Leading companies that are involved in artificial intelligence (AI) technology have already driven big gains for investors over the last year, but it's not too late for investors to capitalize. Almost every industry will eventually benefit from the increases in productivity that AI brings, and investors are just seeing a tiny bit of what this technology will do for businesses and consumers in the decades to come.
Let's look at two leaders in semiconductors and consumer technology that are well positioned to benefit and reward shareholders.
1. Advanced Micro Devices
Advanced Micro Devices (AMD 1.33%) has been making chips for many years for video game consoles and personal computers. But AMD's data center business is starting to warm up after a sluggish year. It recently launched new graphics processing units (GPUs) designed for AI that could deliver significant growth.
AMD is working with leading cloud customers, including Microsoft and Oracle, to deploy its new MI300 family of GPUs for AI workloads. Data center GPU revenue exceeded management's expectations of $400 million in the fourth quarter, and is expected to reach $3.5 billion for the full year in fiscal 2024 -- and will likely grow into a major business on its own in the years to come.
Another growth catalyst for AMD is a recovering PC market. AMD's client segment, including sales of Ryzen processors, generated 21% of its revenue last year, but segment revenue fell last year with an industry-wide decline in PC shipments. Ryzen powers more than 90% of AI-based PCs, which puts AMD is in a great position to capitalize on growing demand as this technology gains more widespread adoption.
The stock has already climbed 88% over the last year, but its valuation still leaves room for more upside. Data center GPUs generate high margins that can drive high earnings growth to deliver market-beating returns for investors.
2. Apple
Apple (AAPL 3.07%) uses AI extensively across its products and iOS software. It is an essential technology that powers certain features in the camera, image recognition, and Siri services. While Apple is facing near-term headwinds with weak revenue in China and an antitrust lawsuit by the U.S. Department of Justice, the company's investments in AI position it well for long-term growth.
The next iteration of the iPhone is rumored to include Apple's next-generation chips, which will boost performance for generative AI features. The iPhone 15 has seen solid growth in sales despite weakness in China, with revenue up 6% year over year in the December-ending quarter. Management credited a record number of people upgrading for the increase. As Apple starts putting more AI features into these phones, it could drive an even stronger sales cycle.
A generative-AI powered iPhone could let users ask Siri to summarize documents, for example, or complete other common tasks. It would also give Apple a great sales pitch for its more expensive iPhone Pro models, where these AI features would likely get implemented first. This could drive up average selling prices for iPhones and lead to strong earnings growth.
Wall Street analysts currently expect Apple to grow earnings by 9% on an annualized basis, but strong demand for AI-enabled iPhones could lead to better growth than what's implied in the stock's valuation. At the least, the stock could slightly outperform the broader market over the next decade.
