A recent analysis from UBS Global Wealth Management highlights a seismic shift in the financial landscape, projecting that artificial intelligence (AI)-related revenue could skyrocket to $1.2 trillion by 2027. This burgeoning field is being praised as an unparalleled catalyst for innovation and investment, regarded by analysts as potentially the most significant financial opportunity in history.
UBS categorizes the AI investment opportunity into three distinct layers: the enabling layer, the intelligence layer, and the application layer. Each layer represents a different segment of the AI ecosystem, showcasing companies that are making significant strides in technology and paving the way for future advancements. Notably, several billionaires were active buyers in the second quarter, acquiring shares in three prime AI stocks that exemplify these categories.
The Enabling Layer: NVIDIA
Leading the charge in the enabling layer is Nvidia (NASDAQ: NVDA). This tech giant has established itself as a dominant force in the semiconductor market, specifically in the realm of graphics processing units (GPUs) used for data centers. According to Morgan Stanley analysts, Nvidia commanded an astonishing 98% of data center GPU shipments in the previous year. It holds an impenetrable 90% market share in AI chip production, cementing its role as the backbone of modern AI infrastructure.
Nvidia’s remarkable growth trajectory is underscored by its innovative offerings, such as the CUDA platform, which simplifies the creation of GPU-accelerated applications, and the recently launched DGX Cloud, an AI-as-a-service solution for various operational needs. With projections indicating that Nvidia’s earnings could compound at an impressive 37% annually over the next three years, the company’s current valuation—57 times earnings—appears justifiable. This suggests a PEG ratio of 1.5, which is significantly below its historical average of 3.1, indicating potential for growth.
The Intelligence Layer: Amazon
Shifting focus to the intelligence layer, Amazon (NASDAQ: AMZN) thrives by utilizing vast data assets to enhance the development of large language models and machine learning applications. With Amazon Web Services (AWS) being the premier public cloud platform, the company is strategically positioned to meet the soaring demand for AI services. Amazon Bedrock, a generative AI development platform, exemplifies this by enabling businesses to refine models, including the family of Titan models developed in-house.
Moreover, Amazon’s expansive e-commerce operations provide unique insights into consumer preferences, augmented by its generative AI assistant, Rufus, which has recently been made widely available. As AWS continues to dominate the cloud market, its earnings are projected to rise by 22% annually through the next three years, suggesting a favorable valuation of 45 times earnings. This translates to a PEG ratio of 2.1, reflecting a discount compared to the three-year average of 2.9.
The Application Layer: Datadog
Completing the trio is Datadog (NASDAQ: DDOG), which epitomizes the application layer of the AI boom. Datadog is renowned for its observability software suite, designed to assist businesses in monitoring and troubleshooting their IT infrastructure and applications. Its AI-driven tools, such as the Watchdog engine for anomaly detection, and Bits AI, which allows natural language queries, showcase the integration of AI into practical applications.
Ranked as a top vendor in observability platforms by Gartner for four consecutive years, Datadog is capitalizing on the growing need for effective monitoring in an increasingly complex digital landscape. With forecasts predicting a 23% annual revenue growth through 2026, Datadog’s valuation at 17.9 times sales signals a prime opportunity for discerning investors.
As the AI revolution burgeons, investors are closely monitoring these three essential players—Nvidia, Amazon, and Datadog—each representing a crucial layer of opportunity within this transformative landscape. With the potential for exponential growth and an expanding market, now could be an opportune moment for investors to align with these industry leaders, preparing for the remarkable innovations that lie ahead in the world of artificial intelligence.