Sarah Travers
The artificial intelligence (AI) revolution is transforming the global economy, offering vast opportunities for investors. With the industry expected to add trillions of dollars to the economy in the coming decade, now is an opportune time to invest. For those with $1,000 to spare, splitting the investment between hardware giant Micron Technology and cloud computing company DigitalOcean could yield substantial long-term returns.
Micron Technology: A Key Player in AI Hardware
Micron Technology, a leading producer of memory and storage chips, is gaining prominence in the AI industry. While Nvidia is often recognized for its AI-capable graphics processing units (GPUs), Micron’s high-bandwidth memory (HBM) is crucial for data center operations. Micron’s new HBM3E architecture offers superior performance, smaller physical footprint, and 30% less energy consumption compared to previous generations. This technology is so advanced that Nvidia is using it for their new H200 GPU, which performs AI inferencing twice as fast as its predecessor while consuming half the energy.
The demand for Micron’s high-bandwidth memory is so high that it is completely sold out for 2024 and 2025. This high demand gives Micron significant pricing power, which is expected to drive revenue and earnings growth over the next few years. As AI technology expands to personal devices, the need for memory bandwidth increases, benefiting Micron further. Leading manufacturers of Android-powered AI smartphones, such as Samsung, utilize Micron’s LPDDR5X memory chips, which provide up to 16 gigabytes of capacity.
In the recent fiscal 2024 third quarter, Micron reported $6.8 billion in revenue, an 81% increase from the previous year. The data center business grew by 85%, and the mobile segment saw a 94% revenue increase, both driven by AI demand. Although fiscal 2024 will end with mixed results due to earlier inventory issues, Wall Street anticipates strong performance in fiscal 2025, projecting $9.54 in earnings per share and a forward price-to-earnings (P/E) ratio of just 14. Given that the iShares Semiconductor ETF trades at a P/E ratio of 39.1, Micron’s stock has significant potential for growth.
DigitalOcean: Empowering Small Businesses in AI
DigitalOcean provides a cloud platform tailored for small and mid-sized businesses, offering affordable pricing, personalized support, and an easy-to-use interface. Unlike major cloud providers like Amazon and Microsoft, which focus on large organizations, DigitalOcean targets startups and companies with up to 500 employees. Its streamlined portfolio includes data storage, web hosting, and software development tools.
In 2023, DigitalOcean acquired Paperspace for $111 million to enhance its AI capabilities. Paperspace operates AI-specific data centers with a selection of GPUs, including Nvidia’s H100, and offers services up to 70% cheaper than Microsoft Azure. This acquisition aligns with DigitalOcean’s cost-efficient and flexible approach, allowing customers to pay only for what they use without long-term contracts.
This strategic move is expected to drive significant synergies, as many businesses are already exploring AI. DigitalOcean’s AI services have shown rapid growth, with annual recurring revenue increasing by 128% between December 2023 and March 2024. Demand for AI GPU capacity is projected to exceed supply, ensuring continued growth.
DigitalOcean forecasts up to $775 million in revenue for 2024, barely tapping into its addressable market, valued at $114 billion. With a current market capitalization of $3 billion, DigitalOcean offers substantial upside potential for long-term investors.
A Smart Investment for the Future
Investing in AI is a forward-thinking strategy that promises significant returns as the industry evolves. Micron Technology and DigitalOcean, with their strong positions in hardware and cloud computing, respectively, are well-placed to benefit from the AI boom. By investing $1,000 equally in these two companies, investors can capitalize on the growing demand for AI technology in both data centers and small businesses. As AI continues to integrate into various sectors, the potential for these stocks to deliver long-term value is substantial.
