Artificial intelligence (AI) is taking the stock market by storm at the moment. After watching Nvidia stock surge almost 250% this year to catapult the company to a $1.25 trillion valuation, investors are, understandably, hunting for the next big opportunity in this emerging industry.
With a brand-new year right around the corner, now is a great time to look at which stocks could be part of the next generation of AI winners. Here are two top contenders.
Image source: Getty Images.
1. Advanced Micro Devices is set to challenge Nvidia next year
Nvidia stock has surged this year on the back of the company's strong sales of data center chips designed for AI workloads. It's dominating that segment, with some estimates suggesting it has a 90% market share. But that probably won't last because other chip giants, like Advanced Micro Devices (AMD 2.37%), are unleashing their own AI data center hardware.
AMD is gearing up to ship high volumes of its new MI300 lineup of data center chips. The MI300X is a graphics processing unit (GPU) designed to compete directly with Nvidia's leading H100. The MI300A, on the other hand, is a first-of-its-kind accelerated processing unit (APU) that combines GPU hardware and CPU (central processing unit) hardware to deliver one of the most powerful data center chips ever made.
The MI300A has already begun shipping to the Lawrence Livermore National Laboratory. It will be used in the new El Capitan supercomputer set to be the fastest in the world when it comes online next year. In fact, if all 7.7 billion humans on Earth completed one calculation per second, it would take them eight years to do what El Capitan could do in one second! It could lead to substantial advancements in fields like medicine and climate science.
In 2024, AMD expects to generate more than $2 billion in annual revenue from these new data center chips. Considering the company has generated $5.8 billion in data center revenue over the last four quarters, it could be set for an impressive 34% growth in that segment on the new MI300 hardware alone.
But it gets better: AMD is also working hard to deliver AI chips for personal computers and devices. Its new Ryzen AI lineup already powers over 50 notebook designs, with more on the way thanks to a collaboration with Microsoft. Processing AI on-device means faster response times and a better experience for the user as they don't have to rely on an external data center.
In the third quarter of 2023, AMD's client segment -- which sells the Ryzen chips -- saw its revenue soar 42% year over year thanks in part to that new hardware. AMD stock is still trading 22% below its all-time high after a tough year for its consumer segments amid high inflation and rising interest rates. But with shipments of its AI chips set to ramp up significantly in 2024, this might be one of the top stocks to own.
2. C3.ai is preparing for a surge in revenue growth
C3.ai (AI 3.02%) is a relatively small company with a valuation of just $3.3 billion. It also continues to lose money as it attempts to scale its operations, so it's a little riskier investment than AMD. Nonetheless, founded in 2009, C3.ai was one of the first companies to develop AI software for businesses.
Its chief executive officer, Thomas Siebel, says AI now represents a mega-market opportunity akin to the internet or the smartphone. His company offers 40 turnkey, customizable applications for businesses across at least 10 industries, from financial services to healthcare to oil and gas.
Healthcare providers, for example, are using C3.ai for AI-based medical image analysis, opioid addiction risk prevention, and even early detection of chronic diseases. Fossil fuel companies such as Shell, on the other hand, are using C3.ai's applications to monitor thousands of items of equipment to predict (and prevent) catastrophic failures.
Many of the industries C3.ai serves aren't necessarily synonymous with advanced technology. Therefore, C3.ai bridges an important gap, allowing them to access AI reliably without having to build models from scratch.
C3.ai is transitioning from subscription-based revenue to a consumption-based model instead. The company says this will reduce friction during onboarding because negotiating subscription deals can be a long process. Under the new model, businesses can come and go as they please, paying only for what they use.
The shift in strategy has led to a temporary slowdown in C3.ai's revenue. In the recent fiscal 2024 first quarter (ended July 31), it grew by just 10% year over year. However, based on the graphic below (provided by the company), it should experience an acceleration in growth in calendar year 2024.
Image source: C3.ai.
The company will report its fiscal 2024 second quarter (ended Oct. 31) results in December, which will represent the fifth quarter on the graph above. That means around the middle of next year (quarter seven), investors should start to see consumption revenue ramp up.
C3.ai stock has performed really well in 2023, with a gain of about 150% so far. However, it remains 81% below its all-time high set during the tech frenzy of 2021. With plenty of ground to make up and the potential for much faster sales growth on the horizon, C3.ai stock could be one of the best AI bets going into 2024.
