Growing adoption of artificial intelligence (AI) remains an attractive long-term opportunity for investors. AI promises to bring substantial increases to productivity that could add an estimated $6.6 trillion to the global economy by 2030, according to PwC. Here are two leading AI stocks to profit off this opportunity.
1. Nvidia
Nvidia (NVDA +4.32%) continues to dominate the market for chips needed to train AI models. Its revenue doubled last year to $130 billion, fueling its share price to record highs.
NASDAQ: NVDA
Key Data Points
A great quality to look for in a growing company is expanding market potential for its product. This can lead to huge gains for investors, as the company finds new opportunities that grow revenue and profits over many years.
Nvidia certainly appears to be a company built to last. Selling graphics processing units (GPUs) to data centers has only recently become its main business. Nvidia's core market for a long time was selling GPUs for running graphics applications on PC, including video games. But the company's founder and CEO, Jensen Huang, has been successful adapting its GPU technology for a range of markets over the last decade.
The data center is the hot market right now and may remain so for several years, but Nvidia is starting to see accelerating revenue growth in its automotive segment. Toyota Motors recently announced that it will use Nvidia's DRIVE AGX Orin to power the advanced driving assistance features in its new vehicles. Other automakers, including BYD and Mercedes-Benz, are also using the Nvidia DRIVE platform. Last year, revenue from its automotive segment grew 55% to reach $1.7 billion, which is pointing to a multibillion dollar opportunity.
Huang has demonstrated the knack for identifying new markets for Nvidia's technology and capitalizing on them. This will continue to serve shareholders well, as Nvidia is continuing to invest in expanding its addressable market through software, services, and new types of chips. Given these opportunities, the stock seems more than reasonably priced, trading at a forward price-to-earnings (P/E) multiple of 24 times, while analysts project earnings to grow at a compound annual rate of 34% over the next few years.
2. Alphabet (Google)
Alphabet (GOOG +1.35%) (GOOGL +1.71%) owns some of the most valuable online properties, such as Gmail, Maps, and Search. It has more than 2 billion users across seven products, and this makes Alphabet a digital advertising behemoth. Its revenue grew 14% last year to $350 billion, mostly driven by advertising.
NASDAQ: GOOGL
Key Data Points
Google has been investing in AI for several years. It's using AI to make its products better, which can ultimately lead to higher user engagement and advertising growth. For example, the company has seen AI Overviews leading people to use Google Search more. AI tools in YouTube are helping content creators make better videos, which has an impact on viewership and advertising. Alphabet's ad revenue grew 11% last year to reach $264 billion.
Improvements to its Gemini AI model is also an opportunity to grow subscription services like Google One. For a premium fee, users can use the most advanced Gemini model for writing emails, creating images, and other tasks across Google apps. Google One already has more than 100 million subscribers.
Another opportunity to monetize its AI technology is Google Cloud -- one of the fastest-growing enterprise cloud services. There is tremendous momentum in signing up new business commitments, which doubled in 2024. Revenue from Google Cloud grew 30% year-over-year in the fourth quarter, driven by demand for generative AI solutions.
Despite these positive indicators of how AI is benefiting Alphabet's business, investors can currently buy the stock at just 19 times this year's earnings estimate. This seems like a steal for a company that Wall Street analysts expect to grow earnings at an annualized rate of 17% in the coming years.
