Two AI Stocks to Consider for Future Growth

For investors on the hunt for promising artificial intelligence (AI) stocks, there are some companies that Wall Street may be currently undervaluing. While significant demand exists for their technologies in both hardware and software, this demand has yet to be reflected in their share prices. However, market dynamics suggest that these companies are well-positioned for growth, paving the way for potential investment opportunities.

Here are two AI stocks worth considering for potential explosive growth over the next few years.

1. Advanced Micro Devices

As of now, Advanced Micro Devices (AMD) has seen its stock dip by 8% following its latest fourth-quarter earnings report. AMD is recognized as a key supplier of graphics processing units (GPUs), crucial for AI training, and is steadily gaining ground against Intel in the consumer market. Both sectors are expected to demonstrate strong growth into 2025, making AMD's recent stock decline an appealing buying opportunity.

Ending 2024 positively, AMD reported a year-over-year revenue increase of 24% and a 42% rise in adjusted earnings in Q4. Nevertheless, Wall Street may have anticipated more detailed financial guidance concerning revenue stemming from the company's data center GPUs for 2025.

Concerns regarding capital spending growth in AI infrastructure have surfaced recently. A Chinese company, DeepSeek, has claimed to create a competitive AI model at a low cost, raising concerns that investment in data center AI may diminish. This sector generated $5 billion in revenue last year, accounting for 19% of AMD's total revenue.

These apprehensions, however, might be exaggerated. Developing large language models like those from DeepSeek and OpenAI requires a radically different investment approach compared to building AI systems essential for data centers that cater to enterprise needs. For instance, Meta Platforms, which employs AMD's Instinct MI300X GPU in its Grand Teton AI program, has indicated a projected expenditure of $60 billion to $65 billion this year, a significant portion of which will focus on generative AI and additional business requirements. AMD anticipates another year of strong growth in its data center segment, building upon a remarkable 94% growth in this area for 2023.

In the client segment, AMD experienced a 58% year-over-year revenue increase in Q4, which encompasses the sales of its Ryzen PC processors. The announcement from Dell about offering a complete lineup of commercial PCs powered by Ryzen for the first time suggests that AMD is positioned for continued success in the PC market.

The shares of AMD are currently available at a forward price-to-earnings (P/E) ratio of 23, trading around $112—a favorable valuation considering its status as a leading chip supplier.

2. C3.ai

Investors with an interest in AI should pay attention to companies with exposure to both hardware and software opportunities. One standout AI software stock to watch for 2025 is C3.ai (AI), recognized for its enterprise applications utilized by the U.S. military and several Fortune 500 companies.

C3.ai's AI models deliver highly accurate results, allowing businesses to operate more efficiently and cost-effectively. Many organizations are discovering tangible cost savings through its software, enhancing C3.ai's value proposition and positioning the firm on a solid growth path.

This increasing small enterprise, with trailing revenue of $346 million, is expanding rapidly. For the most recent quarter, revenue increased by 29% year-over-year, showing consistent upward momentum.

C3.ai is trading at 12 times its sales, which is a reasonable valuation for a rapidly growing software company. However, it faces a risk in being overly reliant on a limited number of clients for its revenue. Notably, its contract with Baker Hughes comprised 18% of the company's revenue last quarter, and that agreement is set to expire in June.

Fortunately, this risk is gradually diminishing as C3.ai broadens its customer base. In late 2024, Microsoft entered into a significant five-and-a-half-year partnership with C3.ai to scale enterprise AI investments. This agreement designates C3.ai as the preferred AI application provider for Microsoft Azure's cloud services, providing substantial growth potential.

Following the announcement of the collaboration with Microsoft, C3.ai's stock has risen by 28%, indicating that it may have further potential for growth in 2025 as it taps into the booming AI software market.

AI, stocks, investment