3 Top Artificial Intelligence (AI) Stocks Ready for a Bull Market

The rapid spread of artificial intelligence (AI) has caused a stir in many tech stocks. The biggest winners so far are start-up companies like Nvidia (NASDAQ:NVDA) And Microsoft. Nvidia supplies the high-end data center GPUs for processing complex AI tasks, while Microsoft owns a large stake in ChatGPT developer OpenAI.

Over the past five years, Nvidia shares have risen 2,590% as companies scramble to upgrade their servers with the new GPUs. Microsoft's stock has more than tripled as the company integrates more of OpenAI's tools into its growing cloud ecosystem.

Both leading AI stocks remain reliable long-term investments, but investors should not underestimate the less obvious AI stocks that could potentially rise in the next few years. Let's take a closer look at three of these companies: oracle (NYSE: ORCL), Broadcom (NASDAQ:AVGO)And Arm stocks (NASDAQ:ARM).

1. Oracle

Oracle is one of the world's largest database software companies. It's a mature market, but the company has unleashed some new growth engines over the last decade by transforming its on-premise software into cloud-based services. The company also expanded its cloud ecosystem to include more enterprise resource planning (ERP) services and strengthened its cloud infrastructure platform.

Oracle benefits from the growth of the AI ​​market in two ways: its database software aggregates much of the data that needs to be processed by AI applications, and its cloud infrastructure platform supports the growing storage and computing needs of these demanding applications. The company already generated 42% of its revenue from its cloud-based Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS) platforms in the last quarter. The company expects IaaS revenue, which has already increased by 50% in fiscal 2024 due to the expansion of the AI ​​market, to increase again in fiscal 2025.

From fiscal 2024 to fiscal 2027 (ending in May 2027), analysts expect Oracle's revenue to grow at a compound annual growth rate (CAGR) of 12%, while earnings per share (EPS) grow at a CAGR of 21% . The stock may not seem like a bargain at 31 times next year's earnings, but its continued expansion should support that higher valuation.

2. Broadcom

Broadcom is a diversified semiconductor and infrastructure software giant that has evolved and expanded through major acquisitions. Its semiconductor business produces chips for the mobile, data center, networking, wireless, storage and industrial markets, while its newer infrastructure business has expanded over the past six years through the acquisition of CA Technologies in 2018, Symantec's enterprise security division in 2019 and the cloud software giant VMware last November.

Broadcom's sales of networking, optical and custom accelerator chips rose sharply last year as data centers modernized their infrastructure to support new AI applications. The company expects AI chip sales to roughly triple to $12 billion in fiscal 2024 (ending in October), or nearly a quarter of full-year sales. This growth, along with VMware integration and acceleration, should offset slower sales of non-AI chips.

From fiscal 2024 to fiscal 2027, analysts expect Broadcom's revenue to grow at a CAGR of 24%, while its earnings per share grow at a CAGR of 18%. At 43 times next year's earnings, the stock may not seem cheap, but that valuation is boosted by one-time costs related to recent acquisitions. On an adjusted basis, the company appears to be more reasonably valued at 27 times forward earnings – and it could rise further as its AI business expands.

3. Arm stocks

Arm is a British chip designer acquired by SoftBank in 2016 and spun off in an initial public offering last September. Nvidia, which almost acquired Arm before antitrust regulators scuttled the deal, is still one of its top investors. Arm develops energy-efficient chips and licenses its designs to other chipmakers such as QualcommMediaTek and Apple. The company doesn't make its own chips, but its chip designs are used in about 99% of all premium smartphones today.

Arm still relies heavily on the cyclical smartphone market, but is developing more chips for the car, PC and cloud markets. Additionally, the company is introducing its new Armv9 designs optimized for processing AI tasks across all of its markets. These new AI chip designs generate much higher royalties than Arm's non-AI chip designs.

From fiscal 2024 to fiscal 2027 (ending in March 2027), analysts expect Arm's revenue to grow at a CAGR of 23%, while its earnings per share will grow at a CAGR of 88%. Arm stock looks expensive at more than 100 times next year's earnings, but it could have plenty of room to run as the AI ​​market expands and it gradually displaces the x86 chip architecture used by Intel And AMD.

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Leo Sun holds positions at Apple. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, Nvidia, Oracle, and Qualcomm. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel . The Motley Fool has a disclosure policy.

“3 Top Artificial Intelligence (AI) Stocks Poised for a Bull Run” was originally published by The Motley Fool