Artificial intelligence (AI) has quickly become an investment topic for many people as they experience the benefits of using AI first-hand. But with an increasing number of tech companies betting on this new frontier, it can be difficult to cut through the AI hype and find the companies that are actually worth investing in.
Here are three AI stocks making a big impact on the sector and why they’re worth buying now.
1.Broadcom
Broadcom‘S (NASDAQ: AVGO) semiconductor company has expanded over the years into wireless, optical and now AI processing chips. And so far, it’s been a great move for the company.
Sales of the company’s AI-focused optical and networking chips soared 280% in the second quarter, to $3.1 billion. This growth in a relatively new segment for the company helped Broadcom’s AI chip sales account for 25% of total revenue in the most recent quarter.
And Broadcom management estimates that there are many more AI sales to come. The company’s executives said on its recent earnings call that AI chip sales will top $11 billion in fiscal 2024, with Broadcom CEO Hock Tan saying on the call that “we expect the momentum from AI to continue.”
Broadcom also has growing opportunities to tap into the custom AI chip market, which could push the company’s AI chip market to $150 billion in the next three to four years, according to estimates from JP MorganBroadcom is already making custom AI semiconductors for Alphabet and was recently in talks with OpenAI about custom chips, but nothing is finalized yet.
Compared to peer AI companies, Broadcom stock is a pretty good deal right now. The company’s shares have a forward price-to-earnings ratio of 27, much cheaper than another major AI semiconductor player, Nvidiawith a forward price/earnings ratio of 42.
2. Palantir
Palantir Technologies (NYSE: PLTR) has long been known for its artificial intelligence software used by the U.S. government. But the company is now attracting more investors as it expands into the commercial market.
In the second quarter (ended June 30), Palantir’s commercial segment revenue rose 33% to $307 million, now accounting for 45% of the company’s total revenue. And revenue among Palantir’s U.S. customers is growing even faster, leading management to estimate that U.S. commercial revenue will rise 47% to $672 million for the year.
The good news is that while Palantir has expanded into the commercial AI software segment, government sales are also growing. Revenue from the U.S. government segment increased 24% to $278 million in the second quarter.
In addition to Palantir’s recent AI growth, the company is also in a strong financial position. Palantir is profitable, with $135.6 million in net revenue in the second quarter, and with a 20% profit margin and only $1.1 billion in debt.
I should point out that Palantir’s stock isn’t cheap. The company’s stock currently has a forward P/E ratio of 90, making it the most expensive stock on this list. But I think the company’s growing commercial AI software sales, the stability of its government contracts, and its strong financial position make Palantir a worthy AI stock to add to your portfolio now.
3.Microsoft-
I know Microsoft (NASDAQ: MSFT) doesn’t generate as much excitement among AI investors as smaller companies, but it deserves a spot on this list as one of the largest investors in OpenAI and as a leading cloud computing and software company.
Microsoft has invested at least $13 billion in ChatGPT maker OpenAI to date, and could invest more in an upcoming funding round that OpenAI is about to undergo. Microsoft’s ability to see OpenAI as a significant technology disruptor should not be overlooked, as the investment has given it access to some of the best AI software out there.
Microsoft has made good use of its OpenAI investment, quickly integrating some AI into its Office 365 software and GitHub developer platform. Microsoft executives said during its recent earnings call that CoPilot accounted for more than 40% of GitHub’s revenue growth this year, noting that the AI assistant has helped drive the platform’s annual revenue to $2 billion.
In addition to its AI-powered software capabilities, Microsoft is benefiting from AI integration across its Azure cloud services. The company says its OpenAI services in Azure offer customers the best artificial intelligence capabilities, and Azure now has 60,000 AI customers, up 60% from the year-ago quarter.
Offering the best AI cloud services is critical for Microsoft, which is the second-largest cloud computing company with a 25% market share.
As an established tech leader and a major investor in OpenAI, Microsoft presents investors with a unique AI opportunity. And with a forward P/E ratio of 31, Microsoft’s stock is currently cheaper than many smaller AI startups. With its early steps into AI and rapid integration of AI capabilities into its core software and cloud products, Microsoft appears to be a smart AI bet for the long term.
Should You Invest $1,000 in Broadcom Now?
Before buying Broadcom stock, here are some things to consider:
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, JPMorgan Chase, Microsoft, Nvidia and Palantir Technologies. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
3 Best Artificial Intelligence Stocks to Buy in September was originally published by The Motley Fool
