Savvy investors know that when there's a gold rush underway, buying the stocks of companies that are supplying the "picks and shovels" is a proven wealth-building strategy. When it comes to the artificial intelligence (AI) boom, it's the computing infrastructure that makes the game-changing technology possible. Think chips and computer servers rather than pickaxes and sifting pans.
If this lower-risk investment approach sounds appealing, read on to learn about two key AI infrastructure providers that have particularly attractive growth prospects. Both of their stocks are intriguing buys today.
1. Arm Holdings
With a staggering 30.6 billion chips shipped in its 2023 fiscal year alone, Arm Holdings' (ARM 1.26%) reach spans nearly every tech-focused market. From personal computers (PCs) and data centers to smartphones and autonomous vehicles, demand for Arm's energy-efficient semiconductor technology is skyrocketing.
Many leading chipmakers develop their products using Arm's architecture. In September, Apple extended its partnership with Arm, which will allow the tech titan to incorporate Arm's intellectual property into its custom-designed chips for its popular iPhones and Macs until at least 2040. In November, Microsoft announced that its cloud computing services would offer access to new Arm-based chips. And in March, Nvidia debuted its powerful Blackwell high-performance computing platform that features Arm processors. All told, Arm estimates that 70% of the world's population uses products built with its technology.
Moreover, thanks to the combination of performance, efficiency, and cost-effectiveness of its chip architecture, Arm is gaining market share in all of its key markets.
Image source: Arm Holdings.
This expanding market share is driving strong growth in Arm's sales and profits. Revenue rose 14% to $824 million in the quarter ended Dec. 31, while adjusted net income jumped 36% to $305 million.
Higher spending on AI solutions is fueling Arm's growth. "We are seeing the demand for Arm technology to enable AI everywhere, from the cloud to edge devices in your hand," CEO Rene Haas and CFO Jason Child said in a letter to shareholders.
Arm's sales, in turn, are likely to accelerate. The company expects its revenue to increase by as much as 42% in its fiscal fourth quarter.
"We believe that AI is the most profound opportunity in our lifetimes, and we're only at the beginning," Haas said during an interview with Bloomberg in February.
2. Super Micro Computer
It's not just chipmakers that are benefiting from the AI gold rush. Demand for high-performance servers, data storage systems, and other AI-focused computing infrastructure is soaring. Super Micro Computer (SMCI 3.84%) is helping to supply its customers with the innovative hardware solutions they need to power their AI ambitions -- and business is booming.
The server specialist has close ties to Nvidia. In turn, the insatiable demand for Nvidia's cutting-edge processors is also driving sales of the supporting computing hardware that Supermicro (as the company is also known) provides.
Supermicro's sales surged 103% year over year to $3.7 billion in its fiscal 2024 second quarter, which ended on Dec. 31. Better still, the company's net income jumped 68% to $296 million, even as it spent aggressively to ramp up production.
This strong performance, combined with encouraging ongoing sales trends, drove management to boost its full-year revenue projection to $14.3 billion to $14.7 billion, up from a previous estimate of $10 billion to $11 billion. That would be more than double the $7.1 billion in sales the company earned in fiscal 2023.
Moreover, Supermicro's share price has pulled back from its recent highs following its stock offering in March. But that stock sale raised roughly $1.7 billion that the company can now use to bolster its manufacturing network and fund its other expansion initiatives.
Those growth investments should bear fruit for Supermicro's shareholders. The market for AI servers will exceed $177 billion by 2032, up from $38 billion in 2023, according to Global Market Insights. Investors who buy Supermicro's shares at a discount today should be well rewarded as it works to satisfy the torrid demand for its AI tools.
