Nvidia (NASDAQ:NVDA) proved the artificial intelligence (AI) boom is here to stay. Revenue jumped by 101% year-over-year, as net income soared by 843% year-over-year. While these growth rates won’t last forever, they are here right now and can make Nvidia’s valuation more manageable in future quarters, especially for investors who scoop up shares at current price levels. It’s just one of the top AI stocks with huge potential.
While I have been bearish on Nvidia solely due to its valuation, other AI stocks don’t have the same disadvantage. These stocks also give investors an opportunity to ride the AI boom, but they don’t have the frothy valuation Nvidia has built up over the years. Investors looking for a promising investment in the AI boom may want to consider these seven up-and-coming AI stocks.
AI Stocks with Huge Potential: Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) has stayed in stride with Nvidia’s year-to-date returns and has comfortably outperformed it over the past five years. It gained over 228% year-to-date and has appreciated by 1,200% over the past five years.
Those types of returns can make any shareholder happy, but the company’s price-to-earnings (P/E) ratio of 23, and its ideal positioning for the AI boom suggest more gains are on the way. The company offers AI infrastructure solutions that will gain demand as more companies embrace artificial intelligence. It also has a close partnership with Nvidia, which means rising demand for the latter will contribute to stronger financials for Super Micro Computer.
Super Micro Computer’s net income more than doubled in fiscal year 2023. The company expects to generate $9.5 billion to $10.5 billion in net sales in fiscal year 2024. The midpoint, $10 billion, represents a 40.5% year-over-year growth rate. The rising demand for AI can help the company exceed its guidance as Nvidia did for its investors. Either way, strong revenue and earnings growth bode well for a reasonably priced company.
Axcelis Technologies (ACLS)
Axcelis Technologies (NASDAQ:ACLS) is another AI beneficiary that rewarded shareholders before talks about artificial intelligence became mainstream. Shares have gained 139% year-to-date and are up by 850% over the past five years. The company is smaller than some of the other artificial intelligence stocks on this list. ACLS has a market cap below $6 billion and a P/E ratio under 30.
The company has been a semiconductor leader for over 40 years and produces the transistors companies use to create semiconductors. Axcelis’ ion implantation technology is critical for the industry and has led to strong financials.
Axcelis Technologies comfortably beat earnings expectations and set new guidance above what analysts expected. Revenue in the second quarter reached $274.0 million, marking a 23.9% year-over-year improvement. Net income hit $61.6 million which equates to a 39.4% year-over-year increase. Artificial intelligence relies on semiconductors and stands to gain more business as AI chips become more popular.
AI Stocks with Huge Potential: Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is a semiconductor leader that has rewarded investors for several years. Its history of growing its dividend is hard to match. Plus, shares have almost quadrupled over the past five years. They are also up by 66% year-to-date.
The firm serves data centers, enterprise software companies, telecom giants, and other leaders across several business verticals. Broadcom is strengthening its cloud computing and cybersecurity initiatives through the acquisition of VMware. Broadcom recently affirmed that the acquisition will be completed on October 30th. The VMware acquisition will strengthen Broadcom’s financials, and the firm’s numbers are already solid. Broadcom has high profit margins and a good history of year-over-year revenue and earnings growth.
Broadcom shares currently trades with a P/E of 27, with a forward P/E ratio of 19. Those valuation metrics indicate AVGO stock has more to gain.
Arista Networks (ANET)
Arista Networks (NYSE:ANET) has been another tech winner. Shares have gained 61% year-to-date and are up by 161% over the past five years. Shares currently trade at a 33 P/E ratio, and financials look promising. In the second quarter, Arista reported 38.7% year-over-year revenue growth and 64.5% year-over-year GAAP net income growth. The firm set revenue guidance for $1.45 billion to $1.50 billion in the third quarter. The $1.475 billion midpoint represents 25% year-over-year revenue growth.
Arista Networks provides GPU and Storage interconnects which are critical for artificial intelligence. The company provides high-performing networks while seeking to lower operational costs for customers. Arista Networks isn’t only an artificial intelligence pick. It also provides cloud networking and cybersecurity solutions. The stock currently has a $55 billion market cap and is less than 10% away from its all-time high.
AI Stocks with Huge Potential: Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) makes semiconductors that many smartphone makers use in their devices. Although Qualcomm stands to benefit from the AI boom, investors wouldn’t get that indication from the stock’s measly 1% year-to-date return.
Shares are also down by 14% over the past year, but they have gained 64% over the past five years. Why do the uninspiring year-to-date and 1-year performances make Qualcomm worthy of a closer look? The stock has less to lose if the AI boom ever fizzles. Shares trade at a 14 P/E ratio, and the dividend yield is close to 3%. The company reported Q2 revenue of $8.5 billion which is down by roughly 20% year-over-year. The company made some progress by having EPS exceed the midpoint of guidance.
Qualcomm also has a PEG ratio close to one, a metric that usually indicates the stock is reasonably valued. Management remains confident that Qualcomm is in a good position to capitalize on the AI boom, a development that can lead to a higher stock price. QCOM stock has less to lose if an AI boom fades, but it still has plenty to gain due to its low valuation.
Digital Realty Trust (DLR)
Digital Realty Trust (NYSE:DLR) is a real estate investment trust (REIT) that invests in data centers. These properties are critical for artificial intelligence, but they also serve other uses, such as web server storage. Top internet companies like Meta Platforms (NASDAQ:META) and banking conglomerates like J.P. Morgan (NYSE:JPM) use Digital Realty Trust’s properties.
The stock has been mostly flat over the past five years, but artificial intelligence is set to change that trend. DLR stock has increased by 28% year-to-date and offers a dividend yield hovering close to 4%.
Digital Realty Trust has over 5,000 customers spread across over 300 data centers. Those customers’ needs will grow if some of them embrace artificial intelligence tools and software. Digital Realty Trust has been able to raise its prices for many of its properties while securing high occupancy rates. Price hikes and the firm’s large customer base contributed to a 24.1% year-over-year revenue jump and 86.3% year-over-year net income growth in the second quarter.
Equinix (EQIX)
Equinix (NASDAQ:EQIX) competes with Digital Realty Trust as a data center REIT. The company enjoys the same tailwinds as DLR but has performed better over the past five years. During that time, EQIX shares have been up by 79%. However, EQIX stock’s year-to-date returns are only 17.9% which trails DLR stock.
Second quarter revenue grew by 11% year-over-year. Equinix’s updated guidance suggests the company will achieve 12%-14% year-over-year revenue growth for Fiscal Year 2023. The firm has data centers spread across the Americas, Eurasia, Africa, and Australia. In addition, 53 major projects are currently underway in 40 cities and 23 countries.
While investors wait for the developments to play out, they get to enjoy a 1.75% dividend yield. The company hiked its dividend by 10% in 2023, taking the quarterly cash distribution from $3.10/share to $3.41/share. The company has been reliable with dividend hikes ranging from high single digits to low double digits.
On this date of publication, Marc Guberti held long positions in SMCI, ACLS, AVGO, ANET, and QCOM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
