Trillions Fuel AI Growth: Top Stocks for Investors Today
Artificial intelligence (AI) continues to dominate market trends, having added trillions of dollars to company market caps over the past two years due to significant investments and investor enthusiasm. Despite the current market rally, forecasts suggest that AI spending could soar even higher in the coming years.
According to research firm IDC, businesses are set to invest $307 billion in AI solutions this year, with projections indicating this figure will more than double to $632 billion by 2028. However, not all companies will benefit from this influx of AI funding. Even for those with promising potential, finding stock values that are compelling can be challenging amidst the ongoing stock market surge.
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Investors with as little as $200 can still discover great opportunities in AI stocks today. Here are three standout buys in the current market landscape.
Image source: Getty Images.
1. Alphabet
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is on track to invest heavily in AI infrastructure, with management planning to allocate $75 billion to capital expenditures this year, primarily focused on servers.
This substantial investment highlights the company’s commitment to capitalize on AI opportunities, already evidenced by its integration of AI-generated responses in search results since 2023. By the end of 2024, these AI Overviews will be available across 100 countries, leading to higher user satisfaction compared to traditional results. Notably, this shift does not cannibalize Google’s advertising revenue. “We actually see monetization at approximately the same rate,” noted SVP of Google Philipp Schindler during Alphabet’s fourth-quarter earnings call.
AI advancements are also enhancing products like Google Lens and the Circle to Search feature on Android devices. Generative AI can further boost Google’s advertising strategies by simplifying creative development and ad testing processes.
As a result of increased AI spending, Google Cloud’s revenue rose by 30% last year and its operating margin expanded to 14%. Management anticipates significant growth ahead, especially as it continues addressing capacity constraints in comparison to competitors with higher margins.
While Alphabet invests heavily in AI, it also reaps strong returns. The company’s earnings per share grew by 39% last year, with analysts projecting an additional 12% increase this year. Currently trading at about $170, Alphabet’s shares are priced at less than 19 times analysts’ 2025 earnings expectations, positioning it as an attractive option for investors.
2. Applied Materials
To manufacture advanced AI chips, high-quality equipment is essential. Applied Materials (NASDAQ: AMAT) stands out as one of the largest equipment manufacturers globally, boasting a wide array of products that cater to various customers.
The demand for Applied’s equipment will likely climb as chip production becomes more complex. Several factors position Applied favorably to secure the majority of new contracts with foundries. First, its established relationships allow the company to benefit from a cycle where foundries invest more in Applied than competitors, bolstering its research and development budget. In 2024, Applied plans to spend $3.2 billion to develop advanced equipment for high-end chip production.
Furthermore, foundries face substantial costs and risks associated with switching equipment providers. Given the high stakes of production downtime and potential technology mismatches, managers often prefer sticking with Applied’s reliable solutions.
Applied also operates a robust service arm that ensures the efficient functioning of its equipment, a business segment expected to grow as the complexity of chip manufacturing increases. With shares currently trading at around $158, the stock offers a forward P/E ratio of approximately 17 and an enterprise value-to-sales ratio under 5, marking it an enticing opportunity for AI investors.
3. Advanced Micro Devices
Advanced Micro Devices (NASDAQ: AMD) is frequently viewed as a secondary player to Nvidia (NASDAQ: NVDA) in the GPU market for AI servers. Recently, AMD disappointed investors by forecasting a 7% sequential decline in Q1 2025 revenue, contrasting with Nvidia’s anticipated 9% growth during the same period.
However, it’s important to consider AMD’s value in the GPU market and its efforts to increase market share for both x86 CPUs across servers and consumer PCs. Despite Nvidia’s sólido advantage in software and hardware capabilities, AMD remains an essential supplier for cloud giants seeking additional compute resources.
Management predicts that the total addressable market for AI accelerator chips could exceed $500 billion by 2028. Even capturing a small segment of this market could be transformational for AMD, which generated significant interest despite its recent challenges.
AMD’s Bright Future: Insights on Revenue Growth and Margin Expansion
Advanced Micro Devices (AMD) reported $12.6 billion in revenue from its data center segment last year. This figure underscores the company’s robust performance and its potential for further growth. Importantly, AMD is positioned to improve its margins significantly. Having increased its gross margin from 45% to 53% in 2024, AMD is geared for expansion.
While AMD may not possess the same pricing power as Nvidia, it stands to gain from scaling up its operations. This scaling could lead to substantial operating margin expansion in the coming years, pushing toward management’s long-term target of mid-30s, up from 24% last year.
Investment Potential and Analyst Projections
Currently priced at about $100 per share, investors can acquire two shares of AMD for a $200 investment, which is promising given the company’s growth trajectory. With its shares trading at just 21 times analysts’ estimates for this year’s earnings, AMD presents a compelling buying opportunity. Additionally, analysts anticipate earnings growth of another 34% by 2026.
The strong growth projections suggest that AMD deserves a higher valuation multiple. This positioning makes it a potentially excellent investment for newcomers looking to enter the AI stock market.
A Call to Action for Investors
If you’ve ever felt like you missed the opportunity to invest in top-performing stocks, there may still be a chance.
Our expert analysts occasionally issue a “Double Down” Stock recommendation for companies poised for considerable growth. Current data indicates that it might be advantageous to act now before opportunities pass by. The results from past recommendations are impressive:
- Nvidia: A $1,000 investment made when we first recommended it in 2009 would now yield $323,920!*
- Apple: An initial $1,000 investment in 2008 would have grown to $45,851!*
- Netflix: If you invested $1,000 in 2004, it would have expanded to $528,808!*
At this moment, we are issuing “Double Down” alerts for three exceptional companies, representing a potential opportunity that may not arise again soon.
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*Stock Advisor returns as of February 28, 2025
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Levy holds positions in Alphabet and Applied Materials. The Motley Fool recommends Advanced Micro Devices, Alphabet, Applied Materials, and Nvidia, maintaining a disclosure policy.
The views expressed herein belong to the author and do not necessarily reflect those of Nasdaq, Inc.
