The market's demand for generative AI services, which generate fresh content instead of simply crunching preexisting data, is exploding as OpenAI's ChatGPT, Microsoft's Copilot, and other similar tools lock in more users and businesses.
From 2024 to 2032, analysts expect the generative AI market to grow at a compound annual growth rate (CAGR) of nearly 40%. If you want to profit from that trend, these two artificial intelligence (AI)-oriented stocks -- AMD(NASDAQ: AMD) and ServiceNow(NYSE: NOW) -- might generate impressive gains and set you up for life.
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1. The chipmaker: AMD
AMD is the second-largest producer of x86 CPUs and discrete GPUs in the world. It mainly competes against Intel(NASDAQ: INTC) in the CPU market and Nvidia(NASDAQ: NVDA) in the GPU market. Under Lisa Su, who took the helm as its turnaround CEO a decade ago, AMD grew its revenue at a CAGR of 17% from 2014 to 2023. It's also stayed profitable over the past five years.
AMD isn't as heavily exposed to the AI market as Nvidia, which now generates most of its revenue from high-end data center chips for processing complex machine learning and AI tasks. However, a lot of AMD's recent growth can be attributed to its new Instinct data center GPUs for the AI market -- which offer comparable performance as Nvidia's workhorse H100 GPUs at a fraction of the price. AMD has also been selling more Epyc CPUs to challenge Intel's Xeon CPUs in servers, and it expanded its programmable chip business to increase its presence across the data center market.
At the beginning of 2024, AMD predicted it could generate $2 billion in data center GPU revenue for the full year. But by the end of the third quarter, it had lifted that outlook to at least $5 billion -- or 19% of the revenue it's expected to generate for the year.
As the growth of the generative AI market lights a blazing fire under AMD's data center business, sales of its Ryzen CPUs for PCs are soaring as Intel struggles to ramp up its production of its latest Meteor Lake chips. Unlike Intel, which still manufactures most of its own chips, AMD outsources its production to TSMC to avoid the fabrication issues that tripped up its larger competitor over the past decade.
From 2023 to 2026, analysts expect AMD's revenue to grow at a CAGR of 21% as its EPS rises at a CAGR of 103%. It's still reasonably valued at 43 times forward earnings -- and it could still have plenty of room to run as the AI market expands.
2. The software maker: ServiceNow
ServiceNow's cloud-based platform transforms unstructured work patterns into streamlined digital workflows. That process can help companies expand more efficiently, cut costs, and provide more support for their hybrid and remote workers.
ServiceNow went public back in 2012. From 2012 to 2023, its revenue rose at a CAGR of 39%. It turned profitable on a generally accepted accounting principles (GAAP) basis in 2019, and its net income grew at a CAGR of 29% over the following four years. The company continued growing even as it faced tough economic headwinds -- including the pandemic, geopolitical conflicts, inflation, and rising interest rates -- over the past decade.
ServiceNow was resistant to all of that pressure because economic downturns often drive more companies to streamline workflows and cut costs. Its data-rich platform is also a natural launching pad for new AI services. During its latest conference call in October, CEO Bill McDermott said the company "emerged as the AI platform for business transformation" as it cleaned up the "mess" of 20th-century enterprise systems.
Much of ServiceNow's recent growth was driven by its Now Assist platform of generative AI services, which automates and accelerates more tasks with AI agents. At the end of its latest quarter, 44 of its customers were spending more than $1 million in annual contract value (ACV) on its Now Assist services -- and McDermott hailed the platform as the company's "fastest-growing product ever" and an "accelerant" to its cross-enterprise expansion.
From 2023 to 2026, analysts expect ServiceNow's revenue and EPS to grow at a CAGR of 21% and 10%, respectively. It isn't cheap at 60 times its forward adjusted earnings, but it could maintain that premium valuation as it profits from the secular expansion of the cloud software, digital workflow, and AI markets.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Microsoft, Nvidia, ServiceNow, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
