Yahoo Finance 2 Phenomenal Companies That Will Be Massive Winners Regardless of Who Wins the Artificial Intelligence (AI) Arms Race
Written by Brian Paradza, CFA at The Motley Fool Canada
It’s been a year since the groundbreaking release of ChatGPT, a generative artificial intelligence (AI) platform that ignited an ever-intensifying AI arms race. Software engineering teams remain in overdrive, trying to build the most powerful AI platform to rival OpenAI’s ChatGPT. The AI software development wars sparked high demand for supercomputing hardware, and chip manufacturer Nvidia magnificently rose to the supply challenge, and the AI stock rallied by 288% during the past 12 months. Other chip designers are racing to capture a piece of Nvidia’s market in 2024.
Regardless of who wins the software or the hardware supply side of the AI arms race, Meta Platforms (NASDAQ:META) and Advanced Micro Devices (NASDAQ:AMD) are two phenomenal growth stocks that may continue to thrive going forward.
The heated AI stock race
While OpenAI still maintains a lead on the AI software side today, new and frequently updated offerings from Anthropic, Mistral, Alphabet, Meta Platforms, and Elon Musk’s xAI, among others, are giving OpenAI respectable competition on functionality and for users. In response, OpenAI is working tirelessly to make its next-generation AI model GPT-5 “better at everything.”
On the hardware side, Nvidia dominates the AI arms race. Its total sales revenue surged by 126% year over year during the past 12 months, and earnings per share increased by 586%. However, AMD and Intel are new AI accelerator market competitors to watch in 2024. The AI accelerator market remains underserved, and customers could be spoilt for choice this year.
All-weather winners: Meta Platforms
Meta Platforms is a social media platforms giant that attracts an average of four billion users per month on Facebook, Instagram, WhatsApp, and Messenger. It pulls ever-growing crowds — a key attribute that brings billions of dollars in advertising revenue. Recent reports claim the company is aggressively replacing its marketing teams with AI and chatbots. This, among other AI moves, could be positive on Meta stock in the long term.
The social media giant reportedly cut account executive teams from about 10 to two or three. Most of the sales workload is being handled by AI now.
Why does this matter for Meta stock investors? The company is aggressively reducing sticky operating costs by replacing humans with AI as much as possible. Meta laid off more than about 20,000 employees in 2023. Its most recent Proxy Statements show the company paid its median employee US$296,320 (CA$399,491) in 2022. If management replaced lost jobs with AI, Meta could have saved close to US$6 billion (CA$8 billion) annually in employment costs.
I do not advocate for job losses to AI; however, Meta stock investors will be happier if a strategy for replacing “costly” humans with cheaper AI software adds more profits to the company’s bottom line. The company grew revenue by 16% to US$134.9 billion in 2023, and net income surged by 69% to US$39 billion for the year.
Further, Meta is developing AI to revamp recommendation algorithms on its platforms, creating additional moats around its social media business, too.
Regardless of who wins the AI race, Meta Platforms is most likely to maintain its crowd-puller advantage.
Advanced Micro Devices stock
Advanced Micro Devices is a semiconductor designer and manufacturer that has established itself as a good and highly potent competitor in the chip design and manufacturing industry. The AI stock challenged Intel in computing chips, made capable inroads into the gaming and data centre markets to challenge Nvidia’s dominance, and it’s onto Nvidia again — this time in the AI accelerator market.
AMD’s success is not in unsettling any market leader or ruling any market niche. The company’s competing AI offerings, which are already as equally as good as the leading AI offerings, are usually cheaper to deploy.
AMD gives the market the liberty of choice. It offers customers an opportunity to diversify their mission-critical infrastructure, and it does so at cheaper and compelling price points. The market challenger may continue to thrive whether Nvidia extends its market lead, Intel rolls out ground-breaking AI-capable personal computers, or some small, unproven, government-funded AI startup comes to market.
Up 31% year to date, AMD stock trades at a reasonable forward price-to-earnings ratio of 35, and market analysts expect its earnings per share to grow by 51% next year.
The post 2 Phenomenal Companies That Will Be Massive Winners Regardless of Who Wins the Artificial Intelligence (AI) Arms Race appeared first on The Motley Fool Canada.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Brian Paradza has positions in Advanced Micro Devices. The Motley Fool recommends Advanced Micro Devices, Alphabet, Intel, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
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