January 24, 2025
The stock market had another strong run in 2024, and there are still attractive opportunities to put some money to work at the start of the new year. Companies enabling the adoption of artificial intelligence (AI) are still in a solid position to deliver returns to investors, but it's important to maintain realistic expectations.
While some AI stocks have skyrocketed over the last few years, not even Warren Buffett doubled his money every year when he was he was starting out. Those who build lasting wealth in stocks not only look at a company's growth potential, but most importantly, weigh those prospects against the company's valuation. After all, the greatest companies can be lousy investments if you pay an extremely high price in relation to earnings.
That said, here are two growth stocks you can buy with less than $500. These stocks won't double your money in a year, but they have excellent growth prospects and trade at reasonable multiples of their earnings that could double your money within the next five years.
Leading cloud service providers have invested a fortune in building up their data center infrastructure for training AI models. Nvidia has been in pole position in the data center graphics processing unit (GPU) market, but the insatiable demand for more computing power is much larger than one company can handle.
With Nvidia trading at a higher price-to-earnings multiple after a phenomenal run in its share price, I would focus on Advanced Micro Devices (NASDAQ: AMD) , whose data center revenue grew 122% year over year in the most recent quarter. Strong data center growth drove AMD's total revenue up 18% year over year in Q3. The company is on pace to report record revenue for 2024 and should see more growth in 2025.
Even with growth accelerating last quarter ahead of new chip launches in 2025, the stock is trading 46% off its previous highs. The outlook for AMD's non-AI segments, including chips used for gaming and industrial markets, was lower than analysts expected last quarter and weighed on the share price. However, this sets up an excellent buying opportunity for long-term investors.
AMD is in a solid position to meet growing demand for AI chips. The second-leading cloud services provider, Microsoft , uses AMD's MI300X GPUs for Copilot and Azure cloud services powered by OpenAI. Several other leading companies, including Netflix and Uber Technologies , are using AMD's Epyc central processing units (CPUs) to run their services.
Once AMD's non-AI products return to growth, the stock should climb to new highs. Analysts expect AMD's earnings to grow at an annualized rate of 44% over the next several years. The stock's current forward price-to-earnings (P/E) multiple of 24 is hovering around the market average. AMD just needs to grow its earnings 15% per year through 2030 for investors to double their money, which seems achievable.
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) continues to ride a growing digital advertising market. It reported strong earnings results in 2024, sending the stock up 36% over the last year. As the Google and YouTube owner integrates AI across the business, it could open up a lot more opportunities to monetize billions of users, including large enterprises, that rely on its services.
New tools like AI Overviews and Circle to Search are expanding the types of things people search for on Google, which can open up new ad placement opportunities. Google's advertising revenue grew 10% year over year in Q3, reaching $65 billion, but Alphabet is just getting started improving its products with AI.
Google Cloud offers tools for businesses to build their own AI applications. It is currently the third-leading cloud services provider behind Amazon and Microsoft, but it's growing faster than its rivals. Revenue from cloud services grew 35% year over year in Q3, and that stellar increase helped the cloud segment turn a healthy profit, too.
AI is also driving improving efficiency in managing costs across the business. Since it first started testing AI Overviews, the company has lowered its machine cost per query by more than 90%. This is helping fuel strong earnings performance.
Alphabet's earnings per share jumped from $1.55 in Q3 2023 to $2.12 in Q4 2024, an increase of 37% year over year. Analysts expect earnings to grow at an annualized rate of 16% from here, yet the stock can still be bought for a reasonable multiple of 22 times this year's consensus earnings estimate. That's a steal for a company of this quality and sets the stage for investors to double their money in five years.
Before you buy stock in Advanced Micro Devices, consider this:
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