Artificial intelligence (AI) is rapidly becoming one of the most significant growth trends in the market, with projections indicating a compound annual growth rate (CAGR) of 30% to 40% through 2030. The market size is expected to exceed $800 billion by 2030, potentially reaching over $1 trillion.

As we enter 2023, the AI revolution has gained momentum, particularly with the rise of generative AI, which has broadened the scope of AI applications. The launch of OpenAI’s ChatGPT in late 2022 has significantly impacted the tech landscape.

This article highlights two leading companies in the AI chip and technology sector.

Best AI Chip/Technology Stocks

Company	Market Cap	Forward P/E Ratio	Wall Street’s Projected 5-Year Annualized EPS Growth	Year-to-Date 2024 Return	10-Year Return
Nvidia (NASDAQ: NVDA)	$3.2 trillion	47	46.4%	161%	28,220%
Arm Holdings (NASDAQ: ARM)	$142 billion	86	31.2%	80%	N/A*
S&P 500 Index	N/A	N/A	N/A	19%	241%

Data sources: Yahoo! Finance and YCharts. Data as of August 23, 2024. P/E = price-to-earnings. EPS = earnings per share. *Arm held its IPO in September 2023.

To illustrate the potential gains, an investment of $1,000 in the following stocks a decade ago would yield:

• Broader market (S&P 500): $3,410
• Nvidia: $283,200

1. Nvidia

Nvidia is a leader in the AI chip market, with its GPUs recognized as the standard for accelerating AI workloads in data centers. The company commands over 90% of the AI GPU chip market and more than 80% of the overall data center AI chip market. The fast-growing market for AI chips is projected to reach $400 billion by 2027, with Nvidia’s data center platform contributing 87% of its revenue.

Nvidia’s upcoming earnings report is expected to show a year-over-year revenue growth of 107%, with projected adjusted earnings per share of $6.22, reflecting a 130% increase.

2. Arm Holdings

Arm, based in the U.K., designs CPU architectures and licenses them to major tech companies, including Apple and Qualcomm. Its energy-efficient chip architecture has been pivotal in the smartphone revolution, with Arm-based chips found in 99% of smartphones.

Recently, Arm has expanded into high-value markets, including AI accelerators and data center servers. In its latest earnings report, Arm reported a 39% year-over-year revenue increase to $939 million, with a profit margin of 44.6%.

Valuations for Nvidia and Arm Stocks

Nvidia’s stock trades at 47 times its projected earnings, which is justified by its expected earnings growth of 46.4% over the next five years. In contrast, Arm’s stock is trading at 86 times its projected earnings, reflecting high expectations for its growth potential.

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

Before investing in Nvidia, consider that it was not included in the Motley Fool Stock Advisor‘s list of the 10 best stocks to buy now, which could yield significant returns in the coming years.

For more insights, visit 2 Best Artificial Intelligence (AI) Stocks to Buy Now: AI Chip Edition originally published by The Motley Fool.

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