It’s hard to argue against the notion that artificial intelligence (AI) is the biggest opportunity that most of us will ever see in our lifetimes. AI is already changing the way humans work and will continue to do so. AI is not only changing work, it is also changing all aspects of society. Name something humans do and AI is likely being applied to improve that process. That said, the current biggest opportunity appears to be in data centers, at least for stock investors.
Data centers account for the majority of demand for AI chips at this point. Thus, investors should simply follow the money in order to capture returns. These companies are investing heavily in AI and have tremendous opportunities to grow as AI matures.
Alphabet (GOOG,GOOGL)
Alphabet (NASDAQ:GOOG,GOOGL) stock represents the parent company of Google. The two names are used synonymously but for the purpose of ease I’ll just use Google. Anyway, Google is one of the biggest data center stocks and represents a clear opportunity to capitalize massively on AI.
A report from a few months ago is very telling. It noted that Google is pouring billions into increasing its overall data center footprint. That investment includes several massive capital outlays for data centers across the United States. It also includes plans for substantial data center investments in Mexico, Malaysia, Thailand, New Zealand, Greece, Norway, Austria and Sweden.
Essentially, Alphabet is rapidly investing to build out the infrastructure necessary for its AI aspirations. It is one of several important hyperscaler companies with the resources to capture a significant portion of the AI market.
Investors should expect Google to continue thriving throughout 2024, especially in light of its strong first-quarter results. Ad revenues are again strong and those results, along with the data center investment, imply that the stock is a strong buy at the moment
Amazon (AMZN)
Amazon (NASDAQ:AMZN) stock is up nearly 20% in 2024. A lot of that strong performance is attributable to the company’s future opportunity in AI. The company is heavily promoting its recent investment in data centers, sending a strong signal to markets.
Amazon is set to spend an average of $10 billion annually over the next 15 years to retain its dominant cloud position. The company announced the $150 billion bet in late March. The heavy capital infusion will go toward creating the necessary resources to handle an anticipated spike in AI application demand.
Amazon is unloading the majority of that capital infusion early on. The company has already announced well over $20 billion in data center project investments in 2024. The company is also directing some of that investment toward the creation of wind and solar farms. That is unsurprising as data center energy consumption is rapidly increasing. Companies like Amazon have also promised to reduce their carbon emissions. They will therefore rely on clean energy sources including solar and wind to power the increased data center footprint.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) has capitalized on the AI boom as well as any company. The stock exploded upward in 2023, primarily as a result of its investment in OpenAI. Microsoft’s heavy connection to the ChatGPT creator gives the company a strong head start in AI over many of its competitors.
While that shrewd investment sent shares skyrocketing in 2023, 2024 has been slower. Microsoft stock is up a very respectable 13% during the year, but that remains somewhat behind the growth of its peer group.
Data center investments may be the catalyst to propel it upward again with greater velocity. In April it was reported that Microsoft had more than 5 gigawatts (GW) of data center capacity at its disposal. Microsoft added 500 megawatts of that overall capacity since July of 2023. The company intends to add one additional gigawatt of capacity during the first half of 2024. In 2025, Microsoft intends to add an additional 1.5 gigawatts of data center capacity during H1.
Microsoft continues to gobble up the AI GPUs necessary for use in those data centers. It’s news to no one, but Microsoft continues to be an excellent AI stock.
Meta Platforms (META)
Investors who have been paying attention know that Meta Platforms (NASDAQ:META) has also placed its bets on AI digital infrastructure this year. That’s an excellent reason to invest in the stock at this time.
During the first quarter of 2024 it was reported that Meta Platforms expected to spend between $30 to $37 billion on digital infrastructure investments in 2024. That was an increase of $2 billion over previous expectations at the high end. When the company released first quarter earnings in late April, that range increased again to between $35 to $40 billion.
If AI is truly the next groundbreaking opportunity then it’s clear the infrastructure required to process the workloads is the current prime opportunity. If it weren’t, the Meta Platforms of the world wouldn’t be so rapidly increasing their data center investments.
Invest in Meta Platforms because its ad business is again thriving but understand that the company is making massive headway in relation to AI. That investment promises to strengthen what is already one of the strongest companies globally.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) has quickly become the most important AI stock. Investors are well aware that the company’s chips dominate AI and remain in high demand. However, those same investors may not realize how important data center opportunities are to Nvidia overall.
Those investors who do dig a little bit deeper will quickly realize that data center revenues are far and away the primary driver for Nvidia. Company-wide revenues grew by 18% during the most recent quarter, reaching $26.0 billion. $22.6 billion of those revenues were attributable to data center sales. All of the aforementioned hyperscaler companies above continue to gobble up Nvidia’s chips for use in their data centers.
Nvidia’s gross margins continue to grow and are fast approaching 80% overall. Margins at that level suggest incredible economics at the company. Nvidia benefits from a clear competitive advantage that makes it highly investable even today With prices above $1,200 per share. Shares will trade for much less by the time you read this as the company will have affected a stock split that lowers the price. That promises to increase liquidity which should drive demand higher, sending prices higher in the process.
Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) is clearly the riskiest stock on this list of data center investments to capitalize on AI. Share prices have risen from $285 at the beginning of the year to a high of $1,200 mid-March. They have since retreated to $800 but there’s reason to believe that now is time to invest again.
Super Micro Computer leverages leading chip technology, integrating it into modular plug-and-play AI-enabled hardware currently in high demand. That includes Nvidia’s newest Blackwell GPU chips.
Super Micro Computer’s hardware like its AI SuperCluster will continue to be in high demand for data center applications. The company is one of the newer and more interesting generative AI plays available to investors.
I would argue that now is an excellent time to pick up Super Micro Computer following Nvidia’s recent strong performance. Nvidia’s earnings report should have sent a wave of relief across the markets in relation to AI. I believe that relief will manifest as renewed demand in companies like Super Micro Computer moving forward.
Cisco Systems (CSCO)
For the more risk-averse investor looking to capitalize on data center AI, Cisco Systems (NASDAQ:CSCO) is an excellent stock choice. The company sells Internet Protocol (IP) networking equipment and touches heavily on data center products overall.
It is one of the first investments to consider for those seeking income from the tech sector. Cisco Systems includes a healthy dividend yielding nearly 3.5%. So, investors should consider it for the combination of stable income and strong data center/AI exposure.
Meanwhile, Cisco Systems also recently launched a $1 billion dollar AI fund aiming to take stakes in upstart AI companies. That investment exposes Cisco Systems to Greater future growth potential which could in turn increase the income its stock provides.Furthermore, Cisco Systems is working hand in hand with Nvidia to simplify the deployment of generative AI applications.
CSCO shares continue to represent an excellent and safe investment in AI growth that won’t keep you up at night while also exposing you to secular growth across AI.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
