Artificial intelligence (AI) has emerged as a transformative force in various sectors, prompting investors to explore promising opportunities. Two AI stocks worth considering with an investment of $1,000 are Micron Technology and DigitalOcean due to their significant roles in AI infrastructure and services.
Micron Technology, known for its high-quality memory chips, is integral to AI. Training and operational tasks in AI rely heavily on powerful graphics processing units (GPUs) supplied predominantly by Nvidia. Memory chips are crucial for storing and quickly accessing information, which is essential for data-intensive AI workloads. Micron’s high-bandwidth memory (HBM3e) has been selected by Nvidia for its new H200 GPU, signaling the robustness of Micron’s technology. The HBM3e offers higher capacity and a smaller physical footprint, making it ideal for compact, powerful computing systems. It’s also 30% more energy efficient than its competitors’ chips, a significant advantage given the high energy consumption of data centers.
Micron has successfully sold all its data center memory for 2024 and 2025, highlighting the strong demand for its products. The company is expected to expand its offerings with a new 12-layer HBM3e solution, potentially increasing capacity by 50%. Such advancements make Micron’s products highly sought after, especially by Nvidia for its future GPUs. Besides data centers, Micron’s memory chips are also finding applications in personal computing and mobile devices. AI-enabled smartphones, for instance, require double the memory capacity of their predecessors, boosting revenue prospects for Micron.
In its fiscal third quarter of 2024, Micron recorded an 85% increase in data center revenue and a 94% jump in mobile segment revenue, driven by AI demands. Analysts forecast Micron’s total revenue to reach $25 billion for fiscal 2024, a 61% increase from the previous year, with an anticipated rise to $38.8 billion in fiscal 2025. Predictions indicate Micron could achieve $9.41 per share in earnings in fiscal 2025. This would place its stock at a forward price-to-earnings ratio of just 9.6, significantly lower than Nvidia’s, suggesting that Micron’s stock has considerable growth potential.
DigitalOcean, on the other hand, targets small and mid-sized businesses (SMBs) with its AI cloud services. Unlike Amazon Web Services and Microsoft Azure, which cater mainly to large corporations, DigitalOcean focuses on affordable and accessible cloud solutions for SMBs. The company’s cloud services include data storage, web hosting, video streaming, and software development tools, all essential for SMBs.
DigitalOcean’s acquisition of Paperspace last year has bolstered its AI capabilities. Paperspace operates data centers with a variety of GPU options for AI developers. DigitalOcean’s unique offering allows customers to access fractional GPU capacity on demand, a cost-effective solution for smaller businesses. This service provides SMBs with between one and eight Nvidia H100 GPUs for their AI workloads, an option larger providers don’t offer due to cost inefficiency. Paperspace’s per-second billing without lock-in contracts makes it up to 70% cheaper than Microsoft Azure, and DigitalOcean’s narrow service portfolio keeps costs low.
DigitalOcean reported $192.5 million in revenue for the second quarter, marking a 13% increase year-over-year. Its AI-related revenue surged by 200%, indicating rapid adoption of its new services by SMBs. Currently, the stock trades at a price-to-sales ratio of 5.1, which is significantly below its average since it went public in 2021, suggesting it is currently undervalued.
Overall, Micron Technology and DigitalOcean are positioned to capitalize on the burgeoning AI market. Micron’s superior memory chips cater to the increasing demands of data centers and advanced personal devices, while DigitalOcean’s cost-effective AI cloud services empower SMBs to leverage AI technologies. These factors make both stocks attractive for long-term investment.