Prediction: 2 Artificial Intelligence (AI) Stocks to Join the $3 Trillion Club

Technological advances over the past decade have breathed new life into the artificial intelligence (AI) market, allowing companies to finally start delivering concepts theorized decades ago. The release of OpenAI’s ChatGPT towards the end of 2022 highlighted how far AI has come, forcing experts and the public to rethink what they thought was possible with the technology.

As a result, countless companies have shifted their focus to AI and have already enjoyed massive gains in the industry. As a leading supplier of AI chips, NvidiaIts shares have climbed 770% since the start of 2023, becoming the first chipmaker to surpass a $3 trillion market cap. For reference, its market capitalization was $360 billion in January 2023.

Nvidia has proven the vast growth potential of artificial intelligence, which could allow other companies to follow suit. Developers have barely scratched the surface of what’s possible with AI, indicating that the technology has much more to offer in the coming years.

So here are two AI stocks that I predict will join the $3 trillion club.

1. Advanced microdevices: Expanding AI capabilities with a future purchase

Advanced microdevices (AMD 2.16%) the stock has risen greatly since the AI ​​boom began in early 2023, with its share price up 141%. However, much of that time has been spent restructuring its business to better compete in the burgeoning industry, with the rewards only recently showing. significant gains from AI.

The company posted its second quarter 2024 earnings earlier this month. Revenue increased 9% year-over-year, while operating income increased 647%. Much of that growth was driven by the AI-focused data center segment, which accounted for about 50% of total revenue for the quarter and saw net sales grow 115% year-over-year.

AMD explained that its data center segment benefited from a “steep ramp-up in shipments of AMD Instinct GPUs and strong growth in sales of fourth-generation AMD EPYC processors.” The company’s biggest and most profitable business is now AI. Its success has helped increase free cash flow by 81% year-to-date, strengthening capabilities to continue reinvesting in its business.

Meanwhile, AMD has a lot going for it. On August 19, news broke that the company would expand its AI chip portfolio by acquiring server maker ZT Systems. According to AMD CEO Lisa Su, the move will allow the chipmaker to more quickly test and release the latest AI graphics processing units (GPUs) at a scale needed by cloud giants such as Microsoftof Azure. AMD expects the acquisition to boost earnings through the end of 2025, making it more competitive with Nvidia.

AMD’s market capitalization currently stands at $253 billion. However, Nvidia’s meteoric rise in recent years demonstrates what’s possible for chipmakers. It might take longer, but AMD’s current growth trajectory could easily see it hit that $3 trillion milestone in the coming years.

2. The Alphabet: Overcoming its rivals

Alphabet (GOOGL 1.11%) (GOOG 1.17%) is the king of consistency, known for delivering reliable growth in stocks and earnings. The company’s free cash flow has grown steadily by 113% to $61 billion over the past five years, thanks to a dominant technology business and regular investments in high-growth industries such as AI.

Amazon and Microsoft have taken much of the AI ​​spotlight this year, being the first and second largest names in cloud computing. Meanwhile, Alphabet’s third-largest market share in the industry initially saw investors doubt its ability to catch up. However, the company has made promising progress with its Google Cloud platform.

Alphabet’s share price is up 19% year-to-date, outperforming cloud AI rivals Amazon and Microsoft. Meanwhile, Google Cloud beat Amazon Web Services (AWS) and Microsoft Azure for two consecutive quarters. In Q2 2024, Alphabet’s revenue rose 14% year-over-year due to impressive Cloud gains.

During this period, Google Cloud sales increased by 29% compared to the previous year. In contrast, revenue from AWS and Microsoft’s cloud division grew 19% year over year. Big investments in new AI models like Gemini have expanded Alphabet’s AI capabilities and allowed it to offer more generative tools for its various services.

Alphabet’s $2 trillion market capitalization makes it the fourth most valuable company in the world, just behind AppleMicrosoft and Nvidia, which hit the $3 trillion mark. Google has grown at an average annual rate of about 36% over the past five years. However, AI could see the company surpass that growth rate over the next half-decade, with the cash reserves and brand power to flourish in the nascent market. Reaching a $3 trillion market cap could be just around the corner for Alphabet.