Top Tech Stocks to Consider Amid AI Frenzy

Recent advancements in artificial intelligence (AI) have captured the attention of investors, especially those interested in tech stocks. As the industry evolves, understanding the risks associated with small tech companies becomes crucial. Here’s a look at leading tech firms that are promising long-term growth.

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1. Nvidia: The AI Semiconductor Powerhouse

Nvidia (NASDAQ: NVDA) stands as the leader in AI semiconductors. Over the years, Nvidia has captured a significant share of the data center market with its graphics processing units (GPUs). Many companies have found that GPUs outperform central processing units (CPUs) when it comes to AI tasks.

The launch of OpenAI’s ChatGPT marked the beginning of fierce competition in AI, propelling demand for Nvidia’s GPUs. Currently, Nvidia holds an estimated 70% to 95% of the AI chip market, leading to a substantial rise in its stock price—up 197% in the last year. While purchasing now may not yield similar gains, growth appears likely, due to ongoing enterprise investment.

Goldman Sachs predicts $1 trillion will be spent in AI hardware over the next four years. Nvidia’s CEO, Jensen Huang, claims that only $150 billion has been spent so far. This translates into impressive growth for Nvidia, with data center sales climbing 154% last quarter, reaching $26.3 billion.

Investing in Nvidia today comes at a premium, reflected in its forward price-to-earnings ratio of 35. Still, with strong demand for its products, Nvidia remains a wise long-term investment.

2. Apple: The Consistent Innovator

While Apple (NASDAQ: AAPL) may not be the hottest topic among some investors, this tech giant continues to stand out. Its profitable history and capability to adapt to new markets—such as the successful expansion into services—should not be overlooked.

Apple is poised to benefit significantly from the integration of AI software with its hardware. The upcoming Apple Intelligence features are set to enhance user experience, helping with task management, email summaries, and more. Some functions will even integrate with ChatGPT.

This AI feature could boost sales as generative AI smartphone shipments are expected to rise by 364% this year alone, reaching 234 million devices. Looking ahead, shipments could reach 912 million by 2028. Notably, around 50 million iPhone 12 users might be eager to upgrade.

Some may point to the recent lackluster demand for the iPhone 16, but many potential buyers could be waiting to see Apple Intelligence in action before making a purchase. Apple’s forward P/E ratio is currently 30, indicating it’s not available at a discount. However, with millions of devices in use, Apple remains a strong investment choice.

3. Microsoft: The Cloud and AI Front-Runner

Microsoft (NASDAQ: MSFT) has established itself as a leader in cloud computing and is an early investor in AI. The company recognized OpenAI’s potential and has committed over $13 billion to the partnership.

As ChatGPT gained popularity, Microsoft incorporated its technology into Microsoft 365, GitHub, and Azure cloud services, benefiting significantly from these investments. The company reports that Azure now has 60,000 AI customers, marking a 60% increase from the previous year.

Owning 25% of the cloud computing market positions Microsoft favorably as the industry transitions to a projected $2 trillion market by 2030. By integrating AI into existing cloud services, Microsoft enhances its offerings, promising serious growth potential for years ahead.

Microsoft’s stock trades at a forward P/E of 32, which some may consider pricey. However, given the company’s deep engagement with AI and cloud computing, it remains well-positioned for future success.

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Chris Neiger holds positions in Apple. The Motley Fool has positions in and recommends Apple, Goldman Sachs Group, Microsoft, and Nvidia. The Motley Fool recommends options on Microsoft as well. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily represent those of Nasdaq, Inc.