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Nasdaq Composite: Riding the AI Wave Toward New Heights
The Nasdaq Composite has been on a remarkable ascent for over two years. Its growth has been fueled by factors such as the rise of artificial intelligence (AI), a U.S. Presidential election, decreasing inflation, and the anticipation of interest rate cuts. After a notable surge of 43% in 2023, the tech-heavy index has added another 33% in 2024 thus far.
Historically, the prospects for the Nasdaq remain promising. Analyzing data from 1972, which was its first full trading year, shows that in every year following gains of 30% or more, the Nasdaq averaged an additional 19% increase, indicating that the current rally could extend into 2025.
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Recent strides in AI technology have significantly boosted investor optimism. According to Price Waterhouse Coopers, the economic impact of generative AI could reach up to $15.7 trillion by 2030, which stands to benefit leading companies significantly.
Here are the top 10 AI stocks to consider buying in 2025 before the Nasdaq reaches new heights.
Image source: Getty Images.
1. Nvidia
No discussion of AI can overlook Nvidia (NASDAQ: NVDA), which has captured a leading position in AI processing. Its graphics processing units (GPUs), already top-rated for gaming, cloud computing, and machine learning, saw surging demand due to the swift adoption of generative AI.
Even after two years of rapid growth, Nvidia struggles to meet the ongoing demand. The upcoming launch of its next-generation Blackwell processors is eagerly anticipated, with CEO Jensen Huang noting that demand is “insane.” The company aims for an annual product release, reflecting its commitment to innovation.
After five consecutive quarters of triple-digit growth, Nvidia is bracing for tougher comparisons. However, Wall Street forecasts 50% growth for the next year. Remarkably, the company’s stock is relatively affordable at 31 times next year’s projected earnings.
2. Palantir
Palantir Technologies (NASDAQ: PLTR) has a strong foundation in AI with over 20 years of experience. Its Artificial Intelligence Platform (AIP) has positioned it well to capitalize on the recent surge in AI interest. The company provides boot camps linking customers with its engineers, allowing for quick adaptation to AI technologies, resulting in a spike in deal conversions.
The U.S. commercial segment, which includes AIP, reported a 54% year-over-year growth and a 73% surge in remaining deal value, indicating strong demand. Palantir also increased its customer count by 77%.
Recently, the company secured 104 deals valued at over $1 million, with several transactions exceeding $5 million. Palantir maintain an attractive valuation with a forward PEG ratio of 0.65, highlighting its potential as a worthwhile investment.
3. Microsoft
Microsoft (NASDAQ: MSFT) has played a pivotal role in igniting the AI revolution. Its investment in OpenAI, the creator of ChatGPT, and the subsequent integration with its services have spotlighted the capabilities of generative AI.
Microsoft’s flagship product in AI, the Copilot suite, could potentially generate an additional $100 billion in revenue by 2027. Its Azure Cloud platform is benefiting from AI adoption, achieving a growth rate of 30% in fiscal 2024, surpassing its competitors.
The company recently unveiled tools to measure AI investment returns and is working on reducing AI adoption costs. Despite a slight premium valuation at 33 times forward earnings, Microsoft’s growth expectations make it a compelling investment.
4. Broadcom
Broadcom (NASDAQ: AVGO) manufactures critical chips and components essential for data center infrastructures, putting it at the forefront of AI processing needs. In its latest quarter, Broadcom exceeded expectations with impressive results, particularly regarding its forward guidance.
Management anticipates a remarkable 500% growth in AI revenue by 2027. Recently, Broadcom added two significant customers for developing custom AI accelerators, hinting that guidance may be conservative.
Broadcom remains an attractive option, showcasing a PEG ratio of 0.09, a strong indicator of undervaluation.
5. Arm Holdings
Arm Holdings (NASDAQ: ARM) may lack the recognition of other AI companies but plays a vital role in the industry. It licenses designs for crucial CPU and GPU cores used in AI processing systems. Arm claims a significant share of the chips globally that have embedded processors.
For instance, Nvidia’s GH200 Grace Hopper Superchip incorporates 144 Arm version 9 CPU cores, illustrating the company’s influence. With estimates suggesting Nvidia could sell around 4 million GPUs this year, Arm’s position as a supplier underscores its substantial market opportunity.
Arm Holdings is likewise reasonably valued with a PEG ratio of 0.87.
Image source: Getty Images.
6. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (NYSE: TSM), commonly known as TSMC, is renowned as the largest and most efficient semiconductor foundry globally. Its pivotal role in AI adoption is underscored by its central position in supplying critical components that power AI technologies.
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Top AI Stocks to Watch: A Deep Dive into Key Players Driving Innovation
Companies like Nvidia, Arm, and Broadcom are driving growth in the AI sector. TSMC, one of the leading semiconductor manufacturers, expects its AI processor revenue to triple this year, constituting about 15% of total revenue. To meet this rising demand, TSMC is constructing three new semiconductor fabrication plants, aiming for greater efficiency.
The first plant is set to begin mass production early next year. TSMC has indicated that “almost every AI innovator” is partnering with them, signaling a significant opportunity for growth.
With a valuation of just 28 times its projected earnings for next year, TSMC stock is considered a compelling investment.
Alphabet Leads with AI Innovation
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) was an early adopter of AI, enhancing search result relevance and digital advertising through sophisticated algorithms. The company also quickly embraced generative AI, offering these advancements to its Google Cloud customers.
Recently, Alphabet launched Gemini 2.0, a new large language model that powers next-generation AI agents:
- Jules assists developers with coding.
- Mariner interacts with web browsers, performing tasks like typing and scrolling.
- Astra serves as a universal agent across Search, Lens, and Maps.
One of the biggest opportunities for Alphabet lies in its Google Cloud services, which are rapidly expanding. Vertex AI gives customers access to 160 foundational models for quick AI implementation.
Alphabet’s stock is reasonably valued at 25 times earnings, making it an attractive option among major AI players.
Amazon Shifts Perception in AI
Amazon (NASDAQ: AMZN) was once overlooked in the AI landscape but is beginning to gain recognition. Traditionally, Amazon utilized AI to enhance operational efficiency and is now revealing a more visible generative AI strategy.
CEO Andy Jassy disclosed, “In the past 18 months, Amazon Web Services (AWS) has introduced nearly twice as many machine learning and generative AI features as all other leading cloud providers combined.”
Amazon’s Bedrock AI offers customers access to popular generative AI models, along with specialized AI chips like Inferentia and Trainium, which are cheaper alternatives to high-end GPUs. An improving economy is also expected to uplift its e-commerce and digital advertising segments. Currently, Amazon trades at around 3 times its estimated sales, appearing quite affordable.
Meta Harnessing User Data
Meta Platforms (NASDAQ: META) has long employed AI to optimize content across its social media platforms and refine its targeted advertising. Its extensive user data has powered the development of the LLaMA AI, now recognized among the leading foundational AI models.
The latest version, LLaMA 3.1, is considered “in a class of its own,” according to Meta. This version aids developers in creating AI agents that perform specific tasks automatically.
Meta’s advertising revenue should benefit from an improving economic landscape. The stock trades at just 28 times earnings, which is viewed as a bargain.
Tesla’s Growth Amid Changing-Tides
Tesla (NASDAQ: TSLA) has recently seen a significant rise in its stock price, aided by expectations surrounding the incoming Trump administration, which could favor policies beneficial to the company. The cessation of rebates and tax incentives for EV customers would particularly benefit Tesla as market leader.
Analyst Dan Ives from Wedbush remains optimistic, projecting Tesla’s market cap could reach $2 trillion by 2025. He predicts the next four years will be “transformative,” aiding the acceleration of full self-driving technology and advancing Tesla’s ambitions for a robotaxi service.
Despite its recent surge, Tesla’s valuation is high, trading at 173 times expected earnings and 12 times next year’s sales. Nonetheless, Cathie Wood’s Ark Invest estimates that the robotaxi market could be worth $28 trillion over the next decade, suggesting potential long-term value in Tesla’s stock price.
Is Now the Right Time to Invest in Nvidia?
Before investing in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team has identified what they view as the 10 best stocks to buy now, and Nvidia is not included. The selected stocks are thought to offer substantial returns in the future.
Reflecting on history, if you had invested $1,000 in Nvidia on April 15, 2005, your investment would be worth approximately $842,611 today!*
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*Stock Advisor returns as of December 30, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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. Danny Vena has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool also recommends Broadcom and has specified options including long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool maintains a disclosure policy.
The views and opinions expressed herein reflect those of the author and do not necessarily represent those of Nasdaq, Inc.
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