2 Monster AI Growth Stocks to Buy Before They Join Microsoft and Apple as $3 Trillion Companies

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2 Monster AI Growth Stocks to Buy Before They Join

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and Apple as $3 Trillion Companies

Nvidia (NASDAQ: NVDA) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) delivered what can only be described as monster returns for shareholders over the last five years. The stocks surged 2,490% and 195%, respectively, while the S&P 500 (SNPINDEX: ^GSPC) advanced a mere 80%.

Better yet, that outperformance could continue in the coming years. Nvidia and Alphabet should benefit as businesses invest in artificial intelligence infrastructure, so much so that they could join

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and Apple as members of the elite $3 trillion club in the near future.

Here’s what investors should know.

Nvidia could be a $3 trillion company by the end of 2024

Nvidia currently has a market capitalization of $2.7 trillion, meaning shares would need to increase 11% for the company to reach a $3 trillion valuation. That could happen by the end of 2024. My reasoning is simple: Nvidia

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 are the industry standard in accelerating complex data center workloads like artificial intelligence (AI), and businesses are spending money hand over first where AI is concerned.

Case in point, five large

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companies — Alphabet,

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, Meta Platforms,

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, and Oracle — will record $181 billion in capital expenditures (capex) this year, according to JPMorgan Chase estimates. That implies 36% growth in capex spending, a substantial acceleration from 10% growth last year, primarily due to AI infrastructure buildouts.

Few (if any) companies will benefit more than Nvidia. The chipmaker holds 98% market share in data center GPUs and up to 95% market share in AI processors, according to Mizuho Securities. Nvidia is also gaining momentum in other data center hardware categories. Its Grace central processing unit (CPU) is ramping toward a multibillion-dollar product line, and its InfiniBand/Ethernet networking platforms are already a multibillion-dollar business.

Indeed, Nvidia could cross the $3 trillion threshold when it announces second-quarter results on Aug. 28. Wall Street underestimated sales and earnings growth in each of the last four quarters. Another low estimate could cause the stock to pop, and such an outcome seems plausible. CFO Colette Kress recently said that demand for H200 and Blackwell GPUs is “well ahead of supply, and we expect demand may exceed supply well into next year.”

Blackwell GPUs are state-of-the-art chips that can accelerate AI training and inference by factors of four and 30, respectively, compared to the previous Hopper generation. They are also more power efficient, such that they reduce the total cost of ownership by a factor of 25. CEO Jensen Huang recently told investors, “The Blackwell architecture platform will likely be the most successful product in our history.”

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Going forward, Wall Street expects Nvidia to grow earnings per share at 34% annually over the next three years. That makes its current valuation of 66 times earnings seem fairly reasonable, and it puts a $3 trillion valuation within easy reach. In fact, assuming earnings grow as quickly as analysts expect, Nvidia would be a $4 trillion company in 2026, even if shares trade at a more reasonable 45 times earnings.

Alphabet could be a $3 trillion company by the end of 2025

Alphabet currently has a market capitalization of $2.1 trillion, meaning shares would need to increase 43% for the company to achieve a $3 trillion valuation. That could happen by the end of 2025. Alphabet is the largest adtech company and third-largest cloud infrastructure provider worldwide. Grand View Research expects those markets to grow at annual rates of 22% and 21%, respectively, through 2030.

Building on that, Alphabet has invested billions of dollars in AI product development over the years. Indeed, Forrester Research recently recognized its dominance in AI infrastructure solutions, and the company is bringing that expertise to bear on its adtech and cloud computing businesses.

Alphabet recently added a conversational feature in

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Ads that lets brands create campaigns with natural language. It also introduced AI-powered image generation and profit-optimization tools to boost conversion rates. Those innovations should keep

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top of mind for advertisers. Additionally, CEO Sundar Pichai says AI Overviews in

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Search are boosting engagement and increasing user satisfaction, which should allay concerns about the company losing share in internet search.

Additionally, Alphabet has drawn more than 1.5 million developers to

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Cloud with Gemini, a multimodal model that can process language, images, video, audio, and computer code. The company is monetizing Gemini in several ways. For instance, Gemini powers a conversational assistant that automates tasks in

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Workspace applications, and it powers a conversational assistant that accelerates coding projects. Also, Gemini can be fine-tuned and used to build custom generative AI applications.

Investment bank UBS recently published a report (Artificial Intelligence: Sizing and Seizing the Investment Opportunity) that divides the AI value chain into three layers: the enabling layer, the intelligence layer, and the application layer. UBS analysts wrote, “We see the largest near-term opportunities in the enabling layer,” which includes semiconductor companies like Nvidia and cloud computing companies like Alphabet.

With that in mind, Wall Street expects Alphabet to grow earnings per share at 17% annually over the next three years, yet shares trade at a relatively inexpensive valuation of 24 times earnings. By comparison, Wall Street expects

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to grow earnings per share at 14% annually, yet the stock commands a relatively pricey valuation of 37 times earnings.

If Alphabet meets those expectations and the market affords the stock the same valuation as

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, it would be a $4 trillion company by the end of 2025. In that context, reaching $3 trillion is easily achievable, and investors should consider buying a position in this stock today.

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 

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for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $692,784!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

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*Stock Advisor returns as of July 22, 2024

Randi Zuckerberg, a former director of market development and spokeswoman for

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and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an

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subsidiary, is a member of The Motley Fool’s board of directors.

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has positions in

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and Nvidia. The Motley Fool has positions in and recommends Alphabet,

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, Apple, JPMorgan Chase, Meta Platforms,

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, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on

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and short January 2026 $405 calls on

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. The Motley Fool has a

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.

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was originally published by The Motley Fool

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#Monster #Growth #Stocks #Buy #Join #

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#Apple #Trillion #Companies

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