Nearly every tech company these days is advertising its artificial intelligence credentials. I don’t blame them, as AI is a valuable addition to many software and services.
But just because countless companies are quickly integrating AI into their offerings doesn’t mean they’re among the best AI stocks. Instead, look for leaders who are knee-deep in this segment and set the pace in the AI race. Here are three top AI stocks that are leading the pack and worth buying right now.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
Palantir Technologies (NYSE:PLTR) was helping organizations sort data before AI became commonplace. For years it focused on using artificial intelligence to help the government analyze large amounts of data, but has since expanded into the commercial market.
The early lead in this area is paying off. The company just reported its third-quarter results (ended September 30), in which revenue rose 30% from the year-ago quarter to $726 million and adjusted earnings per share rose 43% to $0. 10.
U.S. commercial sales, a fast-growing part of Palantir’s business, increased sales 54% to $179 million and accounted for about a quarter of the company’s total revenue in the quarter. Part of that growth is due to Palantir’s impressive customer growth, which rose 39% in the quarter, amid 104 customer deals worth $1 million or more.
If I have one reservation about Palantir, it’s the company’s sky-high valuation. Palantir stock currently has a price-to-earnings ratio of 101. Either way, that’s expensive.
However, the company is clearly making the right moves in the AI race and is also profitable, not to mention that it has $4.6 billion in cash and cash equivalents. With its customers shutting down because of its technology and sales and profits growing at a healthy rate, Palantir likely still has more room to run.
Nvidia (NASDAQ: NVDA) is one of the obvious choices when it comes to the best AI stocks. For years, the company dominated the graphics processing unit (GPU) market when it was primarily used for gaming, but now its GPUs are by far the leading choice for powering AI data centers as well.
According to the most recent estimates, Nvidia’s chips represent between 70% and 95% of the AI chip market, and its latest product line – including the popular H200 processor – is likely to give the company a competitive edge for some time.
You might be wondering if demand for AI chips could be high enough to drive sustainable growth for Nvidia, and in that regard I’d say that both Nvidia’s CEO Jensen Huang and Goldman Sachs I think there will be $1 trillion in AI spending in the next few years, most of which will be funneled into data centers.
Even with Nvidia’s stunning 380% share price gain over the past three years, its forward price-to-earnings ratio of 35.8 is still relatively low compared to some other AI stocks. That’s still not cheap, but Nvidia is the clear leader in the AI processor market, and AI spending is only just getting started.
The company’s early lead and cutting-edge processors should keep it ahead of the competition, and the intense AI race that has now begun among all tech companies will be the fuel that keeps Nvidia’s fire burning for quite some time to come.
There’s another critical angle investors can play in the field of artificial intelligence, and that comes in the form of chip manufacturing. There are chip designers, like Nvidia, and then there are the companies that actually do that to make the processors, such as Taiwanese semiconductor manufacturing (NYSE: TSM).
TSM produces about 90% of the world’s most advanced processors, and the AI boom is fueling the company’s growth. TSM reported impressive third-quarter financial results (for the period ending September 30) a few weeks ago, with revenue up 39% to $23.5 billion and diluted earnings per share up 54% to $1.94 per share. American certificate (ADR).
TSM management said the third quarter growth came from “strong demand for smartphones and AI” and that more is on the way. The company estimates fourth-quarter revenue will rise 35% at the midpoint of expectations.
TSM has the lowest price-to-earnings ratio on this list, at just 21.2, making it a relative deal compared to its AI peers. Now that TSM is the definitive leader in manufacturing advanced chip processors, the company is poised to continue to benefit as more companies ramp up their AI data center spending.
Consider the following before purchasing shares in Palantir Technologies:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Palantir Technologies wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $904,692!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns November 4, 2024
Chris Neiger has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Goldman Sachs Group, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
3 Top Artificial Intelligence Stocks to Buy in November was originally published by The Motley Fool
