This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Advanced Micro Devices (AMD) is a promising AI stock due to its growing role in the chip market.
- Meta Platforms might be one of the most undervalued large tech companies right now.
Tech stocks have experienced choppy trading patterns in recent weeks. However, the long-term outlook for top companies in the sector continues to position investors for excellent return potential.
The tech-centric Nasdaq Composite has returned 90% over the last five years, outperforming the S&P 500 and Dow Jones Industrial Average. Artificial intelligence (AI) has been a significant catalyst for the growth of the largest tech companies over the last few years, but it's just getting started.
The following AI stocks are excellent options to profit from the growth of this revolutionary technology.
1. Advanced Micro Devices
Leading tech companies will continue to invest in advanced computing hardware until AI surpasses human intelligence. That's where the world is heading. The stakes are enormous, but to achieve this, these companies will need significantly more computing power. This is why investors should consider investing in Advanced Micro Devices (NASDAQ: AMD).
AMD has navigated through a slump in its growth over the past few years, but the investments it has made to catch up in the AI chip market are starting to pay off. Revenue grew 36% year over year in the third quarter, reaching $9.2 billion. It also reported a 30% year-over-year increase in adjusted earnings per share and record free cash flow, demonstrating how AMD is profitably scaling its business.
It's just getting started. The company is driving this accelerating growth by offering a superior cost-performance balance compared to competing chips. Its fifth-generation Epyc central processing units (CPUs) for servers continue to gain market share on Intel, while its MI300 series of graphics processing units (GPUs) are valued for their efficiency in handling AI inference workloads.
The launch of the MI450 GPU next year is expected to drive record revenue. OpenAI is slated to purchase a large cluster of MI450s in the second half of 2026. This is part of a long-term agreement that will make AMD a key strategic partner for the owner of ChatGPT.
These deals indicate further growth for AMD that could deliver substantial returns for investors. Analysts are currently projecting annualized free-cash-flow growth of 66% through 2029. This is why the stock rocketed to new highs and could offer significant upside.
2. Meta Platforms
Meta Platforms (NASDAQ: META) has over 3.5 billion people using its services daily, with more than 3 billion on Instagram alone. Meta is making these services even more profitable and engaging for users by leveraging AI. With substantial resources to expand its data center capacity, Meta is building an unstoppable competitive advantage around its tech infrastructure.
Its third-quarter financial results were outstanding, with revenue up 26% year over year. Its ad revenue is generating a significant operating margin of 43% on a trailing-12-month basis, contributing to $44 billion in free cash flow.
Meta has made improvements to its ad technology, where AI is driving better efficiency and more relevant ads shown to users. AI-driven ad tools are generating over $60 billion annually, accounting for approximately a third of the company's total revenue.
The stock is down 20% since the third-quarter earnings report, primarily due to the company's plan to accelerate capital spending over the next year. This is expected to put pressure on margins and profits. However, the additional GPUs and compute capacity will further expand its AI capabilities, potentially leading to lucrative opportunities to generate more profits in the future.
These investments will strengthen Meta's long-term competitive moat and potentially lead to the development of new AI-driven services. There is considerable long-term upside for Meta that is not fully reflected in its current valuation. The stock is trading at just 20 times 2026 earnings estimates, which appears to be a bargain for a leading tech company.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
