Some of the biggest winners during the current bull market have been artificial intelligence (AI) stocks. The booming demand for AI infrastructure, software, and development tools has made some companies and their investors a ton of money over the past two years. Despite the strong growth in AI, there may be a lot more left to come.
Businesses will spend a whopping $235 billion on AI this year, according to a report by market researcher IDC. But those same analysts expect spending to climb to $631 billion by 2028. By 2032, spending on generative AI alone could climb to $1.3 trillion, according to an analysis from Bloomberg Intelligence.
Now that many companies connected to the AI boom have seen their share prices zoom higher, it may feel impossible to find an AI stock you can buy with just $200. While many brokerages allow for fractional share trading, there's something great about owning an entire share of a company. Here are three AI stocks you can buy trading at less than $200 per share that look like no-brainer investments right now.
Image source: Getty Images.
1. Broadcom ($163/share)
Broadcom's (AVGO +4.69%) stock price recently dropped below $200 per share for the first time since 2020 -- not because investors are selling shares or because the business is struggling, but because it conducted a 10-for-1 stock split in July. Its market cap has climbed by nearly 10 times from its 2020 low, but it could have more room to run.
The chipmaker specializes in a couple of types of semiconductors that are extremely valuable amid the AI boom. It makes networking chips, which help route workloads across the computing power available in a data center. For example, its Jericho3-AI Fabric can connect up to 32,000 chips in a data center. That helps ensure that big tech companies spending tens of billions on GPUs and other chips are getting their money's worth out of those investments.
NASDAQ: AVGO
Key Data Points
It also makes AI accelerator chips specifically tailored to training or using large language models. It works closely with big tech companies like Alphabet (GOOG 0.21%) (GOOGL 0.41%) and Meta Platforms to design these application-specific integrated circuits, or ASICs. They can be less expensive and require less energy to run than GPUs for the same tasks, and they make up a growing share of the hardware in the biggest data centers in the world.
Broadcom also makes chips for other applications, including smartphones, which has proven a stable and growing business. On top of that, it sports a portfolio of enterprise software for mainframe software and virtualization, anchored by the assets it gained in its acquisition of VMware last year. Its broad portfolio combined with its chip business allows it to focus on locking in customers with multiple offerings that all work together well, protecting it from competition.
Despite the stock's strong performance over the last few years, shares currently trade at just 27.7 times forward earnings. That's a slight premium to the S&P 500's average valuation, but far below other AI chipmakers. Given the multiple sources the company has for potential growth, Broadcom shares should prove a solid investment at their current price.
2. Qualcomm ($175/share)
Qualcomm (QCOM +0.24%) is best known for making the wireless communication chips that allow your smartphone to connect to your carrier's 5G network. While its business faces a major headwind as one of its biggest customers -- Apple -- moves toward building its own next-generation modems, its business with Android phone makers is growing.
Beyond the stranglehold Qualcomm has on most of the connectivity chips in smartphones, it also makes the core processors inside many Android phones. Its Snapdragon application processing unit is one of the highest-end chips for smartphones, offering manufacturers easy integration with its modems. Additionally, it makes chips for automotive and Internet of Things applications, both growing markets with increasingly high computation and connectivity needs.
NASDAQ: QCOM
Key Data Points
Qualcomm took a step toward the PC market with its AI-focused CPUs earlier this year. While its efforts in the area likely won't have a large impact on its revenue in the near term, they could result in great diversification eventually.
Importantly, Qualcomm stands to benefit from the push to start providing the computing power for generative AI on devices instead of having all of that processing done in the cloud. The upcoming new AI features that Apple unveiled in June are primarily focused on this on-device processing. Many other companies will look to emulate Apple in that regard. Qualcomm stresses the idea that its PC chips can handle AI applications on devices without an internet connection. And AI applications in automobiles and IoT networks will need to be able to run quickly and locally as well. Those trends bode well for sales of Qualcomm's high-end chips.
Qualcomm trades at a forward price-to-earnings multiple of just 15.5. That's well below the S&P 500's multiple despite the fact that strong demand from smartphone manufacturers should drive the company's revenue and profits in the short to medium term and AI PC chips could be a long-term growth story for the company. At this valuation, Qualcomm stock looks like a great buy.
3. Alphabet ($165/share)
Alphabet owns the world's most popular search engine (Google) and video-sharing website (YouTube). Those properties are part of a family of internet services that supports the company's core advertising business.
Despite some regulatory pushback, it's unlikely Google's dominance of the internet search market is going anywhere. Additionally, AI assistants like ChatGPT have failed to make a significant dent in its business. In fact, Google is integrating AI into search with its latest feature, AI Overviews, and seeing excellent engagement and satisfaction with the results.
NASDAQ: GOOG
Key Data Points
While AI is changing its core business, it's fueling growth for Google's cloud computing unit. Google Cloud is the third-largest public cloud platform, and it's growing quickly. The company is investing heavily in AI capabilities with its custom chip designs (helped by Broadcom) and expanding its computing capacity. That has helped it win major contracts with big developers, including Apple, which trained its large language model on Google Cloud's TPUs.
Management says its generative AI services generated billions in revenue during the first six months of 2024, attracting more than 2 million developers. But there's still a long runway for growth. Google benefits from being able to spend on its own AI development while renting out cloud computing capacity to other developers as well, ensuring it can get the most out of its capital investments.
The stock currently trades at a forward P/E ratio of 21.8. That's in line with the S&P 500, but Alphabet arguably deserves a premium valuation as it benefits from the secular growth of digital advertising and the huge boom in AI cloud spending. Meanwhile, it's using its massive cash flow to buy back shares, providing a boost to earnings per share. As such, earnings growth should remain strong. It looks like a great AI stock to buy while its shares remain below $200.
