Recent fluctuations in tech stock trading patterns have not deterred the positive long-term outlook for leading companies in the sector, particularly those involved in artificial intelligence (AI). The Nasdaq Composite has returned an impressive 90% over the past five years, outpacing the S&P 500 and Dow Jones Industrial Average. While AI has served as a significant growth driver for these tech giants, the full potential of this technology is still unfolding.
In the current landscape, companies investing heavily in AI and advanced computing hardware are poised for substantial growth. Notably, Advanced Micro Devices (NASDAQ: AMD) is one such company that is capturing investor interest.
AMD’s Strategic Positioning in AI
AMD has recently seen a resurgence after navigating a period of sluggish growth. The company’s strategic investments in the AI chip market are beginning to yield results, with a reported revenue growth of 36% year-over-year in the third quarter, reaching $9.2 billion. Furthermore, its adjusted earnings per share increased by 30% year-over-year, complemented by record free cash flow, indicating a profitable scaling of its operations.
AMD’s competitive edge lies in its ability to offer superior cost-performance ratios compared to its competitors. Its fifth-generation Epyc central processing units (CPUs) for servers are increasingly capturing market share from Intel, while the MI300 series of graphics processing units (GPUs) are recognized for their effectiveness in managing AI inference workloads.
Looking ahead, the anticipated launch of the MI450 GPU next year is expected to further propel AMD’s revenue. OpenAI has plans to acquire a large cluster of MI450s in the latter half of 2026 as part of a long-term agreement, establishing AMD as a key strategic partner for the company behind ChatGPT.
Analysts are forecasting an impressive 66% annualized growth in free cash flow through 2029 for AMD. This projection has led to a substantial increase in the company’s stock price, suggesting significant upside potential for investors.
Meta’s AI-Driven Growth
Meta Platforms (NASDAQ: META), boasting over 3.5 billion daily users across its services, is also leveraging AI to enhance profitability and user engagement. With more than 3 billion users on Instagram alone, Meta’s advancements in AI are creating a competitive edge in tech infrastructure through expanded data center capabilities.
The company’s financial results for the third quarter were notable, showing a 26% year-over-year increase in revenue. The advertising segment generated a substantial operating margin of 43% on a trailing-12-month basis, contributing to $44 billion in free cash flow.
AI enhancements in Meta’s ad technology are delivering better efficiency and more relevant advertisements, with AI-driven tools generating over $60 billion annually, which constitutes approximately one-third of the company’s total revenue. Despite a 20% drop in stock price since its third-quarter earnings report, mainly due to planned increases in capital expenditure, Meta’s investments in GPUs and computational capacity are anticipated to bolster its AI capabilities, potentially leading to increased profitability over the long term.
The valuation of Meta appears attractive, trading at just 20 times the 2026 earnings estimates, suggesting significant long-term upside that may not be fully reflected in its current stock price.
Before considering investments in AMD, it’s worth noting that the Motley Fool Stock Advisor has identified other stocks as their top picks for future growth. Advanced Micro Devices was not among the ten best stocks recommended at this time. Historically, recommendations from this platform have led to substantial gains for early investors in companies like Netflix and Nvidia.
In summary, both AMD and Meta Platforms represent compelling opportunities for investors looking to capitalize on the ongoing growth within the AI sector. As AI technology continues to evolve, these companies are well-positioned to benefit from the increased demand for advanced computing capabilities and innovative applications.
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