Exploring the Accelerating Growth of Artificial Intelligence Stocks in 2024

As the stock market enters 2024, one of the most dominant themes is the rapid advancement of artificial intelligence (AI). This technology is not just making headlines; it promises to reshape industries and create numerous investment opportunities in the coming years. Experts believe that while AI is still in its early stages, 2025 could reveal even greater prospects. Here, we’ll examine three standout AI stocks that investors are eyeing this month: Nvidia, Microsoft, and Salesforce.

Nvidia: The AI Powerhouse

Explosive Revenue Growth

Nvidia has emerged as a frontrunner in the AI sector, experiencing remarkable revenue growth over the past two years. Its fiscal year 2024, which ended in January 2023, saw a staggering 125% increase in revenue, and projections indicate that its earnings could more than double in fiscal year 2025. This meteoric rise is attributed largely to Nvidia’s graphic processing units (GPUs), which play a critical role in the AI infrastructure.

Dominance in the GPU Market

Nvidia’s GPUs are essential for training large language models (LLMs) and performing AI inference tasks due to their remarkable processing speed. The company commands an impressive 90% market share in the GPU industry, greatly outpacing competitors like Advanced Micro Devices (AMD). Its success is fueled by its advanced software platform, CUDA, which provides developers with tools and libraries to leverage Nvidia’s chips for various AI tasks.

Growing Demand for AI Infrastructure

The demand for AI capabilities is on the rise, and industry spending corroborates this trend. For instance, Microsoft has committed to investing around $80 billion in AI data centers in 2024. Typically, about half of that expenditure will be directed towards server GPUs. As these major clients increase their capital spending on AI infrastructure, Nvidia’s growth trajectory seems promising. Currently, Nvidia’s stock trades at a forward price-to-earnings ratio of approximately 31.5, with a price/earnings-to-growth ratio (PEG) of 0.98, indicating potential undervaluation in a landscape filled with growth stocks.

Microsoft: Capitalizing on AI Infrastructure

Significant Investments in AI

Microsoft is not shy about its ambitions in AI, planning substantial investments in infrastructure to bolster its AI offerings. Its cloud computing division, Azure, has seen impressive growth lately, with an expansion rate of 33% last quarter. Customer usage of Azure’s OpenAI services also doubled in just six months, showcasing strong demand for AI solutions.

Infrastructure Challenges and Future Projections

Despite this progress, Microsoft faces challenges related to capacity constraints within Azure. However, the company anticipates accelerated revenue growth in the latter half of its fiscal year as new capacity comes online. To meet rising demand, Microsoft is pouring resources into building data centers globally, a strategy that signals long-term commitment to AI growth.

AI Software Innovations

In addition to cloud computing, Microsoft is making notable strides in AI software with its AI assistant copilots for the Microsoft 365 suite. This feature enhances productivity by allowing users to organize emails, create presentations, and even execute programming tasks using natural language. Priced at $30 per month for enterprise customers, the Microsoft 365 AI copilots are expected to contribute significantly to the company’s growth moving forward. The stock is currently trading at a price-to-earnings ratio of 32.5 based on current fiscal estimates, positioning it as a relatively sound investment.

Salesforce: Pioneering Agentic AI

The Next Evolution in AI

Salesforce is setting its sights on being a leader in agentic AI, which could represent the next evolutionary step beyond generative AI. While generative AI enables users to create content through prompts, agentic AI aims to automate more complex tasks autonomously, effectively acting on behalf of the user. This innovation could revolutionize various processes, from personal planning to business operations.

Launch of the Agentforce AI Platform

To achieve this leadership position, Salesforce has introduced its agentic AI platform called Agentforce. Launched in October and improved with additional features in mid-December, Agentforce offers customizable agents suitable for areas such as sales, marketing, and customer service. The platform enables users to create tailor-made solutions without extensive coding knowledge.

Rapid Adoption and Future Potential

Adoption of the Agentforce platform has been swift. Salesforce noted significant engagement, with over 1,000 teams actively rolling out agents shortly after launch. The company forecasts it could deploy as many as 1 billion Agentforce AI agents by the end of its fiscal year 2026. This consumption-based service charges $2 per conversation, presenting an attractive revenue opportunity for Salesforce. The stock is trading at a reasonable valuation of 29 times its projected fiscal 2026 earnings, complemented with a PEG ratio of 0.8, which suggests potential for future growth.

Key Takeaways

As 2024 unfolds, AI remains a pivotal technology reshaping the investment landscape. Companies like Nvidia, Microsoft, and Salesforce stand at the forefront of this transformative movement, each with unique approaches and strategies. Nvidia’s dominance in GPUs, Microsoft’s strategic investments in cloud services, and Salesforce’s innovative Agentforce platform collectively suggest a bright future for AI-driven investments. As the demand for AI solutions continues to expand, these stocks could present compelling opportunities for investors looking to capitalize on the next technological wave.