NvidiaThe company’s shares hit an all-time high in August 2023 as demand for data center graphics cards shows no signs of slowing down. As major companies battle for dominance in the artificial intelligence (AI) landscape, this semiconductor stock seems almost invincible.
However, investors should be aware of the risk of an AI chip shortage if they put their money in Nvidia. Given the high demand for its H100 chips and the possibility of panic buying, Nvidia’s revenue growth could be affected at least in the short term.
Against this backdrop, retail investors may be wiser to opt for other fundamentally strong AI stocks in September. This is why Microsoft (NASDAQ: MSFT) And Amazon (NASDAQ: AMZN) fits the bill.
Shares of tech giant Microsoft, a leader in enterprise software as a service, are up 39% so far this year. While the company’s fourth quarter (ended June 30) revenue and earnings performance exceeded consensus expectations, the slow growth prospects for its AI services appear to have disappointed investors.
Nevertheless, the main appeal of investing in Microsoft is undeniably its growth potential in AI – driven by its $13 billion investment in ChatGPT developer OpenAI. The strategic alliance with OpenAI has given Microsoft exclusive licenses to several of OpenAI’s major language models, allowing it to expand its offerings such as Bing, Microsoft 365 and Azure with AI capabilities.
Azure is the only cloud platform with access to OpenAI’s major language models and is also OpenAI’s exclusive cloud provider. Therefore, Microsoft will benefit dramatically from the increasing adoption of ChatGPT. The Azure OpenAI service (which gives Azure customers access to several major OpenAI language models) was used by 11,000 customers at the end of the fourth quarter, a significant jump from the 2,500 customer base at the end of the third quarter.
Microsoft also unveiled plans to monetize Microsoft 365 Copilot, an AI virtual assistant for the Microsoft 365 suite, for $30 per month per user. In addition to generating additional revenue from existing Microsoft 365 users who opt for this feature, Copilot’s usefulness could attract new customers to Microsoft. At the end of the fiscal third quarter (ended March 31), 382 million people (paid licenses) were using the Office 365 suite. The Copilot subscription may also cause a significant number of Office 365 users to switch to the more expensive Microsoft 365 subscription.
In addition to its growth opportunities in AI, Microsoft also has some secular tailwinds in areas such as cloud computing, cybersecurity, and business productivity. According to Mordor Intelligence, the global cloud computing market is expected to grow from $580 billion in 2023 to $1.24 trillion in 2028. As the second dominant cloud infrastructure player with a 22% market share, Azure will benefit from this market expansion. Furthermore, cybersecurity is also emerging as a new frontier for the business.
While the stock may seem pricey at over 11.7 times last-12-month sales, Microsoft’s diversified product portfolio and AI-driven advantage could make it an attractive choice for investors – especially if they opt for a dollar-cost averaging strategy.
Amazon stock is a hot topic in 2023, up a remarkable 61% so far this year, marking its longest growth streak in two decades. This growth seems even more impressive considering that the company faced higher labor and logistics costs in 2022 and saw its share prices fall by almost 50%.
As Amazon continues to invest heavily in AI software and hardware (computing power, large language models, proprietary chips), its stock could continue to grow even higher in the coming months. The company is leveraging its leading position (32% share at the end of June) in the cloud infrastructure market to quickly add several AI-enabled services to its cloud computing platform, Amazon Web Services (AWS). Prominent among these is the Amazon Bedrock service, which allows customers to build custom generative AI applications with proprietary data and several major language models on AWS.
Amazon has invested heavily in AI over the past 25 years, as evidenced by several AI-powered products such as Amazon SageMaker, Amazon Rekognition, and Alexa. The company has also launched a pair of custom AI chips, Trainium and Inferentia, for training and inference of large language models. The market has taken notice of these efforts, and Amazon is now attracting thousands of customers to its AI offerings.
The rapid adoption of big data, machine learning and AI has also driven growth in the cloud computing market. In the second quarter, AWS revenue grew 12% year over year to $22.1 billion – a steady performance as companies focus on cost savings. The e-commerce business is also showing signs of improvement. Meanwhile, advertising revenue rose 22% year over year in the second quarter. With vast amounts of personalized purchasing data, a large number of third-party sellers on the platform, and robust AI capabilities, advertising is well positioned to become a key profit driver in the future.
Despite its many upsides, Amazon trades at 2.6 times trailing-twelve-month sales, even after its massive share price surge in 2023. Given its AI prowess, diversified business model, and many tailwinds, investors may want to consider a small position in the market. this top AI stock.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Manali Bhade has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon.com, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.