Spending on artificial intelligence (AI) infrastructure has consistently shown strength over the past few years, and according to market research firm IDC, this trend is set to escalate even further, with projections suggesting total AI expenditures could climb to a staggering $227 billion in 2025. The exciting news doesn’t stop there; AI investment is forecasted to soar beyond $749 billion by 2028, solidifying the technology’s pivotal role in the coming years. Now might be the perfect time to explore two promising AI stocks—Microsoft and Lam Research—that are not only attractively priced but also poised for significant growth as we step into 2025.
1. Microsoft: Tapping into AI Potential
Microsoft (MSFT) may have had a rocky 2024, with its shares gaining only 14% compared to the Nasdaq Composite’s 31% rise. However, investors should not overlook the company’s massive potential for AI-driven growth. From cloud computing to personal computing and workplace productivity, Microsoft is uniquely positioned to leverage multiple AI-driven markets.
Recently, CEO Satya Nadella shared during the company’s October 2024 earnings call that Microsoft’s “AI business is on track to surpass an annual revenue run rate of $10 billion next quarter,” marking it as the fastest-growing segment in the company’s history. Given this, it’s likely that Microsoft’s revenue will see impressive growth, especially in AI-related sectors.
For instance, the company’s Intelligent Cloud revenue jumped by 20% year over year in the first quarter of fiscal 2025, totaling $24.1 billion. A notable contributor to this growth was Azure, which reported a 23% revenue increase. Impressively, AI played a role in 12 percentage points of Azure’s growth, illustrating the technology’s significant impact.
Moreover, Microsoft Azure captured 20% of the cloud infrastructure services market, an impressive feat that positions it for long-term success, especially as global cloud spending is projected to reach $2 trillion by 2030. This could translate to an estimated $400 billion in revenue from Azure alone if Microsoft’s market share remains steady. Analysts are optimistic, expecting a 10% increase in Microsoft’s earnings in fiscal 2025.
With Microsoft trading at 35 times earnings, it’s reasonably priced, particularly when considering the Nasdaq-100 index averages around 33. This balance of growth potential and valuation makes Microsoft an attractive option for investors.
2. Lam Research: A Memory Market Comeback
Similarly, Lam Research (LRCX) experienced a challenging year, slipping 2% as it faced headwinds in the memory market. However, promising signs are on the horizon for 2025. Market research firm TrendForce estimates a 25% rise in capital spending on dynamic random-access memory (DRAM) and a 10% increase for NAND flash storage next year, fueled by surging demand for AI servers and cutting-edge devices.
For example, smartphones with on-device large language model (LLM) capabilities may require an additional 7 gigabytes of DRAM, driving up the need for memory resources. With 35% of Lam’s revenue linked to providing equipment for semiconductor manufacturing, the projected recovery in the memory market should bode well for its financials.
In its latest fiscal quarterly report, Lam recorded a remarkable 20% revenue increase, reaching $4.17 billion, along with a 25% spike in earnings per share. This bounce-back hints at a brighter outlook going forward. Analysts suggest that after a dip in fiscal 2024, Lam’s growth trajectory will improve significantly over the next couple of years, with earnings expected to leap by 17% annually.
At 24 times its earnings, Lam Research’s stock is attractively undervalued compared to the Nasdaq-100’s 33 average. With a median price target of $95, Lam’s stock is poised for a potential 32% increase, offering a solid case for investors to consider.
In summary, the landscape of AI investment is shaping up to be incredibly lucrative as we head into 2025. Microsoft and Lam Research stand out not only for their potential to harness AI-driven growth but also for their favorable valuations, making them attractive options for savvy investors looking to capitalize on this burgeoning market.
The AI Buzz Hub team is excited to see where these breakthroughs take us. Want to stay in the loop on all things AI? Subscribe to our newsletter or share this article with your fellow enthusiasts.
