There's no question about it. The enthusiasm for all things artificial intelligence (AI) is redefining the global economy and the stock market with it.
The launch of OpenAI's ChatGPT has set off a new technology race, and big tech companies, including the "Magnificent Seven" stocks, are investing billions in AI infrastructure. New AI models -- like Alphabet's Gemini and Microsoft's Copilot -- are being deployed to take advantage of the efficiencies and breakthroughs made possible by advances in generative AI.
The new technology has already made some big winners. Nvidia stock, for example, has soared more than 600% since the start of 2023. What AI stocks still have the potential to make you a millionaire now? Let's look at two that could soar over the coming years.
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1. Arm Holdings
Arm Holdings (ARM -3.24%) returned as a publicly traded stock last September, and the chip stock has caught fire thanks to its leadership in the AI revolution.
The stock price more than doubled from its most recent initial public offering (IPO) price as Arm pursued accelerating revenue growth, driven in part by AI-related demand. Revenue in the fourth quarter jumped 47% year over year to $928 million, driven by "increased investment in Arm-based technology for AI across all end markets."
Arm is best known for its power-efficient CPU designs. It's the reason why its technology is found in about 99% of smartphones, and why it's increasingly favored for AI applications, which consume large amounts of power.
Arm has a unique business model. The company licenses its technology and designs to partners like Nvidia and Apple and collects royalties when products with those designs are sold. Because of that business model, there's typically a lag of around two years between collecting revenue from the license and then generating revenue from royalties. The recent boom in license revenue should shift to royalties, which are the source of a majority of its revenue, over the coming years.
That fact seems underappreciated by the market as Arm stock fell after its fiscal fourth-quarter earnings report was released earlier in May. The stock dropped as investors seemed to expect more from guidance for fiscal 2025, but management's forecast is likely conservative; it seems to want to control expectations after the stock exploded on its February earnings report.
The company called for 24% revenue growth for the current fiscal year, which implies a step down from 47% year-over-year growth in the fourth quarter.
Arm could easily beat that forecast. If it does, the stock is likely to soar.
2. ABB
ABB (ABBN.Y -1.44%) might not be a household name among American investors, but it's one that AI stock watchers should get to know.
ABB is based in Switzerland and focuses on robotics and industrial automation. The stock is prominently featured in several AI exchange-traded funds (ETFs). At a market cap of $100 billion, ABB is big enough to be a market leader but also has the potential to grow enough to deliver significant returns for investors.
ABB's recent results haven't been particularly impressive. The company reported a year-over-year decline in revenue in its first quarter due in part to difficult comparisons with the year-ago period, but the company is well positioned as a picks-and-shovels play in the broader growth of AI.
According to the company, it has more than 100 AI projects in the works across analytical and generative AI, including functions like building energy management and predictive maintenance.
ABB also looks like a good sleeper stock pick in AI because the company specializes in electric grid reinforcement, which is likely to become more in demand as AI growth is expected to strain power grids.
AI leaders like OpenAI's Sam Altman have predicted future challenges around AI energy needs, which is likely to be a growth area for ABB, as it sees an opportunity in helping to reinforce power supplies for data centers.
Meanwhile, the stock looks reasonably valued at a price-to-earnings ratio under 30. If you're looking for an AI stock with a broad range of exposure to industrial technology, ABB looks like a smart stock to buy.
