by reducing operating costs. Those savings can then be reinvested for future growth, which could include additional spending on IBM solutions.
In an aggressive move forward, IBM is channeling its efforts for growth on an open hybrid-cloud platform with AI capabilities in pursuit of what the company estimates is a $1 trillion hybrid-cloud opportunity. To focus more on this space, the company spun off its managed infrastructure services into a publicly held company named Kyndryl. The heavier focus on the global hybrid cloud market should benefit IBM with the market's 17.6% projected compound annual growth rate, compared to the 10% growth expected from managed infrastructure.
The company is already seeing its moves pay off. Q4 earnings and revenues topped analysts' expectations, resulting from the company's fastest quarterly revenue growth since 2011. That led to a jump in net income of 72% year over year for the quarter. Expectations for 2022 include mid-single-digit revenue growth, driven by cloud services and AI solutions, though the company does warn that profits may begin to show signs of slowing once higher labor costs start to kick in after a few more quarters.
But for long-term investors, a short-term challenge related to profit uncertainty can be overcome thanks to an annual dividend of $6.56 per share, representing a dividend yield of 5%. Moreover, those dividends can be received in cash upon quarterly payments, which cushions investors from a 5% decline in stock price or can generate more gains if dividend reinvestment is selected. Either way, it's exciting to see how far IBM has come in over 100 years and how far it might go in the next five, which could mean big gains for investors.