The market for artificial intelligence (AI) could reach $826 billion by 2030, according to Statista. Investors who stick with top suppliers in data center hardware and enterprise software should earn excellent returns, as AI investment ramps up in these mission-critical areas.
Here are two outstanding AI stocks to buy right now.
1. Nvidia
Nvidia(NASDAQ: NVDA) has long dominated the market for graphics processing units (GPUs), and it continues to show a market share lead in AI. Earlier this year, Tesla CEO Elon Musk said, "There is currently nothing better than Nvidia hardware for AI." Its GPUs are the gold standard for playing video games and training self-driving cars.
Nvidia's gaming business has been pressured by weak consumer spending, but its data center revenue is exploding. The company just issued another blockbuster earnings report with total revenue up 122% year over year. It expects revenue to be up about 80% year over year in the next quarter.
Nvidia said nearly half of its data center revenue was from large cloud service providers, including Amazon, Microsoft, and Alphabet's Google. These companies generated $182 billion in free cash flow over the last year, so they can afford to make long-term commitments to building out their data center infrastructure, which is good for Nvidia.
And data centers need many components beyond GPUs to function properly, such as networking equipment, servers, and software. Nvidia is building a competitive advantage in offering everything a data center needs to build what are essentially "AI factories," as management likes to call them.
Revenue from networking grew 114% year over year last quarter. While this business generated only 12% of Nvidia's total revenue, it could become a larger contributor to the business over the next few years. Management said its Spectrum-X ethernet platform is seeing broad adoption from enterprise customers and is on track to become a multibillion-dollar product line within the next year.
The company is not just selling a chip. It's selling interconnect cables, software, and other services that require an understanding of customers' needs. This is leading to closer ties with AI researchers and data centers, and it should enable Nvidia to grow revenue over the long term and deliver outstanding shareholder returns.
2. ServiceNow
ServiceNow(NYSE: NOW) is an enterprise software supplier that takes all of a company's data across different departments and creates a single portal to build apps and workflows. The company has consistently delivered year-over-year revenue growth of 20% or more in recent years.
Even in a difficult business environment that is pressuring enterprise spending on software this year, ServiceNow continues to post strong growth that speaks to the opportunity ahead.
In the second quarter, the company signed 88 deals worth more than $1 million in customer account value, an increase of 26% over the year-ago quarter. It is seeing strong growth for its Now Assist generative AI platform, its fastest-growing new product in its history.
Companies are signing up because of the tremendous value the platform offers through streamlining business processes and increasing worker productivity. For example, the city of Los Angeles used ServiceNow's platform during the pandemic to build a COVID test-appointment app within days, which highlights how its platform can help significantly reduce software development time.
Overall, ServiceNow has 1,988 customers paying more than $1 million in customer account value, but it's noteworthy that the largest deals -- over $20 million in account value -- grew 40% year over year.
It's a great sign that the company is seeing rapid adoption of generative AI services. Companies in banking, healthcare, semiconductors, and more industries are showing interest. This bodes well for ServiceNow's competitive position as more companies integrate AI in their operations.
The generative AI market specifically is estimated to be worth $34 billion in 2024 and grow to $356 billion by 2030, according to Statista. ServiceNow is well positioned to benefit from this opportunity.
The stock is up 1,200% over the last 10 years, but it's not too late to buy shares. ServiceNow estimates its long-term addressable market at $275 billion, compared to its trailing revenue of just under $10 billion. It should be able to grow revenue by double digits for many years and deliver market-beating shareholder returns.
Should you invest $1,000 in Nvidia right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard has positions in Nvidia and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, ServiceNow, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
