Should You Pass on Nvidia and Embrace These 2 AI Stocks for Million-Dollar Returns? | The Motley Fool
Micron and Amazon: Long-Term Opportunities
Nvidia has dominated the generative AI market, soaring 1,290% in the last five years. However, its stock has reached a peak, leaving little room for further surprises. As the market matures, investors might consider shifting their focus to other AI-related companies with lower valuations and innovative monetization strategies.
Let's delve into why Micron Technology and Amazon are worth considering for long-term investments.
Micron Technology
Micron has been a relatively unknown player in the tech industry due to its slow growth, taking over two decades to reach its dot-com bubble peak. This has been a missed opportunity for long-term investors who could have benefited from the S&P 500.
However, the generative AI boom is transforming Micron's fortunes.
The Current Boom and Its Causes:
Micron's recent surge can be attributed to the cyclical nature of the computer memory market. The commoditization of hardware leads to weak economic moats, and when demand spikes, supply struggles to keep up, causing shortages and rising prices. Generative AI has accelerated memory demand, resulting in significant shortages and price increases across the industry, benefiting companies like Micron.
Fiscal First-Quarter Revenue:
Micron's fiscal first-quarter revenue soared 57% year-over-year to $13.6 billion, indicating strong growth and margin improvements.
Share Buybacks:
While the memory boom may not last, Micron could return profits to investors through share buybacks, reducing outstanding shares and boosting earnings per share (EPS) even when demand cools.
Amazon
Amazon is a prime example of how major companies might utilize AI internally to cut costs.
Layoffs and Cost Savings:
Reuters reports that Amazon plans to cut 30,000 white-collar jobs this year, aiming to improve company culture. CEO Andy Jassy's memo in June 2022 hinted at AI's potential to reduce the corporate workforce and enhance efficiency.
Annual Cost Savings:
With an average salary of $133,000 for U.S. Amazon positions, these layoffs could lead to significant annual cost savings, allowing Amazon to reinvest in its business or conduct share buybacks.
Anthropic Partnership:
Amazon's close relationship with Anthropic, a leader in enterprise AI solutions, positions it as a significant player in the LLM market. Amazon's 15-19% equity stake in Anthropic, valued at $350 billion, could be a substantial profit driver.
In summary, while Nvidia has dominated the AI market, investors might explore opportunities with Micron and Amazon, which offer long-term potential through innovative strategies and strong partnerships.
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