AI Stocks: 2 Ways to Invest in the Future of Artificial Intelligence

These tech plays may offer more AI stock upside than Nvidia stock going forward. CGI Inc. is one of them.

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The age of generative artificial intelligence (AI) has arrived. Students, content creators, coders, engineers, and millions of individuals are getting hooked on OpenAI’s ChatGPT and many useful AI platforms sprouting from many AI startups. Billions in new investments are flocking into the emerging industry. Unbelievably, AI is here to stay, and to change lives. It could change the financial lives of well-positioned AI stock investors, too. But how can one profitably invest in the future of artificial intelligence right now?

The future of generative AI involves its exponentially wider adoption by all manner of businesses. In hindsight, leading AI chipmaker Nvidia stock was one of the best bets for AI investors to capture the vast demand upside from growing AI computing needs (AI chips are damn expensive). However, there isn’t much upside left in the US$1.1 trillion AI-chip stock following a 275% rally in NVDA stock since October last year – a month leading to ChatGPT’s launch. Investors may wish to look elsewhere for capital gains.

Here are two potentially profitable ways investors could play the highly promising future of AI.

Invest in growing AI adoption, buy CGI stock

CGI Inc. (TSX:GIB.A) is a $29.6 billion information technology and business consulting stock that investors may buy and hold for its AI-enhanced revenue and earnings growth upside. The company is right at the forefront of advising global businesses on efficiently adopting and profitably integrating artificial intelligence into their commercial processes. Business is going strong, profits are piling up, and the business should rack in more free cash flow to sustain its acquisitions-led growth strategy.

Tight labour markets in North America (and in other advanced global economies) compel businesses to invest in new productivity-enhancing processes and technologies to improve productivity and widen profit margins. AI is an increasingly compelling technology to adopt and enhance profits, and CGI’s bookings are growing.

For the first three months of 2023, CGI reported 13.5% year-over-year growth in quarterly revenue to $3.7 billion and a 19% surge in adjusted earnings per share. Bookings during the quarter were 103.3% of revenue. Its revenue base is growing, and profit margins have expanded lately.

CGI stock is up 21.3% year to date. However, shares trade at a fair forward price-earnings (P/E) multiple of 18.2. The AI adoption enabler’s stock is still fairly valued. Investors bullish on the long-term upside for AI adoption may buy it.

Aehr Test Systems stock

Investors who love the immense triple-digit gains that small-cap AI stocks may provide should check out Aehr Test Systems (NASDAQ:AEHR) stock as it rallies on AI tailwinds. AEHR is a US$1.4 billion semiconductor testing systems stock that’s literally on steroids. It has produced a solid 2,525% return over the past three short years, and growing demand for AI chips could amplify AEHR’s valuation.

Why is AEHR stock flying so high? The company provides semiconductor testing services to Nvidia’s GPUs, a family of chips from which Nvidia’s venerable H100 came. The H100 is a breakthrough AI accelerator that AI startups and data-centre giants crave for high-end artificial intelligence testing and computing. As a key supplier to the emerging AI-chip industry, the market is ready to give the tiny, yet fast-growing, AEHR stock some love.

The company reported 28% year-over-year growth in revenue for the fiscal year 2023 and guides for a 50% surge in sales over the next 12 months. It foresees a significant new market opportunity for test and burn-in of semiconductors for data farms, computing, and AI markets.

That said, just like Nvidia stock, AEHR stock price could be overvalued now. A forward PE of 48 could be a pointer. However, the stock market has accorded a US$1.1 trillion Nvidia stock a bloated forward PE of 41.7 for crying out loud. The smaller AI-chip industry supply has a high-valuation argument on its side.

Not everyone believes that AEHR stock will grow to justify its current valuation though. High short interest reflects this. Traders have sold about 20.1% of AEHR stock’s public float. They are betting on the share price falling off current all-time highs.

AEHR stock is up 143% year to date, including an 18.2% rally on Friday. Though risky, momentum could be your best friend for quick returns.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends CGI and Nvidia. The Motley Fool has a disclosure policy.

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