As with every new technological paradigm shift, the AI Boom will evolve in distinct “profit waves.”
Though each tech boom is different, they all follow a similar pattern. And it usually goes something like this:
First, there’s a rush to build new tech. Then, there’s a rush for new devices that are built with that new tech. And once those new devices are ubiquitous, there’s a rush to create applications and services to run on them.
We’ve seen this take place with the dot-com boom of the 1990s and the mobile internet boom of the 2010s.
And we’re confident that the AI Boom will play out no differently.
For example, in the first half of 2023, the best AI stocks to buy were chip stocks. At that time, companies across the world were rushing to buy next-generation chips to build their own AI models. Leading AI chip maker Nvidia (NVDA) soared 230% in the first half of the year. And competitors Advanced Micro Devices (AMD) and ON Semiconductor (ON) both rallied about 80%.
Here in the latter part of this year, the best AI stocks to buy have been software stocks. As companies reset their IT budgets for 2024, they’re including a huge boost to enterprise AI software spending. Consequently, those software companies have reported fabulous earnings over the past few months. And AI software stocks are soaring.
So, it bears repeating; getting rich in this boom is all about buying the right stocks at the right time.
Timing the AI Boom
The right AI stocks to buy in the first half of 2023 were chip stocks. During the second half of the year, AI software stocks have been the market’s major winners.
And we believe that in the first half of 2024, AI server stocks will be on top.
Our thinking here is simple.
From an investment perspective, the AI Boom started in 2023. Since it has, every company in the world has developed an interest in deploying AI applications across their businesses. But typically, IT budgets are only reset once a year, at the start. And since IT budgets haven’t been fully reset since this boom emerged, we haven’t yet seen the full effects on the enterprise level.
But those budgets will get reset in late 2023 and early ‘24. And companies far and wide will exponentially increase their budget for AI applications and related software and hardware.
And that means a massive server upgrade is coming in 2024.
That’s because there are two ways to deploy artificial intelligence applications: either through the cloud or through on-premise data centers. Most companies will do both because about 90% of firms today are adopting a multi-cloud strategy that includes both public cloud and on-premise infrastructure. Each has unique upsides, and the best IT environments combine both.
Adopting those applications through the cloud is easy.
Software like ChatGPT, Gemini, Dall-E, etc., are all delivered through the cloud. And the major public cloud service providers – Amazon Web Service, Azure, and Google Cloud – have already upgraded their infrastructure to allow for the seamless transmission of AI software through their networks.
Adopting on-premise applications is a bit trickier. Legacy data-center servers cannot handle the workload and complexity of AI applications. Therefore, in order to run optimal on-premise applications, companies need to upgrade their data-centers to include AI servers. And when they do, some of those firms will likely update some of their old servers, too.
Altogether, it looks very likely that a massive server upgrade boom is coming in 2024, powered by the need for servers to run on-premise AI applications as more and more companies adopt a multi-cloud strategy.
The Final Word
The AI Boom is about to enter its newest profit wave.
As more and more companies adopt a multi-cloud strategy, they’ll need AI servers to run their on-premise applications.
Top picks in the space include Dell (DELL) and Hewlett Packard Enterprise (HPE). Together, the two firms control the majority of the global server market, with Dell being the market leader. And both look well-positioned to win the AI server upgrade cycle of 2024/25.
But in fact, neither is the best server stock to buy for 2024.
Rather, that stock is a completely different firm that could be at the heart of Elon Musk’s new secret project.