This year has seen the rise of artificial intelligence (AI). And contrary to what Hollywood would have you believe, this has not resulted in a dystopian landscape where laser-eyed death robots roam the countryside hunting humans -- yet.
All joking aside, AI promises to be one of the most significant technological developments of this century -- and one of the most lucrative investment opportunities, too. So let's take a closer look at my top two AI stock picks right now: Arista Networks (ANET -0.02%) and Nvidia (NVDA 6.18%).
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Arista Networks
Although much of the hype has focused on companies with user-focused AI applications, such as ChatGPT, plenty of companies will benefit from behind-the-scenes AI applications, too.
Arista Networks, a cloud networking company with a focus on high-performance computing, should be one of those beneficiaries. The company already boasts client relationships with cloud computing giants such as Amazon, Microsoft, and Alphabet. In short, Arista helps optimize cloud networks to run faster and more efficiently through AI and machine learning.
Financially, Arista's growth is impressive. Revenue for the past 12 months was $4.9 billion; revenue for the quarter ended on March 31 surged 54% year over year. Better still, the company is already profitable. Arista earned $4.58 per share last year, and analysts are projecting $5.79 in 2023.
To sum up, if you're a long-term investor who wants exposure to AI but doesn't want to chase the most volatile AI stocks, Arista is a name to consider.
Nvidia
In my opinion, no company is better positioned to capitalize on the growing importance of AI than Nvidia. And the reason is simple: Nvidia makes AI "brains."
Without getting too technical, AI requires computing power -- lots and lots of computing power. To meet this demand, cloud providers require high-powered chips with the computing horsepower needed to run the large language models behind cutting-edge AI.
One of the few companies making that type of product? You guessed it: Nvidia. Indeed, the company's latest A100 graphics processing unit (GPU) is the current AI industry workhorse, and with a price tag of around $10,000 for each unit, it's easy to see why Nvidia is cashing in on the AI craze. It's common for start-ups to link hundreds or even thousands of A100 GPUs to run the latest cutting-edge AI.
Of course, other companies will be looking to cut into this business, but Nvidia remains the industry leader. The company recently started shipping its next-generation H100 GPU, which could shorten AI training times -- making future AIs faster, more efficient, and "smarter."
At any rate, Nvidia stock has already blasted off this year, thanks to its obvious AI connections. Nevertheless, Nvidia is one company for which AI isn't just a short-term catalyst -- it's a long-term growth story. Nvidia's revenue growth should accelerate as AI truly takes off in the coming years. Analysts expect sales to grow 12% this fiscal year (ending Jan. 29, 2024) and 24% next fiscal year.
Investing in Nvidia comes with some risks. The stock is volatile and isn't for everyone. That said, I believe investors willing to hold Nvidia for years will be rewarded.
