Whether you're a casual investor or trade professionally, chances are you're aware of the boom in artificial intelligence (AI) that kicked off last year. The launch of OpenAI's ChatGPT reignited interest in the technology, and prompted dozens of tech companies to pivot to the budding market.
According to data from Grand View Research, the AI market hit close to $200 billion in 2023 and is projected to keep expanding at a compound annual growth rate of 37% until at least 2030. That trajectory would see the industry hit nearly $2 trillion by the end of the decade.
As a result, one of the smartest investing moves could be to dedicate a portion of your portfolio to AI in 2024, when the market is only just getting started. So here are two AI stocks that could go parabolic and offer consistent gains for years.
1. Advanced Micro Devices
As a leading chipmaker, Advanced Micro Devices (AMD +4.54%) has massive potential in AI. The company got a late start in the industry, outrun last year by Nvidia, which snapped up an estimated 90% market share in AI chips. However, AMD is moving to challenge Nvidia's dominance soon and take its own slice of the lucrative industry.
Last December, AMD unveiled its MI300X AI graphics processing unit (GPU), designed to provide an alternative to Nvidia's products. The new chip has already caught the attention of some of tech's most prominent players, signing on Microsoft and Meta as clients.
NASDAQ: AMD
Key Data Points
However, AMD isn't banking solely on stealing market share from Nvidia in GPUs. AMD seeks to lead its own space within AI by doubling down on AI-powered PCs. According to research firm IDC, PC shipments are projected to see a major boost this year, with AI integration serving as a key catalyst. And a Canalys report predicts that 60% of all PCs shipped in 2027 will be AI-enabled.
AMD posted fourth-quarter 2023 earnings on Jan. 30. Revenue rose 10% year over year to $6 billion, beating analysts' expectations by about $60 million. The company's AI-focused data center segment posted revenue growth of 38%. Meanwhile, improvements in the PC market boosted AMD's client segment by 65% year over year.
The company has a solid outlook over the long term, and earnings per share estimates reflect this.
Data by YCharts
This chart shows AMD's earnings could hit just above $7 per share over the next two fiscal years. Multiplying this figure by the company's forward price-to-earnings ratio (P/E) of 49 yields a projected stock price of $352. If projections are correct, AMD's stock price could double by fiscal 2026.
And with that, AMD's stock is a screaming buy before it goes parabolic.
2. Amazon
While AMD is an excellent way to invest in the hardware side of AI, Amazon (AMZN +3.42%) is quickly becoming a significant player in AI software. The company is the biggest name in e-commerce and cloud computing, granting it multiple use cases for AI and ways to bolster its business with the technology.
Amazon is home to the world's largest cloud platform with Amazon Web Services (AWS), responsible for 31% of the cloud market. Cloud computing has become a crucial growth area for AI since these companies can leverage their massive data centers to steer the generative AI market in their favor.
Since the start of 2023, Amazon has responded to the rising demand for AI by expanding AWS. In September, the company debuted Bedrock, a tool offering a range of models that customers can use to build generative AI applications.
NASDAQ: AMZN
Key Data Points
AWS also introduced CodeWhisperer, a platform that generates code for developers, and HealthScribe, a feature capable of transcribing patient-to-physician conversations.
In addition to improved cloud capabilities, AI could boost its e-commerce business, allowing Amazon to track shopping trends better and effectively recommend products to customers. The company is already implementing the technology on its retail site, recently unveiling an AI shopping assistant called Rufus that will improve the customer experience.
In Amazon's fourth quarter, revenue increased 14% year over year to $170 billion, beating analyst estimates by nearly $4 billion. Meanwhile, the company's free cash flow skyrocketed 904% over the last year to $32 billion.
Data by YCharts
Amazon has significant potential in AI over the long term, with the cash reserves to keep investing in its business. The table above shows that the retail giant's earnings could reach close to $7 per share over the next two fiscal years. In a similar calculation to AMD, multiplying that figure by Amazon's forward P/E of 42 produces a stock price of $294.
Considering its current position, these projections would see Amazon's stock price rise 68% by fiscal 2026. Alongside a powerful position in AI, Amazon's stock is too good to pass up right now.
