These AI-focused stocks look like long-term winners.
While AI chip makers are the most obvious beneficiaries of the AI revolution, AI is acting as a tailwind for countless other companies as well. Arista Networks (ANET -0.42%) and Oracle (ORCL 1.78%) are benefiting in different ways, and both stocks look like great buy-and-hold opportunities.
Arista Networks
As powerful AI chips fill data centers, fast and efficient networking becomes critical. Unlike many other types of workloads, AI workloads require powerful processing and involve extreme amounts of data. Particularly for AI-training jobs, that data must move quickly between nodes. Stringing together thousands of powerful GPUs won’t get you very far if those GPUs are hobbled by data-throughput issues.
Arista Networks has emerged as a critical networking provider for cloud giants scaling up their AI capacities. Microsoft and Meta Platforms combined accounted for 39% of the company’s revenue in fiscal 2023. While this customer concentration is a risk, it’s also a sign that Arista is leading the way in the AI networking market.
Arista’s growth has slowed, with revenue rising by 16.3% year over year in the first quarter. Still, that’s a solid growth rate, and the company is consistently winning market share from its larger rivals. In the 10 Gigabit Ethernet (GbE) portion of the data-center switching market, Arista is closing in on Cisco‘s dollar-based market share and has surpassed the networking giant in terms of port-based market share.
Arista does face some risks. First, AI chip giant NVIDIA is pushing to extend its growing presence in the data center with Ethernet-based networking solutions. As part of its Spectrum-X platform, the company has launched ultra-fast Ethernet switches and other hardware that could put pressure on Arista. Some cloud giants are also toying with bringing networking hardware in-house. Notably, Microsoft is reportedly developing its own networking card.
Despite these risks, it will be tough for competitors to dislodge Arista from its entrenched position in the AI networking market. Arista is not a cheap stock by any means: The forward price-to-earnings ratio sits at nearly 40. But for long-term investors, Arista looks like a great way to bet on the AI revolution.
Oracle
Database and software giant Oracle is a minor player in the cloud-infrastructure market, but booming demand for AI computing services is starting to drive rapid-fire growth.
Overall, Oracle’s revenue growth has been sluggish as software-license revenue erodes. Total revenue rose by just 7% year over year in the quarter ending on Feb. 29, with a 3% drop in cloud-license and on-premise license revenue dragging down the company’s results.
Offsetting that weakness was the cloud-infrastructure business, which grew by 49% in the latest quarter to $1.8 billion. Revenue from the newer Gen2 cloud infrastructure grew at a faster 53% rate. “[O]ur Gen2 Cloud Infrastructure business will remain in a hypergrowth phase…for the foreseeable future,” said CEO Safra Catz in the earnings release.
Oracle is investing heavily in expanding its cloud-infrastructure footprint. The company expects to spend as much as $7.5 billion on capital expenditures in the current fiscal year, more than triple its typical rate of spending over the past decade.
Demand is outstripping Oracle’s ability to ramp up capacity. Catz noted in the most recent earnings call that there are at least 40 AI-related bookings for the cloud business that hadn’t yet come online. As Oracle grows its cloud footprint, revenue growth could accelerate in fiscal 2025 and beyond.
Oracle faces plenty of competition as it looks to sell AI services and computing capacity to enterprises and start-ups, but the company is clearly having success as cloud-infrastructure revenue surges. If Oracle can keep up the momentum, its overall growth rate should accelerate in the years ahead.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arista Networks, Cisco Systems, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool 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.