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Artificial intelligence, or AI, is undeniably a massive opportunity with room for multiple big winners. Many of the most promising AI stocks have fallen out of favor recently thanks to economic uncertainty and AI spending concerns. However, this has created some excellent opportunities for patient investors to add some rock-solid AI stocks to their portfolio.
While there are plenty of AI stocks that look rather exciting right now, there are two in particular that are on my radar as we head into May. I already added one of them to my portfolio, and the other is at the top of my watch list right now.
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It's not Nvidia, but there's a lot to like
Advanced Micro Devices (NASDAQ: AMD), which is more commonly referred to simply as AMD, is often overlooked by investors because it holds a distant-second market share in the data center graphics processing units (GPU) space to chipmaking behemoth Nvidia, which has about 95% of the space.
However, there's a lot to like about the business. For example, AMD's desktop and laptop central processing unit (CPU) business has been impressively taking share from Intel for years (and it doesn't compete with Nvidia here). New models of AMD's Ryzen line of AI-optimized processors are especially promising. AMD also makes chips for mobile devices, as well as for a variety of other applications, such as gaming and autonomous vehicles. To be clear, data center chips are a big part of AMD's business and the fastest-growing part with 94% year-over-year revenue growth in 2024, but there is a lot more to this company.
In 2024, the company grew revenue and earnings per share by 14% and 25%, respectively, and this momentum could continue for years to come. AMD trades for nearly 60% less than its 2024 AI boom-fueled peak -- and for about 22 times forward earnings, which I think could be a steal given the momentum and opportunities ahead.
An essential equipment maker at a discount
Applied Materials (NASDAQ: AMAT) isn't exactly a household name, but many of the products made by the top semiconductor manufacturers (including Nvidia) are produced with the company's equipment. Specifically, Applied Materials makes and services semiconductor manufacturing equipment that is used to produce and package chips.
As chip designs become more complex, newer and more specialized equipment is needed to make them. For example, some of the largest chipmakers are moving to backside power delivery (moving power wires to a more efficient configuration at the bottom of a silicon wafer), and this creates an additional $1 billion estimated market opportunity for the company.