The artificial intelligence (AI) revolution is here, and AI stocks have been surging.
Nvidia (NASDAQ:NVDA) was the big winner of 2023, according to many analysts. It’s hard to disagree. The stock surged 230% as demand for the company’s graphics processing units (GPUs) — which possesses processing capabilities ideally suited for AI workloads — soared.
But there’s a host of other companies that have been central to the AI revolution, such as Super Micro Computer (NASDAQ:SMCI) and UiPath.
So what’s next for AI in 2024, and which stocks could prosper? Here are two thoughts of my own.
Nvidia remains key
Nvidia produces chipsets that have traditionally been used for high-performance graphics rendering. In other words, gaming. And that’s been a huge market for the company of the past decade.
However, as noted above, Nvidia’s chipsets possess parallel processing capabilities that make them ideal for AI workloads, including machine learning and language models.
Nvidia’s GPUs tend to be more powerful than their peers for several reasons. This included a focus on parallelism — the ability to process thousands of parallel computations simultaneously — and not just sequential tasks.
In turn, this is because chipsets like the H100 use advanced packaging techniques and specialised cores to optimise performance and efficiency.
While other companies are trying to catch up — and this could be a risk to any investment thesis — they’re not there yet. And arguably, Nvidia has more than enough cash to fund R&D to stay ahead of the rest.
And this is why analysts are forecasting earnings per share to grow at 43% annually across the next three-to-five years. After all, it’s central to a market — the chip sector — which is set to grow 10-fold over the medium term.
As such, I believe Nvidia will remain the kingpin of the AI revolution as we move into 2024. Even with export restrictions to China, Nvidia looks set to go from strength to strength.
An with a price/earnings-to-growth (PEG) ratio of 0.92, it looks like good value still.
Enablers undervalued
Companies like Meta, Microsoft, and UiPath are utilising AI to enhance their products and services. But there are other companies, some of which go under the radar — to the media at least — that are enabling this AI revolution.
One of those is Super Micro Computer. It’s a global leader in designing and building high-performance, application-optimised server and storage solutions. These are typically used for data centres, cloud computing, AI, and other compute-intensive workloads.
Its hardware plays a critical role in powering digital infrastructure for companies like Alphabet, Amazon, and research institutions.
In other words, Super Micro helps big tech, and other firms, apply cutting-edge processing power into their data centres. And this is central to the AI revolution because computer technology is being asked to process increasingly complex workloads.
Like Nvidia, investors may be concerned that other companies, with designs on capturing market share, may represent a threat to Super Micro.
However, as it stands, Super Micro, thanks to its proprietary cooling technology and customisable solutions, is in pole position to dominant this growing market. It also benefits from key partnerships with Nvidia and AMD.
Once again, this stock’s growth may be under-appreciated with a forward PEG ratio of 0.66.
