Riding the Wave of Tech Prosperity
In recent times, the tech industry has seen a meteoric rise, exemplified by the Nasdaq-100 Technology Sector’s 58% surge since February 2023. Wall Street’s fervor for budding sectors like artificial intelligence (AI) and cloud computing showcases their immense growth potential over the coming years. The AI market is projected to achieve a staggering compound annual growth rate (CAGR) of 37% up to 2030, with an anticipated valuation nearing $2 trillion by the end of the decade.
Simultaneously, the cloud market boasts an 18% CAGR, boosted by the escalating demand for AI services. This lucrative landscape presents an opportune moment to diversify your investment portfolio with companies poised to reap the rewards of these burgeoning industries in the long run.
Innovative Hardware Investment: Advanced Micro Devices
One stellar investment avenue in the tech arena is Advanced Micro Devices (NASDAQ: AMD), a frontrunner in chip manufacturing. AMD’s broad reach spans various tech products, supplying chips for video game consoles, cloud platforms, laptops, AI models, and custom-built PCs. This past year, its foray into AI has been particularly promising, driving its stock price up by 20% year-to-date, fueled by investor optimism surrounding its prospects in the burgeoning AI market.
The AI explosion in 2023 propelled the demand for high-powered chips, such as graphics processing units (GPUs), with Nvidia initially dominating the AI chip market. However, AMD is swiftly challenging Nvidia’s supremacy to claim its share of the $200 billion industry. AMD’s introduction of the MI300X AI GPU last December, tailored as an alternative to Nvidia’s offerings, has already attracted tech giants like Microsoft and Meta as clients.
AMD’s 2023 fourth-quarter earnings report highlighted a 10% year-over-year revenue surge to $6 billion, surpassing analysts’ projections by $60 million. Notably, the company’s AI-focused data center segment exhibited a remarkable 38% revenue growth. Additionally, improvements in the PC market bolstered AMD’s client segment by 65% yearly.
With a robust long-term outlook and promising earnings-per-share (EPS) estimates, AMD presents a compelling option for those seeking enduring investments in the tech domain.
Software Giant: Alphabet’s Long-Term Success Story
While AMD excels in hardware, Alphabet (NASDAQ: GOOG, GOOGL) dominates the software realm with notable brands like Android, YouTube, Chrome, and various Google products. Over the past five years, Alphabet has witnessed a significant 90% increase in annual revenue to $307 billion, coupled with a 135% rise in operating income to $84 billion.
Alphabet has established a robust digital advertising business, constituting a significant portion of its revenue. With over 80% market share in search engines and dominance in online video sharing and smartphone operating systems, Alphabet’s potential for ad revenue seems boundless.
During Alphabet’s most recent quarter in the fourth quarter of 2023, revenue surged by over 13% year over year, surpassing expectations by $1 billion. Although ad revenue slightly underperformed, the AI-focused Google Cloud segment reported a notable 26% revenue growth, reaching $9 billion. Moreover, Google Cloud’s operating income soared to $864 million, compared to the $186 million losses recorded in the same period last year.
Alphabet, like its counterparts, is heavily investing in AI. While facing stiff competition from industry rivals such as Microsoft and Amazon expanding their AI cloud services, Alphabet’s stock value demonstrates a significant advantage. With lower forward price-to-earnings and price-to-free-cash-flow ratios compared to Microsoft and Amazon, Alphabet’s stock is currently undervalued, making it an attractive investment prospect.
Backed by a diverse portfolio of potent brands, robust financial growth, and an expanding footprint in AI technologies, Alphabet emerges as a must-have asset for long-term investors.