Nvidia led the first phase of artificial intelligence (AI), but these 2 growth stocks will lead the next phases, according to the Wall Street team.

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Nvidia (NASDAQ: NVDA ) Arguably, artificial intelligence (AI) has led the first phase of the boom. Its share price has surged 245 percent over the past year as businesses bid to buy its graphics processing units (GPUs), the chips that have become synonymous with AI. But the analyst Goldman Sachs See Amazon (NASDAQ: AMZN ) As a leader in the second and fourth stages of AI, and Cloudflare (NYSE: NET ) As a leader in the third phase.

The four steps are detailed below. Investors should not think of these as isolated events, but rather as a continuum where a new phase may begin before the previous phase ends. In other words, all four periods will overlap to some extent.

  • Phase 1: Semiconductor companies will generate revenue from chips designed to support AI workloads.

  • Step 2: Cloud businesses will generate revenue by providing access to AI infrastructure.

  • Step 3: Cloud companies will generate revenue by incorporating AI into software and services.

  • Phase 4: Many different types of organizations will use AI internally to improve operational efficiency.

The Goldman analyst team has made a wise choice. Amazon is the largest provider of cloud services in the world and the company is already using AI to make its logistics business more efficient. Similarly, Cloudflare has ample opportunity to monetize AI through its Worker developer platform, to the extent that management believes it could be a leader in AI evaluation.

Read on to find out why both stocks can be worthwhile long-term investments.

1. Amazon

Amazon is famous for its e-commerce empire. The company operates the world’s most visited online marketplace, and has strengthened its leadership position by investing heavily in logistics capabilities. This strategy not only allows Amazon to control costs, but also enables the company to support sellers with complementary services and delight buyers with timely delivery.

Meanwhile, Amazon has used its dominance in online retail to build a thriving advertising business. In fact, Amazon has become the world’s third-largest adtech company, and Wedbush Securities analyst Scott DeWitt believes it is “well-positioned to capture global digital ad spending over a multi-year period.”

Finally, Amazon Web Services (AWS) is the top dog in cloud infrastructure and platform services, and has a strong presence in several subcategories of the cloud computing market. Specifically, counseling Gartner AWS has recently been recognized as a leader in artificial intelligence (AI) developer services.

Amazon looked strong in the fourth quarter. Revenue rose 14% to $170 billion, driven by sequential acceleration in cloud computing revenue, along with momentum in e-commerce and advertising. Meanwhile, GAAP net income rose to $1.00 per diluted share, up from $0.03 per diluted share in the prior year, indicating that cost control efforts are paying off.

Looking ahead, AI should be a tailwind for Amazon, in terms of improving efficiency and boosting revenue. For example, the company is using machine learning to optimize inventory and delivery routes. According to CEO Andy Jassy, ​​that should support continued margin expansion, especially with its new regional fulfillment strategy, which lowered shipping costs on a per-unit basis in 2023 for the first time since 2018. What did

Meanwhile, Amazon recently introduced Bedrock, a cloud service for building creative AI applications. The company also announced Amazon Q, a generative AI business assistant. Both products create new monetization opportunities that help Amazon meet the growing demand for AI. In fact, Jesse believes that investments in AI will “generate tens of billions of dollars in revenue for Amazon over the next several years.”

Going forward, Wall Street analysts expect Amazon to grow revenue by 11 percent annually over the next five years. That estimate makes its current valuation of 3.2 times sales seem reasonable, though it’s a slight premium to the three-year average of 2.9 times sales.

I think Goldman has the right idea where Amazon is concerned. Patient investors should consider buying a few shares of this top AI stock today.

2. Cloudflare

Cloudflare provides application, network, and security services that improve the performance of corporate infrastructure and software in public clouds and private data centers. Additionally, the company offers compute and storage services through its Worker Developer Platform that helps businesses build and deploy applications, and has a particular focus on enabling artificial intelligence.

Last year, CEO Matthew Prince said, “By our estimates, Cloudflare is the most used cloud provider among leading AI startups.” He also said the company is “uniquely positioned to be a leader in AI inference.” Prince was referring to Workers AI, a recently launched service that lets businesses run AI applications on Nvidia GPUs installed on their networks.

Cloudflare operates the fastest cloud network on the market, and Forrester Research recently recognized the company as a leader in edge development platforms. These qualities can certainly help Cloudflare become a major player in the AI ​​inference market despite stiff competition from Amazon and Amazon. Microsoft.

Cloudflare reported strong fourth quarter financial results. Its customer base grew 17% and the average existing customer spent 15% more over the past year. In turn, revenue rose 32% to $362 million in the fourth quarter, and non-GAAP net income more than doubled to $53 million. Investors have good reason to think the momentum will continue.

Going forward, Grandview Research believes that the edge computing market will grow by 37 percent annually through 2030, and Cloudflare is poised to capitalize on this opportunity given its strong position in edge development platforms. But International Data Corporation also ranks Cloudflare as a leader in zero-trust network access, and the market is predicted to expand 17 percent annually through 2030.

Collectively, Cloudflare has a good shot at 20% annual revenue by the end of the decade, and that projection could change depending on how well the company monetizes AI. Either way, its current price of 23.7 times sales is affordable. Note that multiples are not cheap, so shares will almost certainly be volatile. But patient investors comfortable with this risk should consider buying a short position in this growth stock.

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John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Trevor Genuine has positions at Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon, Cloudflare, Goldman Sachs Group, Microsoft, and Nvidia. The Motley Fool recommends Gartner and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.

Nvidia led the first phase of artificial intelligence (AI), but these 2 growth stocks will lead the next, according to a Wall Street team originally published by The Motley Fool.

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