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The artificial intelligence (AI) renaissance is unfolding right before our eyes. Data from Grand View Research indicates a strong growth trajectory, with AI industry revenue expected to mushroom to $1.181 trillion by 2030, based on a CAGR of 37.3%. Additionally, Accenture's recent findings underscore the potential for enterprise applications, as AI has the ability to boost profitability rates across industries by an average of 38% through 2035.
This bright future for AI has been priced into the stock market, albeit somewhat unevenly; while some companies have yet to monetize their AI efforts, shares of specialized chip designer Nvidia (NVDA) have more than tripled year-to-date, largely on the strength of its footing in AI applications.
With that said, let's look at two other top tech stocks that offer AI-driven growth opportunities for investors.
Amazon
Amazon (AMZN) isn't just the online retail behemoth we've known for years, with the FAANG giant's empire now stretching its tentacles into cloud computing, ad tech, and several other high-potential sectors.
Based on solid earnings reports over the past couple of quarters, the buzz surrounding AI, and the broader tech sector resurgence, AMZN has been on a stellar run this year. The stock is up 64% year-to-date, beating the S&P 500 Index's ($SPX) 16.1% gain, as well as the Nasdaq 100 Index's ($IUXX) advance of 39%.
The tech giant is harnessing AI primarily through the Amazon Web Services (AWS) platform. AWS provides a massive and scalable infrastructure essential for training complex AI models. Based on estimates from Synergy Research Group, Amazon led the global cloud computing space in terms of its market share, which stood at 32% in the second quarter of 2023.
Furthermore, Amazon CEO Andy Jassy said Machine Learning and AI has already driven “a very significant amount of business” for AWS in recent years - a trend that inspired the company to develop its own proprietary AI chips for training, Trainium and Inferentia. Going forward, Jassy expects his company's foundational expertise and expansive infrastructure in Large Language Models (LLM) to attract enterprise customers looking for customizable solutions. Furthermore, the company is diving headfirst into application tools, including innovations such as the Amazon CodeWhisperer, an AI-championed coding assistant.
Amazon delivered an 85.3% earnings surprise for the second quarter, with earnings of 63 cents handily beating estimates of 34 cents. Revenue of $134.3 billion was up by 10.8% year-over-year, and also surpassed expectations. Sales from AWS increased by 12% year-over-year to $22.1 billion in the second quarter, with Jassy noting, "AWS growth stabilized as customers started shifting from cost optimization to new workload deployment."
Looking ahead, Amazon projected third-quarter net sales between $138 billion and $143 billion, compared to the average analyst estimate of $138.25 billion.
After the earnings report, analysts at Needham raised their price target on AMZN from $150 to $160, citing the tech giant's “multiple generative AI initiatives” as a catalyst behind the note. Meanwhile, Bank of America's Justin Post hiked his price target to $174 from $154.
On average, the 39 analysts tracking AMZN maintain a “strong buy" rating, with an average 12-month price target of $166.85 implying expected upside of about 21% from current levels.
Microsoft
Microsoft (MSFT) is a trailblazer in the rapidly evolving realm of generative AI. The firm invested billions into OpenAI, the brains behind ChatGPT, while seamlessly layering AI into its software suite and Azure cloud computing platform.
Consequently, MSFT is up a respectable 40% year-to-date, right on pace with the Nasdaq 100. The stock hit a new all-time closing high of $358.73 on July 18, but has since pulled back, tracking a decline in the broader equities market.
Going forward, Microsoft stands to benefit immensely from generative AI integration across its services. Through Azure, developers can tap into OpenAI services, creating AI-based applications. Meanwhile, end users will get the AI experience via Office365's Co-Pilot suite, including Github, Bing, and Teams Premium. According to Evercore ISI analyst Kirk Materne, layering AI across the Microsoft portfolio could translate into $100 billion in incremental sales by 2027.
The firm's most recent fiscal fourth-quarter results yielded an upside earnings surprise of 5.9%, as EPS came in at $2.69, 15 cents higher than the estimate at $2.54. Microsoft reported $56.2 billion in sales for the period - 8.3% higher on a year-over-year basis, and better than consensus estimates. Its top-performing segment was yet again cloud computing, with revenue up 15% to $24 billion.
Turning to analysts, no fewer than 29 out of 35 rate Microsoft as a "strong buy," while three more call it a "moderate buy." Moreover, only one analyst deems it a "strong sell." Based on the average 12-month price target of $383.49, MSFT offers 16.7% upside from current levels.
Takeaway
The AI revolution is unfolding briskly, and tech giants Amazon and Microsoft are at the forefront of this tech renaissance. With its dominant cloud service, AWS, Amazon is leveraging AI to redefine cloud computing at the enterprise level. Meanwhile, through its investments in OpenAI and integration of AI across its software suite, Microsoft is making generative AI accessible to the masses. Given their operational prowess and impressive market share, buying into these tech giants makes investing in AI less of a gamble and more of a strategic play on the next evolution of tech.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
