Significant interest in artificial intelligence (AI) stocks has lit up the spotlight Nvidiaa leading AI chip company.
Nvidia has been an incredible stock for investors, but AI extends far beyond a single company. You can be sure there are a lot of winners in the global artificial intelligence industry, which experts believe could grow to more than $826 billion by 2030. And despite the broader market trading near all-time highs and a remarkable run in tech stocks over the past two years, it’s still there are jobs.
Here are three of the best AI stocks (not named Nvidia) that investors can buy today. Their growth prospects and valuations offer compelling value that should translate into stellar investment returns as AI technology advances.
Many people may not realize how much goes into making AI chips; it surpasses designers like Nvidia. Lam Research(NASDAQ: LRCX) designs and manufactures equipment used in the production (production) of chips. To summarize Lam Research’s value to the chip industry, its equipment helps companies build smaller and more efficient chip designs.
Nvidia’s H100 AI chip has 80 billion transistors. Its successor, built on the Blackwell architecture, has 208 billion. Remember, you can hold these tokens in your hand. High-end equipment is needed to make such small circuits.
As AI technology improves and requires smaller and more powerful chips, Lam Research will be among the companies enabling these improvements. The company’s reputation, intellectual property and long-standing relationships with chipmakers make its equipment a difficult substitute.
The stock is currently trading at a price-earnings ratio from around 24. Meanwhile, analysts estimate that the company will increase earnings by an average of 16% per year in the long term. Received on 1.5 PEG ratio makes Lam Research a smart buy at these prices.
Let’s explore the AI chip space a little more. Taiwanese semiconductor manufacturing(NYSE: TSM) is a leading chip manufacturer. As you might guess, this makes the company a pillar of the AI industry, since chips are the building blocks on which AI models are trained and run.
How dominant is Taiwan Semiconductor? In the third quarter of 2024, the company produced approximately 64% of the world’s chips. These include Nvidia’s AI chips, which are made by Taiwan Semiconductor using a custom manufacturing process. The company could have years of strong growth ahead as Nvidia and other companies design increasingly complex chips and look to Taiwan Semiconductor’s expertise and capacity to build them.
Analysts estimate that Taiwan Semiconductor will grow earnings by an average of 31% per year over the long term. This makes the stock a compelling value at just 32 times earnings, a PEG ratio of just 1.
Part of the reason why stocks are not more expensive is the geopolitical dispute between Taiwan and China. The latter has long claimed that Taiwan (where Taiwan Semiconductor operates) is under its control, even threatening to do so by force. The dispute adds some uncertainty to owning the stock, although the value becomes too compelling to pass up at some point. Taiwan Semiconductor has begun expanding into the United States, Japan and Germany to mitigate its geopolitical risks, so this may become less of an issue.
Finally, let’s move from AI chips to just about everything else AI. Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL)Google’s parent company, might be the closest thing to a company that does everything AI. Alphabet still counts on its search engine for much of its profits, but it has branched out into various other industries, including a major tilt into AI. Alphabet has the third largest cloud computing platform, Google Cloud. It developed and implemented an AI model (Gemini) to improve its existing products and services. It is also among the leaders in autonomous vehicle technology and making breakthroughs in quantum computing. I mean, what doesn’t Alphabet do?
When people think of artificial intelligence today, most think of generative artificial intelligence, software that creates content. However, in the coming decades, AI is set to become much more, including self-driving cars and robotics — whatever the technology enables.
Alphabet’s financial resources, innovative background and leadership in existing fields give it an excellent opportunity to compete in almost any market that AI creates in the future. Analysts expect the business to grow earnings by 16% annually. With a P/E of just 25 today, Alphabet is one of AI’s smartest stock buys.
Before you buy shares in Lam Research, consider the following:
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Suzanne Frey, CEO of Alphabet, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the listed stocks. The Motley Fool has positions in and recommends Alphabet, Lam Research, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
