Technological advances over the last decade have breathed new life into the artificial intelligence (AI) market, allowing companies to finally begin delivering on concepts theorized decades ago. The launch of OpenAI's ChatGPT toward the end of 2022 highlighted how far AI had come, forcing experts and the public to rethink what they thought was possible with the technology.
As a result, countless companies shifted their focus to AI and have already enjoyed massive gains from the industry. As a leading AI chip supplier, Nvidia's stock has climbed 770% since the start of 2023, becoming the first chipmaker to cross a market cap of $3 trillion. For reference, its market cap was $360 billion in January 2023.
Nvidia has proven AI's vast growth potential, which could allow other companies to follow suit. Developers have barely scratched the surface of what's possible with AI, indicating 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 Micro Devices: Expanding its AI capabilities with a coming acquisition
Advanced Micro Devices (AMD 0.17%) stock has risen high since the boom in AI kicked off at the start of 2023, with its share price up 141%.However, much of that time has been spent restructuring its business to better compete in the budding industry, with earnings only recently showing significant gains from AI.
The company posted its second quarter of 2024 earnings earlier this month. Revenue rose 9% year over year while operating income soared an impressive 647%. Much of that growth was driven by its AI-focused data-center segment, which accounted for about 50% of total revenue for the quarter and saw net sales spike 115% year over year.
AMD explained its data-center segment profited from a "steep ramp of AMD Instinct GPU shipments and strong growth in 4th Gen AMD EPYC CPU sales." The company's biggest and most lucrative business is now AI. Its success has helped push free cash flow up 81% year to date, strengthening capabilities to continue reinvesting in its business.
NASDAQ: AMD
Key Data Points
Meanwhile, AMD has a lot more to come. On Aug. 19, news broke that the company will expand its portfolio of AI chips by acquiring server builder ZT Systems. According to AMD CEO Lisa Su, the move will allow the chipmaker to more quickly test and release its newest AI graphics processing units (GPUs) at a scale necessary for cloud giants like Microsoft's Azure. AMD expects the purchase to boost earnings by the end of 2025, making it more competitive with Nvidia.
AMD's market cap currently sits at $253 billion. However, Nvidia's meteoric rise over the last years proves 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. Alphabet: Outperforming its rivals
Alphabet (GOOGL +1.75%) (GOOG +1.61%) is the king of consistency, known for delivering reliable stock and earnings growth. The company's free cash flow has steadily risen 113% to $61 billion over the last five years thanks to a dominant tech business and regular investment in high-growth industries like AI.
Amazon and Microsoft have taken much of the spotlight in AI this year as the first- and second-biggest 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 headway with its Google Cloud platform.
Alphabet's share price is up 19% year to date, outperforming AI cloud rivals Amazon and Microsoft. Meanwhile, Google Cloud has beaten Amazon Web Services (AWS) and Microsoft's Azure for two consecutive quarters. In 2024 Q2, Alphabet's revenue rose 14% year over year, driven by impressive gains from Cloud.
NASDAQ: GOOGL
Key Data Points
During this period, Google Cloud sales increased by 29% compared to the previous year. In contrast, revenue from AWS and Microsoft's cloud division rose 19% year over year. Heavy investment in new AI models like Gemini has expanded Alphabet's AI capabilities and allowed it to offer more generative tools on its various services.
Alphabet's market cap of $2 trillion makes it the world's fourth most-valuable company, just behind Apple, Microsoft, and Nvidia, which have all hit the $3 trillion mark. The Google company has risen at an average-annual rate of about 36% over the last five years. However, AI could see the company beat that growth rate over the next half-decade, with the cash reserves and brand power to flourish in the budding market. Achieving a $3 trillion market cap could be just around the corner for Alphabet.
