Artificial intelligence (AI) continues to represent an attractive investment opportunity for investors. Major tech companies continue to announce significant deals for data centers, supercomputers, and advanced chips to power AI services across the economy.
Several leading AI companies in software and semiconductors are already worth trillions in market cap (share price times total shares outstanding). There are two tech stocks currently valued much lower that could soon join the elite ranks of $1 trillion companies. They are:
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1. Advanced Micro Devices
Investors have been mostly focused on the ascent of Nvidia, the dominant leader in graphics processing units (GPUs) that are required for training AI workloads. But Advanced Micro Devices' (AMD +0.38%) stock has surged 118% this year, reaching a market cap of $428 billion. Investor interest is picking up as AMD has made major strides in improving the cost-performance ratio of its GPUs. This is being validated by recent deals.
AMD was chosen to provide advanced computing solutions for two supercomputers that are being built for the U.S. Department of Energy. This is a huge win for AMD, since it just adds to its revenue potential over the next several years. These supercomputers will serve as "AI factories" that will bring advanced AI solutions to major sectors of the economy, including energy, healthcare, and national security.
NASDAQ: AMD
Key Data Points
AMD's GPU capabilities are also being validated by being deployed by seven of the top 10 AI model makers. The company's data center revenue grew 14% year over year in Q2, but this is likely to accelerate next year as AMD launches its MI400 series of GPUs, with ChatGPT maker OpenAI already on board to use these chips.
Despite the stock's recent surge, it still doesn't look all that expensive. The stock trades at a forward (1-year) price-to-earnings (P/E) multiple of 42, which is supported by its growth prospects. Analysts expect the company's earnings to grow at an annualized rate of nearly 40% over the next several years. Assuming the stock continues to trade around the same P/E, the shares could more than double over the next five years, sending AMD stock to a $1 trillion market cap.
Image source: Getty Images.
2. Oracle
Oracle (ORCL 1.78%) has the easiest path to potentially reaching $1 trillion in market cap, given that it already has a market value of about $785 billion at the time of writing. But investors should set their sights on $2 trillion. The stock has already climbed 65% year to date following accelerating growth in its cloud infrastructure business.
NYSE: ORCL
Key Data Points
Oracle has been a leader in database management for many years, and it's just now starting to step up its game in AI cloud offerings. Its cloud infrastructure segment posted an impressive 55% year-over-year increase in revenue in the fiscal first quarter, which ended in August. This follows notable deals with OpenAI, xAI, AMD, and other tech leaders.
Oracle's remaining performance obligations (RPO) are $455 billion, which is quite large next to its trailing-12-month revenue of $59 billion. Even if Oracle could only fulfill half of that contracted revenue, it would significantly benefit the stock. The expanding RPO reflects Oracle's leadership in offering world-class database services and increasing data center capacity worldwide. In fact, Oracle has already signed additional contracts that will push its RPO above $500 billion in the current quarter. Management's guidance calls for its cloud infrastructure business to grow 77% for the full year.
The stock appears reasonably valued at a forward (1-year) P/E of 34, especially considering analysts have recently raised their long-term growth forecast. The current estimate has Oracle's earnings growing at an annualized rate of 23% in the coming years, which could send the stock well past $1 trillion on its way to a $2 trillion market cap within the next five years.
