2 AI stocks to double right now

For the past two years, artificial intelligence (AI) has been one of the top investment themes on Wall Street. While the initial AI-fueled frenzy has largely died down, institutional and retail investors are still on the lookout for AI-based investments, especially those with sustainable and long-term growth prospects.

Stocks like Micron technology (NASDAQ: MU) and Oracle (NYSE: ORCL) they seem to match. Here’s why investors can benefit from doubling up on these stocks now.

Micron appears to be the leader in high-bandwidth memory chips

Major memory player Micron Technology has been making waves on Wall Street of late, with fiscal fourth quarter 2024 (ended August 29, 2024) revenue and earnings beating consensus estimates. The company has emerged as a major beneficiary of the AI ​​wave, driven by growing demand for high-bandwidth memory (HBM) chips in data centers and enterprises. Micron’s HBM3E technology consumes nearly 20% less power than the closest competitor’s memory products. Higher energy efficiency, a must for power-hungry data center operations, has been a major factor in driving adoption of Micron’s memory products.

Additionally, due to its multi-year commitments to customers in HBM research and development, the company is confident of maintaining its leadership position with next-generation HBM technologies such as HBM4 and HBM4E.

Micron posted several hundred million dollars in revenue from HBM sales in the fourth quarter of fiscal 2024. The HBM business reported higher gross margins than the DRAM business in the third and fourth quarters of fiscal 2024. Micron expects HBM to be a multi-billion dollar business in fiscal year 2025.

Because HBM’s long-term customer agreements include pricing for calendar years 2024 and 2025, Micron enjoys significant visibility and predictability for its HBM business. The company also enjoys significant pricing power due to continued supply constraints for HBM products. Finally, shifting the revenue mix towards HBM’s higher-value, higher-margin businesses will also help boost the company’s long-term profitability.

Micron is also seeing strong demand for other high-value DRAM products, such as high-capacity dual in-line memory modules (DIMMs) and low-power DRAM from traditional servers and data center AI. The company also expects to benefit from growing demand for advanced memory products from PCs and AI smartphones in the second half of fiscal 2025.

Despite the many pros, Micron trades at 4.5 times trailing 12-month sales, which is pretty low for a company riding the AI ​​wave.

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Hence, given its robust technology capabilities and reasonable valuation, Micron can be a smart pick now.

Oracle’s automated cloud operations give it an edge

A major player in cloud and enterprise software, Oracle plays a major role in helping other companies build complex AI systems. Since huge amounts of data are required to train complex AI models, Oracle database and cloud services are widely used to store and process this data.

The company has invested heavily to build a worldwide network of 162 cloud data centers (live and under construction). These data centers use Nvidiaits GPU clusters to train large and complex AI models. While the largest of these data centers has a power capacity of 800 megawatts (electricity that can be provided for the computing infrastructure), the company is also preparing to start construction of data centers with a capacity of more than 1 gigawatts. Oracle has extensively automated its cloud operations, which has helped reduce labor costs and increase margins.

Oracle has partnered with leading cloud players such as Amazonhis AWS, AlphabetGoogle Cloud of and MicrosoftAzure to enable customers to use database technology even in these clouds. Many customers continue to migrate their on-premise databases to cloud environments directly to Oracle Cloud Infrastructure (OCI) or through enterprise database services to AWS, Google Cloud or Azure.

OCI consumption revenue rose 56% year-on-year in the first quarter, with demand outstripping available capacity. Not surprisingly, Oracle’s cloud services revenue rose 21% year over year to $5.6 billion in the latest quarter (the first quarter of fiscal 2025, which ended on August 31, 2024).

The strength of Oracle’s cloud business is also reflected in the company’s robust backlog. The company reported remaining performance obligations (RPO, a measure to measure the strength of the company’s backlog) of $99 billion at the end of the first quarter, up 52% ​​year-over-year in constant currency. Cloud RPO grew 80% year-over-year and made up nearly 75% of the company’s total RPO.

Oracle boasts a strong balance sheet with nearly $11 billion in cash and marketable securities and trailing 12-month operating cash flow and free cash flow of $19.1 billion and $11.3 billion, respectively. However, the company trades at 8.8 times trailing 12-month sales, less than the software industry median price-to-sales (P/S) multiple of 10.1 times.

Given its robust AI tailwinds, strong financial position and reasonable valuation, there is no doubt that Oracle would prove to be a top AI pick now.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Manali Pradhan has no position in any of the shares mentioned. The Motley Fool has positions and recommends Alphabet, Amazon, Microsoft, Nvidia and Oracle. The Motley Fool recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

2 AI Stocks to Double Right Now was originally published by The Motley Fool