Artificial intelligence (AI) stocks have been in the limelight over the past year, thanks to the massive impact this technology is likely to have across multiple industries, with McKinsey estimating that AI adoption could add a whopping $13 trillion to the global economy by 2030.
There are many ways investors can capitalize on this huge opportunity. Two companies that stand to win big from AI adoption in two distinct industries are Advanced Micro Devices (AMD) and SentinelOne (S).
Both stocks have been on fire in 2023. While shares of AMD have jumped 113%, SentinelOne has shot up 83%, with a big chunk of that jump coming since the beginning of November. The recent stock price action of both companies suggests they may already have gone parabolic — which refers to a rapid jump in the share price of a company in a short time, similar to the right side of a parabolic curve.
However, there is a solid chance that these two AI stocks could go on another parabolic run in 2024.
1. Advanced Micro Devices
Nvidia (NVDA) is the leader in the market for AI chips. The company reportedly controls between 80% and 95% of this lucrative market, which is going to be worth an estimated $45 billion this year as per AMD’s estimates.
Nvidia’s dominant share explains why it has been growing at a terrific pace in recent quarters. The company’s fiscal 2024 third-quarter revenue (for the three months ended Oct. 29, 2023) was up 206% year over year to $18.1 billion. Nvidia is forecasting its fiscal fourth-quarter revenue to increase at a faster pace of 233% year over year to $20 billion.
AMD, however, is aiming to end Nvidia’s free run in the AI chip market with its MI300 series of data center accelerators. Earlier this month, AMD announced the availability of its latest AI accelerators, which will be deployed by the likes of Microsoft, Meta Platforms, and Oracle in the cloud. Server manufacturers such as Dell and Super Micro Computer will also be offering server solutions based on AMD’s new chips.
It is worth noting that AMD’s latest MI300 family of processors is based on a 5nm/6nm (nanometer) manufacturing node from Taiwan Semiconductor Manufacturing, popularly known as TSMC. This is identical to the node on which Nvidia’s flagship H100 AI graphics processing unit (GPU) is based, indicating that AMD is looking to offer a competitive alternative to Nvidia’s processors.
What’s more, AMD’s flagship MI300X accelerator is packed with 192GB of HBM3 memory and has a peak bandwidth of 5.3 TB/second. That’s higher than Nvidia’s H100 processor, which is packed with 80GB of HBM and has a memory bandwidth of 3.35 TB/second. The specs could translate into solid real-world performance as well, with AMD claiming that its MI300X processor could go toe-to-toe with the H100 while performing certain AI tasks.
As a result, it won’t be surprising to see a big jump in AMD’s AI-related revenue in 2024. The company is currently forecasting that it could sell at least $2 billion worth of AI chips next year, but that figure could be much higher considering that AMD could get its hands on a big chunk of supply from its foundry partner next year. Also, AMD sees a $400 billion revenue opportunity in AI chips by 2027, indicating that it could win big from this market in the long run.
So, if AMD manages to get its hands on a healthy supply of AI chips to fulfill the robust end-market demand and indeed takes away some share from Nvidia, it could grow at a faster pace than Wall Street’s expectations. Consensus estimates suggest that AMD’s revenue could increase by 16% in 2024 to $24 billion, but there are emerging catalysts that could help it outpace those estimates. As such, it won’t be surprising to see this AI stock go parabolic in 2024 and deliver more upside to investors.
2. SentinelOne
The adoption of AI in the cybersecurity market is set to grow rapidly in the long run. According to Bloomberg, generative AI-based cybersecurity spending could grow from just $9 million in 2022 to $14 billion in 2032 at a whopping compound annual growth rate of 109%.
SentinelOne is already making the most of this opportunity, as the company’s fiscal 2024 third-quarter results (for the three months ended Oct. 31, 2023), which were released on Dec. 5, indicate. The company’s quarterly revenue jumped an impressive 42% year over year to $164 million, easily clearing the consensus estimate of $156 million. Even better, SentinelOne posted a smaller loss of $0.03 per share as compared to the prior-year period’s $0.16-per-share loss. Analysts would have settled for a loss of $0.08 per share.
The company has guided for fiscal 2024 revenue of $616 million, which would be a 46% jump over last year. SentinelOne was earlier anticipating $605 million in revenue in the current fiscal year, but it seems like the growing adoption of the company’s AI-powered cybersecurity platforms led it to increase the guidance.
SentinelOne launched a generative AI-powered solution known as Purple AI to detect, analyze, and respond to cyber threats in April this year. An organization’s security analysts could simply use text prompts to carry out cybersecurity operations, and the good part is that SentinelOne has already started delivering this offering to its customers.
The company also provides an AI-powered cloud security solution, known as Singularity, which allows its customers to protect their cloud workloads. This solution should help SentinelOne tap the cloud security market, which is expected to generate $106 billion in annual revenue in 2029, as compared to $21 billion in 2021.
These fast-growing markets should positively impact the company’s growth and explain why analysts have raised their revenue forecasts of late. Not surprisingly, analysts are expecting SentinelOne to deliver solid growth over the next couple of years as well.
SentinelOne stock is trading at 13.5 times sales right now. While that seems expensive at first, investors shouldn’t ignore that the company has been growing at a nice clip and has justified its rich sales multiple with an impressive jump in revenue.
Assuming it maintains a similar multiple after two years and hits $1.06 billion in revenue, as we saw in the chart above, its market cap could jump to $14.3 billion. That would be a 78% jump from current levels. However, don’t be surprised to see this cybersecurity stock deliver even stronger gains and go on a parabolic run if it continues to outperform expectations and clock better-than-expected growth on the back of new catalysts such as AI.
— Harsh Chauhan
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Source: The Motley Fool