The massive investments companies are making in artificial intelligence (AI) will bring new products and experiences to consumers that could change the world. Investors who put their money in the companies best positioned to profit from this technology could see outstanding results.
Here are two AI stocks that could be ready to take off in the second half of the year and beyond.
1. Apple
What better company to change the world with AI than Apple (NASDAQ: AAPL) -- a brand built on Steve Jobs' vision to design devices that did just that? Since unveiling new AI features coming to its devices this fall, the stock has surged to new highs over the last month. Wall Street is high on Apple's growth prospects, and for good reason.
Morgan Stanley is one firm that is touting Apple's growth potential in the AI era. The firm sees Apple Intelligence as a "clear catalyst for a multiyear product upgrade cycle."
Out of the 3.1 billion smartphones in use globally, more will be AI smartphones over the next decade. IDC expects smartphones with generative AI capabilities will grow 78% annually through 2028 compared to 2.3% for the broader smartphone market. The adoption of AI smartphones is an opportunity for Apple to convert more smartphone buyers to its lucrative lineup of products, and this opportunity kicks off with the launch of iOS 18 and the new iPhones later this year.
No smartphone maker is better at profiting from new technology. Apple's net profit totaled $100 billion over the last year. Strong sales of pricier devices with more advanced processors that are capable of running Apple Intelligence could drive its profits even higher. "We continue to feel very bullish about our opportunity in generative AI," CEO Tim Cook said on the company's last earnings call.
Analysts forecast Apple's earnings to grow 15% in fiscal 2024 (which ends in September), before increasing 10% next year. If Apple Intelligence drives the level of demand that analysts are expecting, these estimates could prove conservative and fuel Apple stock higher toward the end of the year.
2. Advanced Micro Devices
After rocketing 128% higher in 2023, shares of Advanced Micro Devices (NASDAQ: AMD) are effectively flat so far in 2024. But this top chip supplier has a few catalysts on the horizon that could send the stock to new highs.
AMD's new MI300 AI chip is doing very well in the data center market. The company's data center revenue grew 80% year over year in the first quarter. However, the rest of the business has seen mixed results, which explains the stock's subpar performance this year. However, improving growth in some of the company's other markets could open the floodgates for accelerating revenue growth heading into 2025.
Citigroup sees a path for the stock to move higher over the next year. The firm sees AMD benefiting from continued growth in the AI chip market, in addition to improving chip demand for PCs. On that note, AMD is working with Microsoft to optimize its Ryzen processors for new AI experiences coming to PCs.
"We see AI as the biggest inflection point in PC since the internet with the ability to deliver unprecedented productivity and usability gains," CEO Lisa Su said on the first-quarter earnings call.
Analysts currently expect earnings to increase by 31% this year before jumping 59% in 2025. As the end of the year approaches and investors turn their attention to next year's growth estimates, AMD stock could move sharply higher.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. John Ballard has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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