Lisa Su, president and CEO of AMD, during an interview with Mad Money, broadcasting from CNBC’s San Francisco bureau on November 21, 2019.
Jacob Jimenez | CNBC
The big winner for investors this year in the generative AI boom was Nvidia. The company’s stock price rocketed 234% as demand soared for the chipmaker’s processors that are designed to handle the hefty compute loads required to train and run large language models.
The LLMs from Microsoft-backed OpenAI and others relying on Nvidia’s technology can turn users’ text-based prompts into pictures, poems or PowerPoint presentations.
While Nvidia sucked up the bulk of the profits — net income through the first three quarters of the year jumped sixfold from 2022 — it wasn’t the only stock that attracted Wall Street’s attention in the race to make money from artificial intelligence.
Software vendors CrowdStrike, HubSpot and Salesforce all at least doubled this year, far outperforming the Nasdaq, which was up 43% as of Friday’s close. Those companies got a boost after announcing enhancements that draw on generative AI.
But when it comes to the hardware and infrastructure underlying the advancements in AI and ensuring that there’s enough capacity going forward, investors are looking at who, other than Nvidia, stands to gain. The iShares Semiconductor ETF has rallied 64% this year. The data center is another source of optimism, and a few cloud service providers are positioned to win business as organizations boost spending on technology to help them run generative AI services.
Here are three other stocks gaining momentum due to the generative AI wave:
AMD
As the company whose technology is viewed as most likely to challenge Nvidia’s AI chip monopoly, AMD has a big cheering section in the software developer community. The stock is up 116% for the year as of Friday’s close.
AMD just launched its MI300X AI processors, pursuing a market for AI chips that CEO Lisa Su projects will climb to $400 billion over the next four years. Meta announced in December its plans to use the new processors, and Microsoft is also a committed customer.
Su pointed to performance advantages in comparison with Nvidia’s H100 chip.
“AMD remains extremely well positioned to take advantage of the rapidly expanding AI TAM, as they continue to stack up customer partnerships and roll out products with impressive (and extremely competitive) performance metrics,” Deutsche Bank analysts wrote in a note to clients after the announcement earlier this month.
The stock rose rose almost 10% the day after the launch.
Arista Networks
Since its public market debut almost a decade ago, Arista has been gaining on Cisco in the market for data center networking gear. Excitement around its position in AI helped push the stock up 96% this year.
In October, Arista added AI to a key customer segment so it’s now called Cloud and AI Titans. More than 40% of the company’s 2022 revenue came from Meta and Microsoft. The following month, Arista CEO Jayshree Ullal announced a goal of $750 million in 2025 AI networking revenue, prompting Citi analysts to lift their price target on the stock to $300 from $220.
Companies have been choosing Arista hardware to connect their GPUs to the internet. As models get bigger and workloads more complex, Arista has an opportunity to connect GPUs to one another to help scale the technology.
Arista executives see a moderation in enterprise spending in 2024 after years of cloud expansion, with organizations testing out systems before making large-scale AI deployments that could start in 2025.
Cloudflare
For years, Cloudflare has ensured that online content can be quickly served up to end users by creating a global network of data centers that protects websites from attempted takedowns.
One key customer is OpenAI. When a user attempts to access OpenAI, Cloudflare’s technology verifies that it’s a person and not a bot on the other end. The company is now aiming to become part of the fabric for running AI models and ensuring rapid response. In September, the company announced a service called Workers AI, which runs on Nvidia’s GPUs and will be spread across 100 cities.
“With a consumption pricing model, these services could drive meaningful upside to revenue as adoption ramps through 2024,” Morgan Stanley analysts, who have the equivalent of a hold rating on the stock, wrote in a November report.
Cloudflare shares have jumped 87% so far in 2023.
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