One of the biggest drivers of the market in 2024 was artificial intelligence (AI), and there are good reasons to believe that AI stocks can continue to lead in 2025. Despite recent developments, AI is still in its infancy and the technology is still in its infancy. will only get better with time.
Let’s take a look at three still attractively valued AI stocks that seem like a no-brainer buy heading into 2025.
While the market was in a celebratory motion to end the year, the recent pullback set in Nvidia (NASDAQ: NVDA) looks like a gift. The chipmaker has been the biggest beneficiary of the AI infrastructure buildout, as its graphics processing units (GPUs) provide the computing power for both training large language models (LLMs) and AI inference.
While Nvidia isn’t the only GPU maker, it has created a wide moat through its CUDA software program. The company originally created the free software program as a way to expand beyond its core video game market, allowing customers to use the chips for other applications and sell more chips. This led to CUDA becoming the standard by which developers learned to program GPUs. This has helped Nvidia capture around 90% share of the GPU market.
Nvidia’s dominance of the GPU market has led to explosive revenue growth, including 94% last quarter. Meanwhile, that strong growth looks set to continue as a number of big tech hyperscalers (companies that own massive data centers) and well-funded AI startups, like OpenAI and Elon Musk-backed xAI, rush to build out their AI infrastructure in the future. strive to create the best AI models. As these models become more sophisticated, they require exponentially more computing power, including GPUs, to train.
Despite its massive growth, Nvidia still trades at an attractive valuation with a price-to-earnings (P/E) ratio of less than 29 based on 2025 analyst estimates and a price-to-earnings-growth (PEG) ratio of around 0.9. . A PEG ratio of less than 1 is generally considered undervalued, but growth stocks often have a PEG ratio well above 1.
Another company benefiting from the expansion of AI infrastructure is Taiwanese semiconductor manufacturing (NYSE: TSM)or TSMC. Today, many companies outsource the production of their chips, and TSMC has become the world’s largest semiconductor contract manufacturer.
The company is benefiting from the huge and increasing demand for AI chips and continues to work on expanding capacity to meet demand. It’s ready to take advantage of all the smartphone and hardware upgrade cycles needed to help run AI applications. Last quarter, the company saw revenue increase by 36%.
Semiconductor manufacturing is a capital-intensive endeavor that requires both scale and technological expertise to succeed. While TSMC thrived, rivals such as Intel and Samsung have had a tough time. This has led to TSMC becoming the clear leader in advanced chip production, and counting AppleNvidia and Broadcom among its largest customers. The company recently reached a market share of almost 65%, and for advanced chips this is even higher.
TSMC’s dominant position in semiconductor manufacturing has given the company strong pricing power in recent years, which has helped boost gross margin. Meanwhile, the company plans to raise prices again next year.
The stock is also attractively valued at a forward price-to-earnings ratio of just above 22 based on analyst estimates for 2025 and a PEG ratio of around 1.16.
Alphabet‘S (NASDAQ: GOOGL) (NASDAQ: GOOG) cloud computing unit, Google Cloud, has been a big AI winner so far. Cloud computing is a high fixed cost business that becomes much more profitable once it reaches scale. That’s exactly what happened with Google Cloud, where revenue grew 35% to $11.4 billion last quarter, while the segment’s operating income skyrocketed from $266 million to $1.95 billion.
The company owes its cloud success to using a combination of GPU and custom tensor processing units (TPUs) to shorten inference times and reduce costs. It noted that customers are using the platform to customize their own AI models, while also embracing the Gemini model.
Meanwhile, Alphabet has shown its innovative strength this month. This has included a breakthrough in quantum computing, giving it a leading position in this intriguing new field, although it will be a long time before quantum computing will have an impact on revenues. In addition, the company introduced new advanced updates to its AI image and video generation tools, as well as the introduction of its latest Gemini AI model. It says Gemini 2.0 can act as an autonomous AI agent and will be included in search results next year.
Alphabet has long been the dominant player in search and also has one of the largest video services in the world on YouTube. However, the company is finally starting to get some recognition for its innovation. Nevertheless, it is still one of the cheapest mega-cap tech stocks, with a price-to-earnings ratio of 22.
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On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
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Nvidia: If you had invested $1,000 when we doubled in 2009, you would have $338,855!*
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Apple: If you had invested $1,000 when we doubled in 2008, you would have $47,306!*
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Netflix: If you had invested $1,000 when we doubled in 2004, you would have $486,462!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns December 16, 2024
Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool holds positions in and recommends Alphabet, Apple, Intel, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
3 No-Brainer AI Stocks to Buy Now was originally published by The Motley Fool
