Every new technology has a range of outcomes. Some, like the internet, change the world. Others, like 3D printing, not so much, at least not yet. Artificial intelligence (AI) has gotten a lot of hype, but it seems to have the backing of businesses and governments needed to make a tremendous impact over the coming years.
AI could create fantastic new companies over time, but a handful of AI stocks are already racing to the front. These four stocks below have already benefited from an AI boost and still trade at great prices.
Pay attention to what their valuation is versus their expected growth. If you can divide the price-to-earnings (P/E) ratio by the expected growth rate and get under 1.5, the stock could be a reasonable price for the growth you could get. This number, called the PEG ratio, is a Peter Lynch favorite.
Growth on sale is an excellent recipe for total returns, so these could be the top-performing AI stocks by 2030.
Here is what you need to know.
1. Palantir Technologies
The U.S. government will be a massive factor in AI because the technology could become a competitive advantage against the world's other countries. Palantir Technologies (PLTR 3.73%) is uniquely positioned as a software company with deep government ties. The U.S. government is over half of Palantir's revenue. Its software platforms are like an operating system for organizations, using artificial intelligence and machine learning to analyze and use data.
PLTR EPS LT Growth Estimates data by YCharts.
The company recently began posting a consistent generally accepted accounting principles (GAAP) profit, and analysts believe that earnings will continue snowballing, calling for an annual average of 72% over the long term. At just 55 times forward earnings, that leaves much room for investment returns over the rest of this decade.
2. Nvidia
AI requires massive computing power to process vast amounts of data quickly. Chip company Nvidia (NVDA 6.18%) stepped into the leadership role last year as companies frantically began spending to build these advanced computer systems. Nvidia's business (and stock) took off last year, and the company's now sitting on an estimated 90% of the AI chip market.
NVDA EPS LT Growth Estimates data by YCharts.
Naturally, Nvidia could continue proliferating from AI's growth alone even if competitors nibble away at Nvidia's dominance. Despite the stock multiplying in value over the past year, the company's strong earnings-growth outlook makes the stock very reasonable on a forward basis. In other words, growth should carry shares higher over the coming years.
3. Meta Platforms
What do you get when you combine one of the world's most dominating business models with AI upside? It might be social media giant Meta Platforms (META 0.43%), owner of Facebook, Instagram, and WhatsApp. Meta makes billions of dollars by advertising to its 3.96 billion monthly app users. Additionally, still-young CEO and co-founder Mark Zuckerberg has leaned heavily into building AI technology that enhances its advertising business and is a long-term wildcard.
META EPS LT Growth Estimates data by YCharts.
The company hit some speed bumps in 2022 but has since rallied over 300% from its lows. Remarkably, the company's 20% estimated long-term growth rate makes its current valuation arguably a bargain for long-term investors. Given its dominance in social media, investors can hold Meta as an AI stock with a higher floor than most.
4. Advanced Micro Devices (AMD)
While you shouldn't assume that Nvidia will fall out of the AI chip lead, there is a reasonable chance that AI will be so big that more than one chip company can win. Advanced Micro Devices (AMD 2.37%) might be the next-best bet after Nvidia. The company hasn't yet felt the growth spurt that Nvidia has, but it revealed an upcoming AI chip line in late 2023 that it says will outperform Nvidia's popular H100 series.
AMD EPS LT Growth Estimates data by YCharts.
AMD may have to prove itself by showing the sales to back up its claims, but analysts seem optimistic about the company's broader prospects. Long-term growth estimates are over 35%, which makes the stock's forward price-to-earnings (P/E) ratio of 44 a solid price to pay for that growth. This stock may carry more risk, but the potential upside could surprise investors if AMD can make more progress in taking AI chip market share than Wall Street is giving it credit for.
