Two Notable Artificial Intelligence (AI) Shares Prepared for a Bullish Surge

Two Prominent Artificial Intelligence (AI) Companies Show Potential for Strong Growth

The market for synthetic intelligence (SI) is a generational financial investment opportunity. But you don't need to dive into risky stocks to reap significant returns. Leading semiconductor and software companies are profiting greatly from the increasing adoption of SI and can help you garner superior returns over the long term.

Here are two budget-friendly SI stocks that could hit new highs by 2025 and beyond.

1. Advanced Micro Devices

Shares of Advanced Micro Devices (AMD -2.83%) quadrupled in value during the past five years. The company is the second-largest provider of graphics processing units (GPUs), which are essential for SI training in data centers. The company has gained significant market share against Intel in recent years, but AMD stock has dropped about 4% this year and is underperforming the S&P 500's 20% increase. However, its latest earnings report shows accelerating growth that could push the stock up in 2025.

Revenue increased by 18% year over year in the third quarter, but the most telling sign of its progress is the 17% revenue increase over the previous quarter. The company's data center revenue more than doubled year over year, driven by unstoppable demand for AMD's Instinct GPUs and Epyc central processing units (CPUs) for servers.

AMD supplies chips for various markets, including video game consoles. Gaming revenue fell by 69% compared to the year-ago quarter, but the momentum in the data center and its client segment, including sales of Ryzen desktop processors, is strong enough to lift the stock next year. Management sees significant growth possibilities in these markets. It recently announced the acquisition of ZT Systems, which will expand its options in meeting the growing demand for SI infrastructure.

Most importantly, the high demand for data center and server chips is benefiting AMD's profits. Adjusted earnings per share were up 33% year over year last quarter, and analysts expect earnings to be up 52% in 2025.

AMD shares are not cheap at a forward price-to-earnings (P/E) ratio of 42 on 2024 earnings estimates, but this is a fair valuation to pay for a fast-growing SI chip supplier.

2. Microsoft

Microsoft (MSFT -0.51%) will be the face of SI for millions. The software giant has been incorporating SI features across its offerings for both consumers and businesses, including the Copilot assistant for Windows and Microsoft 365 apps. It has seen more people using Microsoft 365 (e.g., Word and Excel), and the Azure cloud business continues to see strong growth, driven by increased demand for SI services. The stock's 9% year-to-date return trails the S&P 500, but Microsoft's momentum in the cloud and SI should boost the share price.

There is some uncertainty about the timing of Microsoft's capital spending to support SI demand, and how those expenditures will translate into profits over the long term. But investors are giving Microsoft the benefit of the doubt. Revenue growth remains strong, with Microsoft Cloud revenue reaching $38.9 billion last quarter, up 22% year over year.

However, the expenditures required to support demand for SI services are pressuring earnings, which grew 10% year over year. This is lower than the 16% increase in revenue, but Microsoft is building scale in its cloud and SI services that will lead to better margins over time.

Microsoft is exploiting SI adoption exceptionally well. The company expects revenue from SI to surpass a $10 billion annual revenue run rate in the next quarter, which makes it the fastest-growing business in Microsoft's history.

Investments in SI will continue to impact margins, but management is focusing on high-margin opportunities in its consumer products. Overall, analysts expect the company's earnings to grow 15% in fiscal 2025 ending in June. The stock is reasonably valued at a forward P/E of 31, so investors should expect Microsoft shares to climb in tandem with earnings.

Investing in Advanced Micro Devices (AMD) could be a wise financial decision, as its stocks have shown significant growth in the past five years and the company is a major provider of graphics processing units essential for synthetic intelligence training. Moreover, Microsoft, being a software giant, is leveraging synthetic intelligence across its offerings and is expected to see revenue from SI surpass a $10 billion annual run rate soon, providing potential profits for investors.