These Will Be Two of the Most Valuable Artificial Intelligence (AI) Stocks by 2034

Microsoft, LitterIt is Nvidia They are the three most valuable companies in the world and are the only ones in history to exceed 3 billion dollars in market capitalization. They will likely continue to grow in the future, especially if artificial intelligence (AI) lives up to expectations.

The global economy generated $105 billion in output last year, but Wall Street believes AI could significantly increase that number:

• Goldman Sachs believes AI will create $7 trillion worth of economic activity over the next decade.

• PwC believes AI will add $15.7 billion to the global economy by 2030, with almost half of those gains coming from its ability to improve existing products.

• Ark Investment Management is the most bullish on AI, predicting that software like OpenAI’s ChatGPT could generate a productivity explosion worth $200 trillion for the global economy.

If these predictions turn out to be accurate – even at the low end – I think Oracle (NYSE:ORCL) It is Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) will grow to become two of the most valuable companies in the world in the next 10 years. Here’s why.

1. Oracle: Industry-Leading AI Infrastructure

Nvidia is the AI ​​game par excellence now, because your graphics processing units (GPU) for data centers are essential for building AI models. CEO Jensen Huang says data center operators could generate $5 in revenue (over four years) for every $1 invested in his company’s chips because demand for computing power is so high among developers of AI.

This brings me to Oracle, which offers some of the best AI data center infrastructure in the world. It has developed a unique RDMA (random direct memory access) network technology that moves data from one point to another significantly faster than competing Ethernet networks, translating into faster AI development at a lower cost.

Additionally, Oracle’s SuperCluster technology will soon allow developers to scale their computing capacity to up to 65,536 Nvidia GPUs. In comparison, the best infrastructure in Amazon Today, Web Services offers clusters of up to 20,000 GPUs, so Oracle can become the destination of choice for developers building the largest and most complex AI models.

Speaking of which, Oracle’s remaining performance obligations (RPOs) soared 44% year over year to a record $98 billion during the recent fiscal 2024 fourth quarter (ended May 31), which included $12, 5 billion in new AI businesses. Top AI startups like OpenAI and Elon Musk’s xAI are just some of the developers waiting in line for more computing power from Oracle.

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The company reports data center revenue in its Oracle Cloud Infrastructure (OCI) segment. It raised just $2 billion during the quarter (a 42% increase), which puts the massive backlog into perspective. The company is building new data centers to meet demand, which will convert its RPOs into more OCI revenue. Management expects gross profit margins to increase as it opens more locations thanks to its highly automated nature.

Oracle is valued at $399 billion as of this writing, but its shares trade at a steep discount to AI leaders. Microsoft, Apple and Nvidia trade at an average price-to-earnings (P/E) ratio of 49.7, while Oracle’s P/E is just 26. I’m not suggesting this will happen, but in theory, its shares will have to rise 91% just to catch up. That would catapult its valuation to $762 billion.

Oracle has grown its profits at a compound annual rate of 8.9% over the past 10 years. But simply growing the company’s RPOs could drive above-trend earnings expansion in the coming years, especially as margins are expected to improve with scale.

If, for example, earnings grow 15% annually over the next 10 years and its P/E trades in line with other AI giants, its market capitalization could exceed $3 billion. Wall Street already predicts 15% profit growth in fiscal 2026.

Several assumptions need to come true for the above scenario to come to fruition, but joining the trillion-dollar club overall would make Oracle one of the largest AI companies in the world.

2. Alphabet: A World-Class AI Software Company

Alphabet is the parent company of tech titans like Google, YouTube, Waymo and DeepMind. The conglomerate is already valued at $2.3 billion, so it doesn’t have to create as much value as Oracle to be one of the biggest companies in the world in 2034. However, it does have to overcome AI-related disruptions to its business main.

Google Search accounts for more than half of Alphabet’s total revenue. It is an attractive destination for advertisers due to its dominant 91% market share in the Internet search industry.

But AI chatbots like ChatGPT pose a threat because they offer a faster, more direct, and more convenient way to obtain information. Microsoft integrated ChatGPT with its Bing search engine for this specific reason.

Alphabet launched a series of its own AI chatbots last year, culminating in the Gemini family of models, which are the most advanced to date. Additionally, generative AI is handling a growing number of queries in Google Search, producing text-based answers at the top of the page to prevent users from scouring web pages for answers.

Early signs suggest this is protecting Google’s dominance, because its advertising revenues increased 14.3% year over year during the first quarter of 2024 (ended March 31), which was the fastest growth in almost two years.

Outside of research, Gemini is opening doors to several new opportunities. For example, Google Workspace is a popular productivity platform with Gmail, Docs, Sheets, and more.

Businesses pay $12 per user, per month for the standard Workspace plan, but can now add Gemini for an additional $20 per user, per month. It serves as an AI assistant capable of quickly creating text and image content, which can increase productivity in any organization.

More than 9 million companies pay for Workspace (with multiple individual users within each), so Gemini could become a substantial financial opportunity for Alphabet.

Just like Oracle, Google Cloud also offers a powerful AI data center infrastructure to the developer community. Additionally, its platform features more than 130 ready-to-use major language models (LLMs), including Gemini, that developers can use to create their own AI applications.

Alphabet claims that more than 60% of generative AI startups are Google Cloud customers and aims to increase that number by offering the latest Nvidia GPUs in addition to chips designed in-house by Alphabet.

The stock trades at a P/E of 29.4, so it is cheaper than AI leaders on average. The company increased its profits by 27% in 2023 and Wall Street expects growth to remain above 20% in 2024.

At this rate, Alphabet will likely be one of the biggest AI companies within 10 years. Even if the company’s earnings growth averages 10% over the next decade, it would accumulate a market capitalization of $6.5 billion, as long as its current P/E remains constant.

Should you invest $1,000 in Oracle now?

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Suzanne Frey, an Alphabet executive, 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. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Goldman Sachs Group, Microsoft, Nvidia and Oracle. 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.

Prediction: These Will Be Two of the Most Valuable Artificial Intelligence (AI) Stocks by 2034 was originally published by The Motley Fool