In January 2024, several artificial intelligence stocks show promise as the technology continues to evolve. Nvidia, Microsoft, Salesforce, Meta and Amazon are key players expected to benefit significantly from advancements in AI infrastructure and applications.
Nvidia’s reign in AI infrastructure
Nvidia (NVDA -3.00%) has demonstrated remarkable success in the AI sector, with its revenue growing 125% in fiscal year 2024. Projections indicate its revenue will more than double in fiscal year 2025. The company’s graphic processing units (GPUs) are crucial for AI infrastructure development, enabling rapid processing essential for large language model training and AI inference. Nvidia has captured a 90% market share in the GPU market, primarily due to its CUDA software platform, which simplifies the programming of its chips for diverse AI tasks.
AI infrastructure spending continues to increase, as large language models require substantial computing power for training. Nvidia’s largest customer, Microsoft (MSFT -1.32%), announced plans to invest approximately $80 billion this calendar year in AI data centers, with about half of that budget directed toward GPU servers. Given Microsoft’s previous fiscal year capex of $44.5 billion, rising capital expenditures from other significant customers are expected, ensuring continued growth for Nvidia. The stock trades at a forward price-to-earnings (P/E) ratio of about 31.5 and a price/earnings-to-growth (PEG) ratio of 0.98, indicating it may be undervalued.
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Microsoft’s expansion in AI services
Microsoft is significantly investing in AI infrastructure, particularly through its Azure cloud computing unit, which recorded a 33% revenue growth last quarter. The usage of Azure OpenAI services has doubled in the past six months, fueling demand for data and analytics services. While Azure’s growth trajectory is strong, officials forecast that revenue will accelerate in the second half of its fiscal year as new capacity becomes available from prior capex spending. Microsoft is also expanding its data center network across the globe to meet growing demand.
Moreover, Microsoft anticipates substantial growth in its AI software offerings, particularly through the AI copilots integrated into its Microsoft 365 productivity suite. These copilots, priced at $30 per month for enterprise use, assist in various tasks, including email management and creating presentations using natural language commands. Microsoft’s stock is reasonably valued, trading at a P/E of 32.5 based on current fiscal year estimates.
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Salesforce’s journey into agentic AI
Salesforce (CRM -2.77%) aims to lead in agentic AI, the next evolution beyond generative AI. Their newly launched platform, Agentforce, allows users to customize agents for various applications, including sales and customer service. Since its introduction, adoption has rapidly increased, with the company reporting the closure of over 1,000 teams using the platform just weeks after launch. Salesforce projects deploying 1 billion Agentforce AI agents by the end of fiscal 2026, with the platform operating on a consumption model priced at $2 per conversation. The stock currently trades at 29 times fiscal 2026 earnings, featuring a PEG ratio of 0.8, reflecting its potential value.
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Amazon’s cloud computing advantage powered by AI
Amazon (NASDAQ: AMZN) is set to be among the biggest AI winners as its cloud computing platform, Amazon Web Services (AWS), maintains its position as the global leader—commanding roughly 31% of the market. With a growing number of enterprises opting to rent computing power rather than build out their own systems, AWS is perfectly poised to benefit from the expanding role of AI in modern software. According to Goldman Sachs, AI tailwinds could lift the global cloud market—valued at around $500 billion in 2023—to an astounding $2 trillion by 2030. This evolution not only reinforces AWS’s dominant market position but also underpins Amazon’s strategic advantage in cloud-based AI innovation.
Beyond AWS, Amazon’s diverse business operations further solidify its growth prospects. As the leading U.S. e-commerce company and the force behind the robust Prime subscription service, Amazon is well diversified. Analysts expect the company’s bottom line to grow by approximately 22% annually over the next three to five years. Despite shares trading near all-time highs, the current forward price-to-earnings (P/E) ratio of 37 suggests there is ample room for continued expansion as AI accelerates the pace of cloud adoption.
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Meta’s aggressive AI investments could begin paying off
Meta Platforms (NASDAQ: META), the digital advertising titan behind Facebook, Instagram, WhatsApp, and Threads, is making bold moves in artificial intelligence and virtual reality. Under the stewardship of CEO Mark Zuckerberg—a long-time advocate for AI—Meta is channeling significant capital into its Reality Labs division, building the data center capacity necessary to lead in the AI space. Last quarter, Meta’s overall capital expenditures topped $9 billion, with Reality Labs incurring an operating loss of $4.4 billion. Despite these hefty investments, Zuckerberg is committed to a long-term vision, acknowledging that a meaningful return on these AI initiatives may take until the 2030s.
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Even as Meta places its bets on the future of AI, its core business remains exceptionally strong. The company continues to generate tens of billions of dollars in free cash flow annually through its vast digital advertising ecosystem, serving 3.29 billion daily active users. Market analysts project Meta’s earnings to grow nearly 18% annually over the next three to five years. Priced at just 25 times forward earnings, Meta not only offers solid current performance but also the potential upside of pioneering generative AI—a segment that could be worth over a trillion dollars in the coming years.
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Featured image credit: Kerem Gülen/Ideogram
