Three Outstanding Artificial Intelligence Shares to Invest in Immediately
In 2024, the market was significantly driven by artificial intelligence (AI), and there's a strong possibility that AI stocks could continue leading the charge in 2025. Despite recent advancements, AI is still in its infancy, and its technology is expected to improve with time.
Let's examine three AI stocks that are still reasonably priced and appear to be great buy options for 2025.
1. Nvidia
Despite the market's celebratory mood to wrap up the year, Nvidia's (NVDA -0.35%) recent pullback appears to be a blessing in disguise. The chipmaker has been the primary beneficiary of the AI infrastructure growth, as its graphic processing units (GPUs) provide the necessary computing power for both training large language models (LLMs) and AI inference.
While it's not the only GPU manufacturer, Nvidia has established a strong moat through its CUDA software program. The software was initially developed to expand its video gaming market, enabling customers to use its chips for other applications and boost chip sales. Consequently, CUDA became the standard for programming GPUs, aiding Nvidia in securing an estimated 90% market share in the GPU market.
Nvidia's dominance in the GPU market has resulted in exceptional revenue growth, including a 94% increase in the previous quarter. This growth is expected to continue as numerous large tech hyperscalers (companies with massive data centers) and well-funded AI start-ups, like OpenAI and Elon Musk-backed xAI, scramble to build their AI infrastructure to create superior AI models. As these models become more sophisticated, they require increasingly widespread computing power, which translates to more GPUs for training.
Nvidia's attractive valuation remains despite its remarkable growth, with a forward price-to-earnings (P/E) ratio of under 29 based on 2025 analyst estimates and a price/earnings-to-growth (PEG) ratio of around 0.9. A PEG ratio below 1 is generally considered undervalued, although growth stocks will often have PEG ratios significantly higher than 1.
2. Taiwan Semiconductor Manufacturing
The AI infrastructure buildout is also benefiting Taiwan Semiconductor Manufacturing (TSM -0.61%), or TSMC. Today, numerous companies outsource their chip manufacturing, and TSMC has emerged as the world's leading semiconductor contract manufacturer.
The company is benefiting from the increasing demand for AI chips and is working to expand its manufacturing capacity to meet demand. It is expected to benefit from any hardware upgrade cycles required to support AI applications. In the previous quarter, the company reported a 36% revenue increase.
Manufacturing semiconductors is a capital-intensive business that requires both hefty investments and cutting-edge technology to succeed. TSMC has thrived in this environment, while competitors like Intel and Samsung have faced challenges. As a result, TSMC has solidified its position as the leader in manufacturing advanced chips, with clients such as Apple, Nvidia, and Broadcom among its largest customers. The company now holds a nearly 65% market share, with an even greater share for advanced chips.
TSMC's dominant market position in semiconductor manufacturing has led to increased pricing power, which has contributed to its robust gross margin. The company is also planning to raise its prices once again in the upcoming year.
TSMC's stock is also reasonably priced, trading at a forward P/E of slightly above 22 based on 2025 analyst estimates and a PEG ratio of around 1.16.
3. Alphabet
Alphabet's cloud computing unit, Google Cloud, has thus far proven to be a significant AI winner. Cloud computing is a high-fixed-cost business that becomes increasingly profitable once it reaches scale. That's precisely what's happening with Google Cloud, which grew its revenue by 35% to $11.4 billion in the previous quarter while operating income jumped from $266 million to $1.95 billion.
The company attributes its cloud success to leveraging a mix of GPUs and its custom-designed tensor processing units (TPUs) to decrease inference times and lower costs. It noted that customers are utilizing its platform to customize their own AI models while also embracing its Gemini model.
Moreover, this month Alphabet showcased its innovative prowess. This included a groundbreaking advancement in quantum computing, which puts it at the forefront of this intriguing emerging field, although it will still be a long time before quantum computing significantly impacts revenue. Additionally, the company introduced cutting-edge updates to its AI image and video generation tools, as well as introducing its newest Gemini AI model. It stated that Gemini 2.0 can function as an autonomous AI agent and will be incorporated into search next year.
Alphabet has long been the dominant player in search and also owns one of the largest video services in the world, YouTube. However, the company has only recently started receiving recognition for its innovations. Nonetheless, it remains one of the most inexpensive megacap tech stocks, trading at a forward P/E of 22.
Considering the potential impact of AI on the financial sector, investing in companies that are leveraging AI technology could be a smart move. Nvidia, with its advanced GPUs, is well-positioned to benefit from the increasing demand for computing power for AI models, making it a potential investment option in the finance sector.
Moreover, proper management of finances is crucial for any investing strategy. For example, investing in Nvidia's stock can be advantageous if one considers its attractive valuation with a forward P/E ratio of under 29 and a PEG ratio of around 0.9, despite its remarkable growth.
