Top 2 Artificial Intelligence Stocks to Consider Investing in Currently

Top 2 Artificial Intelligence Stocks to Consider Investing in Currently

The artificial intelligence (AI) market will have a significant impact on economic productivity and growth. This is an area ripe for finding long-term winners, but as with any new technology, there will be winners and losers. A simple criterion to put the odds in your favor is to invest in AI leaders who are profitable and generate significant free cash flow from their operations.

Two that come to mind are the AI ​​chip leader Nvidia (NASDAQ:NVDA) and parent Google Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). There is probably no other company spending as much on AI technology as these two. Their current valuations look cheap relative to their growth and could generate spectacular returns over the next decade.

1.Nvidia

Nvidia shares have soared 254% over the past year, thanks to its powerful graphics processing units (GPUs) are in high demand for AI-powered applications. The company’s dominance in the AI ​​chip market has other companies fighting for a piece of the pie. Intel And Advanced microsystems are releasing new chips that they hope will compete with Nvidia, but that’s easier said than done.

Nvidia isn’t just a GPU company. It also provides software, systems and algorithms that create a service platform for data scientists and AI researchers. That’s why it makes exorbitant margins, converting $0.49 of every dollar of sales into profit. Nvidia’s free cash flow reached $27 billion last quarter on a trailing 12-month basis, providing ample ammunition to invest in more innovation.

Some investors are skeptical about how long Nvidia’s reign will last. This is why the stock is trading at a relatively low valuation. Its forward price-to-earnings (P/E) ratio of 38 is quite low for a company whose earnings are growing at triple-digit rates.

But Nvidia’s race is far from over. It is expected to begin shipping the new H200 GPU later this year, which offers a quantum leap in AI performance compared to the H100 that is currently fueling the company’s growth. Additionally, management is seeing growing interest from governments around the world who want to invest in AI to create large language models using their own languages. This could significantly expand Nvidia’s growth runway.

Overall, Nvidia has everything you could want in an AI investment. It’s extremely profitable, dominates the GPU market, and the stock is reasonably valued relative to its future prospects.

2. Alphabet (Google)

Alphabet shares are up 47% over the past 12 months, outpacing the stock’s return S&P500 hint. The company’s investments in AI for Google Search and its digital advertising business are excellent reasons to consider owning shares.

Google is the leader in the digital advertising market, but it faces competition from MicrosoftIt’s Bing. Google search has seen its market share decline in recent years, which could weigh on Alphabet’s advertising revenue growth. That’s why the stock is conservatively valued at a forward P/E of 22, which is lower than the stock average.

However, Alphabet has strengths in data and AI that are underappreciated. With billions of users on YouTube and Google, the company has plenty of user data to make its AI models smarter, and it has the resources to continue investing.

The company is investing billions in new servers and data centers while increasing its free cash flow to $69 billion in 2023. Alphabet plans to significantly increase spending in 2024 to prepare for growth opportunities by offering more of AI applications to individual users, advertisers, developers, governments, and enterprise cloud customers.

Speaking of the cloud, AI will have a major impact on the growth of Google Cloud, one of the largest cloud service providers for businesses. Alphabet’s cloud revenue grew 26% year over year in the fourth quarter, and the segment is starting to turn a profit, which could benefit the stock.

Alphabet has tremendous financial strength, making it a relatively safe AI stock. This is a solid choice that can serve as a core investment in a well-diversified investment portfolio.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Ballard holds positions in Advanced Micro Devices and Nvidia. The Motley Fool holds positions and recommends Advanced Micro Devices, Alphabet, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short 405 calls $ in January 2026 on Microsoft and short $47 calls in May 2024. Intel. The Motley Fool has a disclosure policy.

2 Top Artificial Intelligence Stocks to Buy Right Now was originally published by The Motley Fool

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