Artificial intelligence (AI) dominated the stock market narrative in 2023, and there’s no reason to think that won’t be the case again in 2024.
There are still shortages of the AI chips and components that cloud infrastructure companies and start-ups require in order to run large language models and other AI algorithms, and companies are spending to ramp up their AI offerings. Additionally, most tech CEOs believe that generative AI will be a transformative technology, possibly even as big as the internet.
With that in mind, let’s take a look at two AI stocks that are still down from their all-time highs and could soar in the next bull market.
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Snowflake has big AI opportunities
Keith Noonan (Snowflake): If algorithms are the machines in the artificial intelligence (AI) equation, data can be thought of as the fuel. And when cloud infrastructure services create barriers that make data-sharing more difficult, those AI machines may not get the right amount or the right kinds of fuel.
Snowflake‘s (SNOW 2.94%) Data Cloud platform removes these walls and helps businesses and institutions combine and analyze data from multiple cloud infrastructures. The company’s software also makes it possible to handle many workloads within a single platform. Crucially, this allows organizations to make the most of their data, generate superior analytics insights, and create smarter AI models.
In its fiscal 2024 third quarter, Snowflake’s product revenue climbed 34% year over year to $698.5 million. The company closed out the period (which ended Oct. 31) with 8,907 customers — up 23.5%. The company also saw increased spending from those already using its services, and its margins continue to improve.
Snowflake posted a non-GAAP (adjusted) gross margin of 78.3% in its fiscal third quarter, up from 75.4% in the prior-year period. Meanwhile, its adjusted free cash flow as a percentage of revenue expanded from 12% to 15%.
Even though Snowflake’s share price has climbed roughly 29.5% over the last year, it’s still down by approximately 54% from the all-time high it reached in November 2021. For investors seeking AI plays that still offer big upside, the stock looks like a smart long-term buy.
Oracle is an under-the-radar cloud infrastructure play
Jeremy Bowman (Oracle): There are likely to be plenty of winners from the AI boom, but thus far, most of the attention has gone to chipmakers like Nvidia and big tech companies like Microsoft and Alphabet.
One company that hasn’t gotten as much attention, but that is well-positioned to benefit from the AI boom, is Oracle (ORCL 0.14%), a legacy tech company best known for its database software.
Large language models and other AI models must be trained with massive volumes of data, which makes Oracle’s database products and cloud infrastructure services especially valuable in the AI space.
Those tailwinds are already becoming apparent in its cloud segment. Oracle’s cloud revenue rose 25% to $4.8 billion in its fiscal 2024 second quarter, which ended Nov. 30, and its cloud infrastructure revenue jumped 52% to $1.6 billion as management said it is seeing “astronomical” demand for its cloud infrastructure and generative AI services.
The company is rapidly scaling up its infrastructure to meet that demand with plans to roughly double its number of data centers, adding 100 of them and expanding 66 existing ones. Oracle has also developed a relationship with Microsoft Azure that should help fuel its growth. Management said it’s turning on 20 data centers to support demand from Azure.
Oracle’s overall growth is more modest as much of its on-premises business is shifting to the cloud — its newer segment is essentially cannibalizing its older one — but AI-related tailwinds should help accelerate its revenue growth over the coming years.
The stock is currently down 19% from the peak it reached in 2023, and trades at a modest price-to-earnings ratio of 19. In the coming AI bull market, Oracle looks like a good bet to be a winner.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, Nvidia, Oracle, and Snowflake. The Motley Fool has a disclosure policy.
