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Nvidia (NVDA 3.58%) You may be trying to do something unthinkable. Five years ago, the company was worth less than $100 billion.And we’re now less than 5% away from surpassing both. alphabet and Amazon In terms of market capitalization, it is about 15% away from reaching a valuation of $2 trillion.
The market is in forward-looking mode, as evidenced by the willingness to pay significant sums for results that may still be many years away. But if artificial intelligence (AI) brings about lasting change, investors buying popular stocks at record highs may be doing the right thing in the long run.
Here’s why Nvidia does it: taiwan semiconductor manufacturing (TSM -0.46%)and microsoft (MSFT 1.55%) are three of the top growth stocks to buy right now.
Image source: Getty Images.
Nvidia is a really smart way to invest in artificial intelligence
Scott Levine (NVIDIA): It’s hard to imagine a company with a market cap of over $1.7 trillion still in growth mode, but that seems to be the case with Nvidia. The company’s data center business is booming, thanks to soaring demand for artificial intelligence and the critical computing requirements of deep learning and analytics. And as AI continues to penetrate more and more areas of our lives, it shows no signs of slowing down.
Nvidia achieved record financial results in its fiscal third quarter of 2024, which ended October 29, 2023, beating guidance for $16 million in revenue and reporting revenue of $18.1 billion. What does the company attribute this impressive performance to? The company’s data center business. Nvidia’s data center business led a strong quarterly performance, up 279% year-over-year, and that performance is expected to continue into the fourth quarter. Nvidia expects to set a new record in the fourth quarter of 2024, with quarterly revenue reaching his $20 billion.
Nvidia’s explosive growth isn’t just in its income statement. The cash flow statement is also strong due to the strong performance of the data center business. Through the first three quarters of fiscal 2023, Nvidia reported free cash flow of over $2 billion. However, in fiscal year 2024, Nvidia reported free cash flow of $15.7 billion.
Nvidia continues to innovate to stay at the forefront of the AI industry. For example, this week the company announced partnerships with: Cisco Systems This will further strengthen our data center business. Nvidia believes that using Nvidia’s Tensor Core GPUs in Cisco’s servers will enable “optimal performance across a wide range of AI and data-intensive workloads in the data center and edge.” .
Taiwan Semiconductor is delivering the AI revolution through the back door
Lee Samaha (Taiwan Semiconductor): The explosion of interest in AI and global 5G deployment is creating an unprecedented demand for energy-efficient computing power. This requires data centers and telecommunications companies to invest in high-performance computing (HPC) solutions, chips made by semiconductor foundries such as Taiwan Semiconductor. For reference, Nvidia, Qualcomm, and apple All are Taiwan Semiconductor customers.
The foundry company does not design or sell semiconductors under that name. Instead, we focus on manufacturing for our customers.
In a recent earnings call, CEO CC Wei said that “almost every AI innovator is working with TSMC,” and management projects revenue growth in the low to mid 20% (in USD terms) in 2024. says its predictions are “based on robust AI.” -Related demand. ”
Taiwan Semiconductor’s management is particularly excited about the 2-nanometer (new generation chip) technology, with Wei saying, “Compared to N3 at a similar stage, N2 has seen a much higher level of customer interest and engagement.” “Something has been observed.” From both HPC and smartphone applications. ”
Given that the company’s N2 technology will be introduced in 2025 and management is already predicting strong revenue growth in 2024, it’s clear that the company is enjoying an AI tailwind. This will enable Taiwan Semiconductor to excel in AI and return to cyclical economic growth.
Microsoft is worth more than it seems at first glance
daniel ferber (Microsoft): When it comes to investing in big AI companies, Nvidia comes to mind first. At this rate, the company could soon become the third most valuable U.S.-based company. However, it is still far from surpassing Microsoft and Apple.
I think Microsoft has the potential to become the first $4 trillion company for a very simple reason. Microsoft has a direct path to implementing AI solutions across its consumer and (more importantly) business customers. This is a similar market opportunity for his Nvidia, which primarily sells to businesses rather than consumers. And I think this is a much more lucrative and easier path to AI than the consumer market (Apple Vision Pro, etc.), at least for now.
AI-powered enterprise solutions have a clear purpose: to make tasks easier, better, and faster. Microsoft is seeing real results from its “everyday AI companion,” Microsoft Copilot. This generative AI solution fits into several Microsoft software products, including the flagship Microsoft 365.
Microsoft’s cloud business is another sandbox for AI to thrive. Microsoft reported 53,000 Azure AI customers last quarter, more than a third of whom joined Azure in the past 12 months.
GitHub, Microsoft’s developer program, is another place where AI is having a direct impact. Microsoft increased GitHub revenue by 40% in its fiscal second quarter of 2024, ending December 30, 2023, compared to the same period last year. The company attributes this growth to his GitHub Copilot. GitHub Copilot has over 1.3 million paid subscribers, a 30% increase in just one quarter.
Microsoft is seeing growth. There are many levers available and are showing traction across multiple AI solutions. Microsoft’s price-to-earnings ratio is also 37.3 times, significantly lower than Nvidia’s 92.6 times. Neither stock is cheap. But given Microsoft’s unique combination of brand strength, diversification, cash flow, legacy business, and growth potential, the stock remains a good value and has room to move higher from here.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Daniel Felber has no position in any stocks mentioned. Lee Samaha has no position in any stocks mentioned. Scott Levine has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Cisco Systems, Microsoft, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
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