Historically, technology has been a ripe field for finding big winners in the stock market. Nasdaq-100 Technology Sector The index returned 411% over the past 10 years (including reinvested dividends), outperforming blue-chip companies. Dow Jones Industrial AverageThe yield of 's is 205%.
There are exciting opportunities in the technology sector as companies strive to implement artificial intelligence (AI) into their operations. Below are two profitable technology companies that can deliver extraordinary returns.
1. Nvidia
The data center market is booming. Dell'Oro Group expects spending to increase by 1.5% AICloud-related infrastructure and data center markets will grow by 24% annually over the next five years. This is a huge opportunity for Nvidia (NASDAQ: NVDA)the leading AI chip provider.
Nvidia's revenue more than doubled over the past year. Graphics Processing Units (GPU) All major cloud service providers use GPUs, and it has a large base of millions of AI developers and researchers using its accelerated computing platforms to build AI applications. Nvidia has built a reputation for high performance in the GPU market over the past 20 years, and that should serve the company and its shareholders well in the AI era.
Nvidia is reaping big benefits from its leadership in artificial intelligence chips. Over the past year, it generated $46 billion in free cash flow on $96 billion in revenue, sending the stock soaring, but the company’s run isn’t over yet.
Data centers are turning to Nvidia chips to speed up the training of AI models. Faster training means lower computing and energy costs, so spending on data centers shows no signs of slowing down. The energy these data centers require could increase by 160% by 2030, according to Goldman SachsNvidia could see further growth in its data center segment as it addresses this need.
Nvidia’s Blackwell computing platform, launching later this year, will help companies bring generative AI applications to market faster while reducing power consumption by up to 25 times over the previous generation. Analysts expect Nvidia to grow its earnings at an annualized rate of 36% over the next few years. That’s more than enough for shareholders to double their money by 2029.
2. Alphabet
Alphabet's (NASDAQ: GOOGL) (NASDAQ:GOOG) Google is one of the most valuable brands in the world and is implementing AI across its products, which could benefit its growth prospects.
Alphabet reported strong financial results over the past year as the digital advertising market recovered. Revenue grew 14% year-over-year in the second quarter, compared with a 7% growth rate in the same quarter last year. Google continues to invest in improving its products with new versions of its Gemini artificial intelligence models, while continuing to report a strong 25% year-over-year increase in operating income.
Google’s dominance in the search market helped it generate $64 billion in advertising revenue last quarter, up 11% year over year. AI should drive greater usage of Google products and grow its advertising revenue in the long term. For example, the new AI Overview feature has already helped millions of users get answers to topics. Google has found that people who use AI Overview tend to use search more frequently.
While analysts expect earnings to grow at double-digit rates over the long term, the stock continues to trade at a relatively low price-to-earnings ratio compared to those growth expectations. One reason for this is government scrutiny of Alphabet’s dominance. The company recently lost an antitrust case for anticompetitive behavior. But this doesn’t take away from Alphabet’s advantages of having quality data to train AI models, in addition to huge cash resources and billions of users across all of its products.
The stock's modest valuation is too attractive to pass up. Analysts expect the company to post 14% earnings growth in 2025, which is more than enough to justify a modest forward P/E of 18. Investors should see some excellent returns over the next five years.
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Alphabet executive Suzanne Frey serves on The Motley Fool's board of directors. John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Goldman Sachs Group and Nvidia. The Motley Fool has a Disclosure Policy.
The 2 Best Tech Stocks Worth Buying Right Now Originally published by The Motley Fool
