Did you miss the boat on artificial intelligence (AI) stocks?
After all, the king of AI stocks, Nvidia (Nasdaq: NVDA), has soared 238% this year, taking its market cap well above $1 trillion and putting it in an elite club of tech megastocks.
Nvidia is now spoken in the same breath as Apple (Nasdaq: AAPL), Alphabet (Nasdaq: GOOGL) and Amazon (Nasdaq: AMZN).
And Nvidia, which makes chips that are optimized for AI computing, had a blockbuster second quarter. Record revenue of $132 billion was double what it was a year ago. Earnings per share were up 850% year over year.
A performance like that is extremely uncommon for any stock.
That’s why some tech watchers suggest that if you didn’t get on the AI train early this year, you missed the bulk of the gains. After all, the stock market is supposed to price in future earnings gains. So today’s lofty prices for Nvidia and related AI stocks should already reflect the growth those companies will have in the coming years.
Perhaps that’s why those quarterly numbers – astounding as they were – actually pushed Nvidia’s stock lower by a couple of points. This occurred in the two trading days following the August 23 earnings release (though the stock has since rebounded and moved a bit higher).
Is It Too Late?
Hindsight is 20/20, of course, and those of us who don’t own Nvidia – or other AI stocks – might be disappointed right about now.
It’s often the case with super-hot stocks and sectors that we recognize their “obvious” potential only in retrospect… and too late, alas, to profit from them.
But this time just may be different… Or at least this sector almost certainly will be.
There are many differing forecasts for the AI chip market over the next few years…
But one reliable – and relatively conservative – source I found predicts the market will grow 30% a year through 2032, rising from about $22 billion today to more than $227 billion 10 years from now. That’s a 10X increase.
This number becomes less surprising when you look at some of the major (current) uses for AI chips and software. Just check out Nvidia’s latest earnings report for a look at the areas it’s active in:
- Data center. The company’s chips optimize power, data speed and cooling, which increases efficiency and lowers costs.
- Gaming. AI can generate faster and more lifelike games – and there’s an enormous market for these.
- Automotive. AI chips are needed for advanced driver assistance and self-driving vehicles.
- Visualization of data. This ever-growing field needs AI’s power and learning abilities.
Those are just the tip of the iceberg. McKinsey Research predicts that AI technologies could add as much as $4.4 trillion annually to the global economy. It sees the major use cases going forward as customer operations, marketing and sales, software engineering, and research and development.
But really, the sky is the limit here. There are likely an enormous number of uses for AI that we haven’t even dreamed of yet.
More anecdotally, earlier this year I attended The Oxford Club’s 25th Annual Investment U Conference in Ponte Vedra Beach, Florida, where I spoke at length with two experts on the AI industry.
They agreed that the proliferation and impact of AI technologies would be revolutionary. They differed only on the size of that impact. One said AI’s impact on global society would rival that of the internet. The other said it would rival the Industrial Revolution!
If you look at the numbers, the use cases and the experts’ opinions, you’ll find we’re still in the very early days of AI.
So you likely didn’t miss the boat. Savvy investors will want to have at least a portion of their portfolios in AI companies.