Shares of stock market darling Nvidia (NASDAQ: NVDA) have gained nearly 219% in the past year and have reached near-record highs. The semiconductor giant’s prowess in advanced GPUs and artificial intelligence (AI) software has made it the undisputed leader in the AI market, which has translated to dramatic improvement in its financial performance.
AI is undoubtedly the biggest investment theme in 2024. Many investors may be feeling that they have missed the Nvidia rally, especially since the company is now trading at a forward price-to-earnings ratio of 33 times — far higher than the median semiconductor industry valuation of 19.4 times. These investors can consider buying stakes in other high-quality AI stocks with relatively reasonable valuations, such as Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC).
Here’s why these two stocks are attractive picks in 2024.
Microsoft
Technology titan Microsoft has come out with stellar results for the second quarter of fiscal 2024, with both revenue and earnings surpassing consensus estimates. Not surprisingly, AI has been a major driving force for the company.
Microsoft’s Azure cloud computing platform is the key growth engine, with revenue soaring 30% year over year (including a six percentage point lift from AI services) in the second quarter ending Dec. 31, 2023. On the contrary, revenue from key competitors such as Amazon‘s AWS and Alphabet‘s Google Cloud grew year over year by 13% and 26%, respectively, in the most recent quarters. Azure has also managed to secure larger and longer-term deals, including billion-dollar-plus commitments. This will ensure that the business can remain relatively unscathed even in difficult times.
Azure is also quickly becoming an ideal cloud computing platform for AI workloads, thanks to its top-notch performance in training and inferencing of large language models. Microsoft offers customers a diverse selection of AI software models and AI hardware (from multiple chip players) to choose from, all integrated deeply with Azure infrastructure, data, and tools. The company has already built…
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