These AI stocks will likely remain leaders for years to come.
Almost every tech company is selling its AI credentials these days. Don’t blame them, considering AI is a valuable addition to many software and services.
But just because tons of companies are quickly integrating AI into their offerings, doesn’t mean they’re the best AI stocks. Instead, you should look for the leaders who are knee deep in this segment and set the pace in the AI race. Here are three top AI stocks leading the pack worth buying right now.
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1. Palantir
Palantir Technologies (PLTR 4.49%) was in the business of helping organizations sort through data before AI became commonplace. For years, it focused on using artificial intelligence to help the government analyze gobs of data, but has since branched out into the commercial market.
His first boss in this area is paid. The company just reported its third-quarter results (which ended September 30), in which revenue rose 30% from the year-ago quarter to $726 million and adjusted earnings per share spiked. 43% to $0.10.
U.S. commercial revenue, a fast-growing part of Palantir’s business, increased sales 54% to $179 million and accounted for about a quarter of the company’s total revenue in the quarter. Part of that growth comes from Palantir’s impressive customer growth, which grew 39% in the quarter amid 104 customer deals that were worth $1 million or more.
If I have one hesitation with Palantir, it’s the sky-high company valuation. Palantir shares now have a price-to-earnings ratio of 101. That’s expensive by any measure.
However, the company is clearly making the right moves in the AI race and is also profitable, not to mention having $4.6 billion in cash and cash equivalents. With its customers knocking down its doors for its technology, and sales and earnings growing at a healthy clip, Palantir probably has even more room to run.
2. Nvidia
Nvidia (NVDA -0.84%) is one of the obvious choices when it comes to the best AI stocks. For years, the company dominated the graphics processing unit (GPU) market when they were used primarily for gaming, but now its GPUs are far and away the leading choice for powering AI data centers as well.
The most recent estimates give Nvidia’s chips between 70% and 95% of the AI chip market, and its latest product line – including its popular H200 processor – will likely keep the company ahead of the competition for some time
You might be wondering if the demand for AI chips could be high enough to fuel sustained growth for Nvidia, and to that, I’d say Nvidia CEO Jensen Huang and Goldman Sachs think that $1 trillion in AI spending will happen in the next few years, most of which will be channeled into data centers.
Even with the impressive 380% increase in Nvidia’s stock price over the past three years, its forward P/E of 35.8 is still relatively low compared to some other AI stocks. It’s still not cheap, but Nvidia is the clear leader in the AI processor market, and AI spending is still ongoing.
The company’s first and advanced processors should help it stay ahead of the competition, and the intense AI race that is now underway among all tech companies will be the fuel that keeps Nvidia’s fire burning for quite a while. piece
3. Taiwan Semiconductor Manufacturing
There is another critical angle that investors can play in the artificial intelligence space, and it comes in the form of chip manufacturing. There are chip designers, such as Nvidia, and then there are companies that actually to do the processors, like Taiwan Semiconductor Manufacturing (TSM 0.01%).
TSM makes about 90% of the world’s most advanced processors, and the AI boom is fueling the company’s growth. TSM reported impressive third-quarter financial results a few weeks ago (for the period ending September 30), with sales growing 39% to $23.5 billion and diluted EPS increasing 54% to $1.94 per American Depositary Receipt (ADR).
TSM management said third-quarter growth came from “strong smartphone and AI demand” and that more is on the way. The company estimates that fourth-quarter sales will jump 35% at the midpoint of guidance.
TSM has the lowest forward P/E on this list, at just 21.2, making it a relative bargain compared to its AI peers. With TSM the definitive leader in advanced chip processor manufacturing, the company is poised to continue to benefit as more companies increase their AI data center spending.
Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Goldman Sachs Group, Nvidia, Palantir Technologies and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.