Artificial intelligence (AI) is being touted as a technology that could bring significant increases in productivity and exponentially grow the global economy. The latest developments in AI are still in the early stages, making this a once-in-a-generation opportunity. But it's important to invest in the right companies that can successfully monetize and profit from where AI is going.
Here are two companies with excellent earnings growth prospects that can deliver attractive returns for years to come.
1. Advanced Micro Devices
AI adoption is not only bringing major improvements to how businesses operate but also creating opportunities for emerging leaders in hardware and software. Advanced Micro Devices (AMD -4.31%) has seen tremendous sales growth for its advanced processors used in high-performance computing markets, such as data centers. The recent dip in the share price offers the chance to invest in this fast-growing semiconductor company at an attractive valuation.
Revenue from AMD's data center business exploded in 2024, growing 122% year over year in Q3. But AMD is also seeing robust demand for PC processors, where its client segment posted a revenue increase of 29% year over year last quarter. AMD is now generating more data center revenue than Intel, which shows a changing of the guard in the semiconductor industry.
AMD generated $24 billion in trailing-12-month revenue, but management estimates that the market size for data center graphics processing unit (GPU) could reach $500 billion within the next three years. After launching a year ago, AMD's data center GPUs are expected to bring in $5 billion in revenue.
AMD also just launched its fifth-generation Turin EPYC central processing units (CPUs) designed for AI and cloud computing, which offer better performance and lower cost of ownership over previous generations. Alphabet's Google and other large cloud service providers are expected to adopt Turin this year.
According to Yahoo! Finance, analysts' estimates call for earnings to be up 25% in 2024 and another 54% in 2025. Given this, you would think the stock would trade at a high multiple of earnings, but at the current $130 share price, investors can buy AMD stock at a reasonable 25 times 2025 estimates.
2. Amazon
Amazon (AMZN 0.01%) is the leading cloud service provider, with its Amazon Web Services (AWS) business benefiting from growing demand for AI services. Because AWS generates most of the company's operating profit, the stock could offer more long-term upside than investors realize.
AWS has grown rapidly since Amazon first created it in 2006. But corporate migration to cloud services is still in the early innings, and the opportunities companies have to move data over to AWS and use AI services in the cloud seem to be accelerating the shift.
Revenue from AWS grew 19% year over year on a currency-neutral basis in Q3, and trailing-12-month revenue reached $103 billion. It controls about one-third of the $300 billion cloud market, which itself is growing quickly.
AI chip leader Nvidia has chosen AWS for its AI supercomputer dedicated to research and development, a huge endorsement of AWS' capabilities in performance and security.
Amazon's investments in AI capabilities in AWS could benefit the entire company. For example, Amazon has launched AI shopping assistants for Amazon.com, which could benefit sales in its retail business.
Amazon is a solid growth stock that can help investors profit from the AI boom. While AWS is growing, management is also focusing on lowering costs on the retail side, which is boosting the company's profitability. This powerful combo is fueling the stock to new highs and could send it higher in 2025 and beyond. With analysts expecting earnings to grow at an annualized rate of 22%, Amazon investors could potentially double their money in the next five years.
