3 Must-See AI Stocks With Soaring Profits

Investing in the ever-changing landscape of technology can be confusing, especially when it comes to opportunities powered by artificial intelligence (AI). There are so many great AI ideas on the table -- how can you tell the best long-term investments apart from the future disappointments and also-rans? Every competitor can't be a winner, even in this red-hot sector.

To help you clear the path to money-making investment ideas in this exciting field, we asked three of the Fool's top tech analysts to share their insights. In this exclusive roundtable, they shed light on where AI is going next and pinpoint stocks poised for success. Whether it's the ultra-flexible Alphabet (GOOGL 0.23%) (GOOG 0.23%) empire, the expanding reach of Super Micro Computer (SMCI -5.25%), or the transformative journey of Meta Platforms (META -0.05%), our panel of future-proofing wizards provides invaluable insights into these AI front-runners.

The ABCs of Alphabet's AI-powered opportunity

Anders Bylund (Alphabet): The Google parent has gone through some rough times recently. The global market for online advertising swooned amid the inflation crisis, as advertisers of every size and stripe held back their marketing budgets. Why go all-in on ad campaigns when nobody is ready to open their wallets and buy stuff, right?

That tide is turning now, and at a very opportune time for Alphabet. The uptick coincides with roaring interest in AI tools, products, and services, and the Google brand offers plenty of those. In fact, I'm sure that the company has many AI projects waiting in the wings until the time is right to monetize new ideas. Let's just watch the economic stabilization go a bit further while Google's engineers put another round of spit-shine on their works in progress.

And there's no shortage of AI smarts in the Google products you already know. Recent versions of Google Translate run on a deep learning platform, built around a neural network system. When Google Maps analyzes current traffic data to show you the fastest route to work, you're taking advantage of machine learning. The company is also working up generative AI features to help you draft emails in Gmail, compose effective business documents in Google Docs, and set up advanced data-tracking in Google Sheets. I can't even imagine what Google's AI portfolio might look like in two years, or five. This trillion-dollar company is going places.

Meanwhile, Alphabet's stock still trades more than 10% below the all-time highs of 2021 -- just before the inflation panic. Earnings and free cash flows are on the rise again after a temporary dip. Mind you, the bottom of the barrel still showed $59 billion of trailing net income and $62 billion in free cash flows. It's not like Alphabet ever knocked on the door of Wall Street's poorhouse.

GOOGL Free Cash Flow data by YCharts

The combination of low share prices and rising profits points to a solid buying opportunity. To be clear, it's never a bad time to buy Alphabet shares. This company is as solid and as flexible as they come, and it's my top choice if I had to own just one stock forever. But it's even better to pick up Alphabet's stock hand over fist when it happens to be unusually affordable. Today, you can grab Alphabet shares at the modest valuation of 23 times free cash flows or 22 times forward earnings. Do your due diligence, of course, but I think you'll find that Alphabet is a great AI stock to buy today.

This AI stock's post-earnings pullback looks overdone

Billy Duberstein (Super Micro Computer): It may seem presumptuous to recommend a stock that has tripled since I last recommended it at this very roundtable back in February, and which is up 13 times since I first wrote about it back in October 2019. But Super Micro Computer's post-earnings pullback looks like an opportunity to buy some shares of this AI winner if you don't already have it in your portfolio.

Sure, you probably won't see another tripling in the stock price this year, but that doesn't mean the server systems manufacturer isn't still priced very reasonably for the long term, especially given its outstanding recent performance and full-year guidance.

So why did the stock pull back after earnings? Well for one, Super Micro recorded ridiculous gains this year, so it's natural to see hot money flee to the stock and take profits on anything less than a perfect earnings report. And there were some imperfections in an otherwise sterling report; while Super Micro crushed estimates this quarter, it only guided to flattish quarter-over-quarter revenue growth and an adjusted (non-GAAP) earnings-per-share range that would actually be slightly down quarter over quarter in the September-ending period.

But before everyone panics, management was very clear the muted near-term outlook was due to supply constraints and not demand. That's most likely due to constrained supply of Nvidia GPUs and advanced packaging bottlenecks at foundry Taiwan Semiconductor Manufacturing as the culprits.

Not being able to satisfy all your booming demand is a pretty good problem to have. Meanwhile, CEO Charles Liang gave full-year revenue guidance for fiscal 2024, ending in June 2024, of $9.5 billion to $10.5 billion. The midpoint of that range would still mark more than 40% growth over 2023, which itself saw 37% growth over 2022. In addition, Liang even said those numbers could be conservative if supply constraints alleviate.

Super Micro also has a history of under-promising and over-delivering. In each of the past few years, the company handily beat the top end of guidance ranges given at the beginning of each fiscal year.

Data source: Super Micro Q4 2021, 2022, and 2023 earnings press releases.

If Super Micro achieves the high end of its guided range for 2024, it could easily earn $1 billion in net income this year, up from $640 million in the just-ended fiscal year. Meanwhile, as of this writing, the company's market cap has retreated only to about $14.2 billion.

A forward P/E ratio of 15 is still below that of the overall market, even though Super Micro's power-efficient AI server solutions are making huge market share gains and continuing their rocketing growth trajectory. So while no one should expect a near-term tripling in the stock, this pullback may be the best opportunity investors get to buy SMCI stock, which could very well outperform the market from here.

More than just social media apps

Nicholas Rossolillo (Meta Platforms): By now you've probably heard that Meta Platforms (ahem, Facebook, Instagram, and WhatsApp) is more than just a social-media app company. In fact, it can't really be pegged as a metaverse company either, in spite of the name change to Meta. No, Meta would like everyone to know it's an AI company.

This is far from a surface-deep claim. Meta owns and operates its own network of data centers in key geographies around the globe and has been filling some of them up with Nvidia's high-end semiconductors. That kind of achievement can't be accomplished with chump change or on a quick whim, and it gives Meta key business model advantages as it embarks on a new AI-automated journey.

Initially, in CEO Mark Zuckerberg's 2023 "Year of Efficiency" plan, the approach meant embedding AI into this global real estate footprint to make internal processes more streamlined. New AI has also been introduced to increase advertising profits and to help marketing partners get more from their ad campaigns.

In its latest act, Meta took its Large Language Model Meta AI, or LlaMa, an algorithm from which AI services can be built, and made it open source, meaning anyone can tinker with it to build new apps. Meta has been collaborating with Microsoft on this AI algorithm, and it plans to monetize it by charging big tech companies when they resell services based on LlaMa 2.

After a deep hit to profitability in 2022, Meta saw its quarterly earnings per share and free cash flow surge in Q2 2023. They're now reapproaching all-time highs last reached in 2021.

Data by YCharts.

Meta's work in AI is more than fluff. It's boosting the company's productivity and profits in a really meaningful way. This is far more than a social media company. It's a powerful tech and AI platform that smaller companies around the world are building their own businesses with.