The AI Gold Rush: How to Strike it Rich With the Right Stocks

Here’s why investors can consider gaining exposure to stocks such as Intel and benefit from the AI gold rush.

A chip in a circuit board says "AI"

Source: Getty Images

The artificial intelligence megatrend is here to stay, which suggests the time is ripe for investors to take advantage of a rapidly expanding addressable market. In this article, I have identified two cheap dividend stocks as part of the AI gold rush that are poised to deliver outsized gains to investors in the upcoming decade.

AI stock #1: Intel

Valued at US$130 billion by market cap, Intel (NASDAQ:INTC) designs, develops, markets, and sells computing products and services globally. In recent years, Intel stock has grossly underperformed the broader markets, trailing peers such as Nvidia and Advanced Micro Devices by a wide margin.

Earlier this year, Intel disclosed plans to begin a new financial reporting structure based on a foundry operating model to drive increased cost discipline and higher returns. Intel expects the model to unlock additional cost savings and operational efficiencies as it aims to end 2030 with gross margins of 60% and operating margins of 30%.

Intel Foundry expects to drive operating margin expansion by manufacturing a larger percentage of Intel’s products and growing its high-margin advanced packaging business. Operating losses in this segment are expected to peak in 2024 and achieve break-even margins around 2027. Elsewhere, the tech heavyweight has launched accelerators capable of running AI workloads for data centres.

Intel has bet big by entering the semiconductor foundry market, which is expected to more than double from US$107 billion in 2022 to US$232 billion by 2032, according to an Allied Research report. It is also planning to invest in chip fabs in the U.S. and expand its chip manufacturing capabilities amid soaring GPU demand.

INTC stock is forecast to end 2028 with adjusted earnings of US$5.80 per share. In case the tech stock is priced at 20 times forward earnings, it should trade around US$116, indicating an upside potential of almost 300% from current levels.

In addition to its cheap valuation, Intel pays shareholders an annual dividend of US$0.50 per share, translating to a yield of 1.7%.

AI stock #2: Brookfield Renewable Partners

Brookfield Renewable Partners (TSX:BIP.UN) owns and operates a portfolio of cash-generating assets in verticals such as hydro, solar, wind, storage, and distribution. In Q1 2024, Brookfield Renewable reported revenue of US$1.5 billion, an increase of 12% year over year, beating consensus estimates by US$60 million. Its funds from operations, or FFO, rose 8% to US$0.45 per share, higher than estimates of US$0.42 per share.

Brookfield attributed its strong results to a diverse asset base and inflation-linked PPAs or power purchase agreements. Despite a challenging macro environment, it expects FFO to grow by 10% in 2024.

During its earnings release, Brookfield Renewable announced a partnership with Microsoft to deliver the latter with 10.5 megawatts of new renewable energy capacity between 2026 and 2030 in the U.S. and Europe.

According to Brookfield, data center demand as measured in megawatts of power leased by users, is setting new records and is forecast to accelerate amid the digitization of the global economy. For example, Amazon plans to spend US$150 billion on data centres in the next 15 years, driving clean energy demand higher.

Brookfield Renewable’s annual dividend of US$1.42 per share suggests it offers shareholders a dividend yield of 6%.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Advanced Micro Devices, Brookfield Infrastructure Partners, Intel, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

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