The growing adoption of artificial intelligence (AI) has boosted many tech stocks this year, and the silver lining is that this trend is expected to continue into 2025.
Market researcher IDC predicts that global AI spending could reach $337 billion next year and reach a whopping $749 billion by 2028. As a result, tech companies selling hardware and AI-related software are ideally expected to witness healthy business growth next year. This is why investors would do well to buy shares of Micron technology(NASDAQ:MU) And Twilio(NYSE:TWLO)two AI stocks that stand to benefit from the billions of dollars invested in AI.
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Let’s look at the reasons.
Micron Technology may not have set the stock market on fire this year as shares of the chipmaker gained 18% in 2024, losing momentum in the second half despite posting strong results of late, but it is good news for investors looking to buy. A AI Actions at a reasonable valuation.
After all, Micron trades at just 11 times forward earnings, a nice discount for tech investors. Nasdaq-100 multiple of 28 of the index’s forecast profits. Additionally, Yahoo! The Finance Ministry estimates Micron’s price-to-earnings-to-growth (PEG) ratio at just 0.16, based on the estimated earnings growth it is expected to generate over the next five years. A PEG ratio below 1 means a stock is undervalued relative to the growth it is expected to generate.
Buying Micron at this valuation is a no-brainer. Indeed, the company stands to benefit from the massive increase in memory spending in 2025. Market research firm TrendForce predicts a 51% increase in dynamic random access memory (DRAM) spending in 2025, as well as a 29% increase in NAND flash memory. income.
AI is set to play a central role in this healthy growth, as demand for high-bandwidth memory (HBM) deployed in AI servers is expected to take off. According to Micron, HBM sales are expected to reach $25 billion in 2025, up from just $4 billion in 2024. Better yet, the rise in demand for HBM will positively impact the pricing environment and help Micron benefit larger margins.
It should be noted that Micron is already benefiting from the favorable dynamics of the memory market. When the company reported its fourth-quarter fiscal 2024 results in September, it reported a tremendous year-over-year increase of 93% in revenue to $7.75 billion. The company’s non-GAAP operating margin was 22.5%, compared to a negative reading of 30% for the prior-year period.
The chipmaker is expected to report its first quarter results on December 18. Micron expects revenue of $8.7 billion and earnings of $1.74 per share. These numbers would represent a considerable improvement over last year’s revenue of $4.7 billion and non-GAAP loss of $0.95 per share. Better yet, analysts expect Micron’s fiscal 2025 revenue to rise 52% to $38.2 billion, while earnings are expected to rise to $8.93 per share from $1.30 per share last year.
However, don’t be surprised to see Micron report stronger growth in the new fiscal year, as a potential increase in smartphone and personal computer (PC) sales next year, driven by AI, could give it an extra boost. Gartner predicts AI PC shipments to increase 165% in 2025.
At the same time, shipments of generative AI-enabled smartphones are expected to increase to 405 million units in 2025, up from 234 million units this year, according to IDC. These two markets could generate considerable growth in memory shipping volumes next year, as AI-enabled smartphones and PCs require more memory and storage.
Overall, Micron’s attractive valuation and impressive growth make this AI stock a screaming buy this month, as the memory market’s sunny outlook in 2025 could propel it into a bull run.
Twilio shares have risen significantly since the company reported its third-quarter results on October 30, with the company’s revenue and profit coming in well above Wall Street’s expectations.
Even so, investors can buy Twilio at a reasonable price of 4.5 times sales (which is lower than the US tech sector’s average sales multiple of 8.4) and 27 times forward earnings. Investors would do well to buy Twilio stock at these multiples, as the company’s growth is likely to accelerate thanks to the increasing adoption of AI in contact centers and customer service.
Twilio management said during its recent earnings conference call that it is making a concerted effort to integrate AI across its platform. The move appears to be paying off as Twilio’s revenue growth in the previous quarter reached 10%, a nice improvement over the 4% growth seen in the first two quarters. The company has not only seen an improvement in its customer base, but has also seen an increase in spending from existing customers.
Twilio’s active customer accounts increased to 320,000 last quarter, up from 306,000 last year. More importantly, its net expansion rate, expressed in dollars, rose four percentage points year-over-year to 105% in the third quarter. This suggests that Twilio’s existing customers have increased their spending, as this metric compares its customers’ spending in a quarter to the same set of customers’ spending in the previous year.
Adding AI-specific offerings to Twilio’s platform means it has the opportunity to sell new solutions to a large base of existing customers. Future Market Insights estimates that growing demand for AI-specific tools in the communications platform as a service (CPaaS) market could increase this industry’s annual revenue from $12 billion this year to 121 billion dollars in 2034.
Given that Twilio has been integrating AI-based tools into its communications platform since last year, it won’t be surprising to see the company’s growth accelerate in the future, as it is expected to be able to capture a greater share of customers’ wallets. All of this explains why analysts have increased their expectations for Twilio’s revenue for the next two years.
This impressive growth should also be reflected in Twilio’s financial results. Analysts expect its earnings to rise 17% in 2025 to $4.29 per share. Assuming Twilio trades at 34 times earnings after one year (in line with the Nasdaq-100 earnings multiple), its stock price could climb to $146 based on its projected 2025 earnings. This would represent an increase 29% from current levels.
So, savvy investors should consider buying Twilio stock now, given its attractive valuation and the company’s accelerating growth, which appears capable of maintaining its impressive momentum into 2025 and beyond.
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Twilio. The Motley Fool recommends Gartner. The Mad Motley has a disclosure policy.
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