Artificial intelligence (AI) stocks have been a driving force behind the S&P 500's impressive performance recently. The benchmark index has climbed over 21% year to date and gained more than 34% in the past 12 months.
Notably, it has already set 41 new record highs in 2024. This remarkable run is largely attributed to AI's projected multitrillion-dollar impact on the global economy by the mid-2030s.
The AI revolution is reshaping industries across the board, from healthcare and finance to manufacturing and transportation. As companies increasingly integrate AI into their operations, demand for advanced AI hardware and infrastructure continues to grow at a robust pace. This trend is creating significant opportunities for investors who can identify promising players in this rapidly evolving field.
Image source: Getty Images.
While some analysts express concerns that AI stocks may be overbought at current levels, I see potential for further growth. The development of AI-powered agents and advanced robotics soon could spark another rally in AI-centric equities. Additionally, ongoing advancements in AI models and applications are likely to sustain demand for AI-related products and services.
With this perspective, I'm building positions in two AI stocks that I believe have room to run. These companies represent different facets of the AI industry. One is an established leader in AI chips, while the other is an emerging player in energy-efficient semiconductor technology that's crucial for AI infrastructure. Here's a closer look at these potential opportunities.
Nvidia: The AI chip powerhouse
Nvidia (NVDA 0.24%) has cemented its position as the dominant force in AI chips. The company's graphics processing units (GPUs) are essential for training and running large language models, the backbone of today's AI revolution. Nvidia's first-mover advantage and relentless innovation have created a formidable moat in the AI chip market.
NASDAQ: NVDA
Key Data Points
Nvidia's investment appeal remains compelling, primarily due to its skyrocketing data center revenue. In the latest quarter, this segment experienced a staggering 154% year-over-year growth.
Most impressively, this trend shows no signs of abating, fueled by an insatiable demand for AI computing power across various industries, including cloud computing, autonomous vehicles, and scientific research.
The catalyst? An AI arms race has erupted among major U.S. tech firms and between the U.S. and China on a global scale. This competition is driving massive investments in AI infrastructure, with Nvidia's chips at the epicenter of this technological battle.
Adding momentum, the company's upcoming next-generation chips, Blackwell and Rubin, are poised to further solidify its market leadership. These new chips promise significant performance improvements and energy efficiency gains, potentially driving another wave of upgrades and sales.
Nvidia's strong brand, technological edge, and extensive ecosystem create high barriers to entry for potential competitors. The company's CUDA software platform has become an industry standard, making it challenging for rivals to displace Nvidia's GPUs in AI applications.
This software moat complements Nvidia's hardware advantages, creating a virtuous cycle that reinforces its market position.
While this high-flying tech stock may not double again in the next 12 months, it still possesses substantial growth potential for the above reasons. The AI revolution is in its nascent stages, and Nvidia is well-positioned to capitalize on the long-term growth of this transformative technology.
Consequently, investors who hold the stock through the end of the decade could see considerable returns as AI reshapes the global economy and our daily lives.
Navitas: Energizing the AI revolution
Navitas Semiconductor (NVTS 4.10%) is an emerging player in the AI landscape. The company specializes in gallium nitride (GaN) power semiconductors, which offer superior efficiency, compared to traditional silicon-based chips. This technological breakthrough could be a game changer for the AI industry, where power consumption and heat generation are significant challenges.
NASDAQ: NVTS
Key Data Points
As AI applications become increasingly power-hungry, energy efficiency is paramount. Navitas' GaN chips are well-positioned to play a crucial role in powering AI data centers and other high-performance computing applications, potentially revolutionizing the industry's energy consumption.
These chips operate at higher switching frequencies with lower power losses, thanks to GaN's superior electron mobility and breakdown strength, making them ideal for the demanding requirements of AI hardware. However, investors should be aware of the company's history of shareholder dilution.
Over the past three years, Navitas has significantly increased its outstanding share count, as illustrated in the graph below. This practice, while necessary for early-stage tech companies, often acts as a drag on a company's share price.
NVTS Average Diluted Shares Outstanding (Annual) data by YCharts.
Despite this drawback, Wall Street projects a robust 37.4% increase in 2025 sales, signaling strong demand for energy-efficient chips and potentially reducing the company's need for future shareholder dilution.
Navitas represents an intriguing AI investment opportunity, albeit one that warrants a cautious approach. As such, I plan to start building a small position in the GaN power semiconductor specialist over the next few months. If the stock shows signs of gaining positive momentum, I may consider increasing my stake more significantly.
