Artificial intelligence (AI) is the hottest topic on Wall Street right now. Some major names are unavoidable in this space, and for good reason. There are also many companies doing everything they can to prove their AI credentials, no matter how legitimate their claims are.
However, some companies have flown a bit under the radar while posting impressive results and having legitimate tailwinds from the AI boom currently occurring. Here are two companies that may be the best AI shares To buy now.
1. Arista Networks
When you hear about Amnesty International, it’s mostly about companies rushing to buy the semiconductor chips needed to train the large language models (LLMs) that power consumer-facing products like ChatGPT. However, it is important to remember that many of these chips end up in the data centers of the world’s largest technology companies. Within these companies’ data centers, servers are connected by routers and switches, and a large percentage of those routers and switches are served by Arista Networks (NYSE: Annette).
He also loves technology giants Meta platforms And Microsoft To grow their data center footprint, Arista is an important partner. The financial results show how important this relationship is to Arista. Thirty-nine percent of Arista’s total revenue comes from Meta and Microsoft.
In the first quarter of 2024, Arista reported year-over-year revenue growth of 16%. Although this was a slowdown from previous quarters, profitability remained strong. Net income increased by 46% compared to the same quarter last year. This impressive increase in net income was driven by improved gross margin, which jumped more than 4 percentage points compared to the first quarter of 2023, as well as lower operating expenses as a percentage of revenue.
2. Broadcom
Broadcom (NASDAQ:AFGO) It is a supplier of semiconductor hardware and software in a variety of products such as wireless routers and mobile phones. As with Arista, Broadcom has relied on relationships with major technology companies with AI aspirations. For example, apple It represents about 20% of Broadcom’s total revenue.
Broadcom recently announced its earnings results for its fiscal second quarter of 2024, ending May 5, and the results were impressive. Revenue rose 43% year over year to $12.5 billion. Revenue from AI products grew 280% and represents about 25% of the total, showing that Broadcom is benefiting from the rush to build AI capabilities by the world’s largest technology companies.
There is one caveat about Broadcom’s revenue growth that investors should be aware of. The company recently acquired infrastructure software company VMWare, which contributed significantly to its revenue results. Excluding revenue from VMWare, revenue growth would have been 12%.
For the full year, Broadcom expects AI product revenue to reach approximately $11 billion, which management noted is a conservative estimate, suggesting potential for further upside as the year progresses.
Bottom line for investors
Neither Arista Networks nor Broadcom seem to be making AI headlines, but investors have certainly noticed their strong results. Both stocks are trading at high valuations compared to their historical results.
These companies are certainly in the right place at the right time and should continue to deliver strong results as long as AI spending remains high. In this sense, high valuations make sense. Although I believe these stocks are buyable right now, a dollar-cost averaging approach may be wiser for most investors.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeff Santoro He holds positions at Apple, Arista Networks, Broadcom, and Microsoft. The Motley Fool has positions in and recommends Apple, Arista Networks, Meta Platforms, and Microsoft. The Motley Fool recommends Broadcom and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.
2 of the best AI stocks to buy now Originally published by The Motley Fool
