2 Artificial Intelligence Stocks to Double Up on Right Now

In the past couple of years, artificial intelligence (AI) has been one of the most important investment themes on Wall Street. While the initial AI-fueled frenzy mostly died down, institutional and retail investors are still in search of AI-powered investments, especially those with long-term and sustainable growth prospects.

Stocks like Micron Technology (NASDAQ: MU) and Oracle (NYSE: ORCL) seem to fit the bill. Here's why investors can benefit by doubling up these stocks now.

Micron looks to be a leader in high-bandwidth memory chips

Leading memory player Micron Technology made a splash on Wall Street lately, with its fourth-quarter fiscal 2024 (ended Aug. 29, 2024) revenue and earnings beating consensus estimates. The company emerged as a major beneficiary of the AI wave, driven by the increasing demand for high-bandwidth memory (HBM) chips from data centers and enterprises. Micron's HBM3E technology consumes almost 20% less power than the memory products from the nearest competitor. The higher energy efficiency, a must-have for power-hungry data center operations, has been a major factor in driving the adoption of Micron's memory products.

Furthermore, thanks to its multiyear engagements with customers on HBM research and development, the company is confident of maintaining its leadership position with the next-generation HBM technologies such as HBM4 and HBM4E.

Micron recorded several hundred million dollars in revenue from HBM sales in the fourth quarter of fiscal 2024. The HBM business reported higher gross margins than its DRAM business in the third and fourth quarters of fiscal 2024. Micron expects HBM to be a multibillion-dollar business in fiscal 2025.

Since the company's long-term HBM agreements with clients include pricing for calendar years 2024 and 2025, Micron enjoys significant visibility and predictability for its HBM business. The company also enjoys significant pricing power due to ongoing supply constraints for HBM products. Finally, the shift in revenue mix toward higher-value and higher-margin HBM business will also help boost the company's profitability in the long run.

Micron is also seeing robust demand for other high-value DRAM products such as high-capacity Dual In-line Memory Modules (DIMMs) and Low Power DRAM from traditional and AI servers at data centers. The company also expects to benefit from the increasing demand for advanced memory products from AI PCs and smartphones in the second half of fiscal 2025.

Despite the many pros, Micron is trading at 4.5 times trailing 12-month sales, which is quite low for a company riding the AI wave.

Therefore, considering its robust technological capabilities and reasonable valuation, Micron may be a smart pick now.

Oracle's automated cloud operations gives it an advantage

A major cloud and enterprise software player, Oracle plays a major role in helping other companies build complex AI systems. Since huge amounts of data are required to train complex AI models, Oracle's database and cloud services are used extensively to store and process this data.

The company has invested extensively to build a worldwide network of 162 cloud data centers (live and under construction). These data centers use Nvidia's GPU clusters to train large and complex AI models. While the largest of these data centers has a power capacity of 800 megawatts (electricity that can be provided for computing infrastructure ), the company is also gearing up to start the construction of data centers with a capacity of more than 1 gigawatts. Oracle has also extensively automated its cloud operations, which has helped reduce labor costs and boost margins.

Oracle partnered with leading cloud players such as Amazon's AWS, Alphabet's Google Cloud, and Microsoft's Azure to enable clients to use its database technology even within these clouds. Many clients continue migrating their on-premise databases to cloud environments directly to Oracle Cloud Infrastructure (OCI) or through the company's database services at AWS, Google Cloud, or Azure.

OCI consumption revenue grew 56% year over year in the first quarter, with demand outstripping available capacity. Not surprisingly, Oracle's cloud services revenue soared 21% year over year to $5.6 billion in the recent quarter (the first quarter of fiscal 2025, which ended Aug. 31, 2024).

The strength of Oracle's cloud business is also reflected in the company's robust order backlog. The company reported remaining performance obligations (RPO, a metric to gauge the strength of the company's order backlog) of $99 billion at the end of the first quarter, up 52% year over year in constant currency. Cloud RPO grew 80% year over year and made almost 75% of the company's total RPO.

Oracle boasts a strong balance sheet with almost $11 billion in cash and marketable securities and a trailing 12-month operating cash flow and free cash flow of $19.1 billion and $11.3 billion, respectively. Yet, the company trades at 8.8 times trailing 12-month sales, lower than the software industry median price-to-sales (P/S) multiple of 10.1 times.

Given its robust AI tailwinds, strong financial position, and a reasonable valuation, there is little doubt that Oracle would prove to a top-notch AI pick now.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $20,579!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,710!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $389,239!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 7, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.