Artificial intelligence (AI) has been the driving force behind the current bull market. Big tech companies like Nvidia have pushed the S&P 500 to new all-time highs in 2024. However, the AI boom might still be in the early stages.
The market for AI hardware and software could grow 40% to 55% per year over the next three years, according to analysts at Bain. That could put total spending on AI close to $1 trillion in 2027.
Many AI stocks already have those high expectations baked into their price, but there are still plenty of opportunities for investors. With just $400, you could buy a share of each of these three businesses, which include hardware, software, and the all-important infrastructure needed to tie it all together.
Here are three no-brainer AI stocks to buy right now.
NASDAQ: AMZN
Key Data Points
1. Amazon
Amazon (AMZN +0.61%) is the largest public cloud platform. It operates data centers around the world, renting out computing and storage capacity while providing all the tools needed to build and develop new applications.
The data-center needs for AI development are set to expand exponentially. While a large data center might cost $1 billion to $4 billion today, it could cost $10 billion to $25 billion five years from now, according to the analysts at Bain. That means more and more businesses and developers will become increasingly reliant on deep-pocketed hyperscale cloud companies like Amazon over the next few years. And the company is investing heavily to meet that demand.
Its capital spending is expected to top $60 billion this year to support the growth in AI workloads. Only a handful of companies can afford that kind of cash outlay. That puts Amazon at a huge advantage to keep growing.
Amazon Web Services (AWS), the company's cloud computing platform, grew sales 19% in the second quarter. That's slower than its biggest competitors, but it's coming off a bigger base. It also represents an acceleration after growth fell to just 12% in the middle of last year.
The company is a dominant force in e-commerce, led by its Prime membership program. Strong profits are being driven by its retail media advertising and seller services. And its work to make its logistics network more efficient has translated into strong operating margin expansion over the past year for the $500 billion business.
The stock currently trades for 42 times free cash flow and an enterprise-value-to-sales ratio of 3.3. The former is near the low end of Amazon's historic range, while the latter is about average. When you consider the accelerating growth in sales and positive trend in free cash flow, the stock looks like a great buy around $195 per share.
NYSE: TSM
Key Data Points
2. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM 1.75%), known as TSMC, is the largest chipmaker in the world. Its ability to print transistors on silicon is unparalleled. If any company needs a cutting-edge chip that's high powered and energy efficient, it contracts with TSMC. As such, it accounts for 60% of all spending for chip manufacturing.
TSMC's position as the leading chipmaker creates a virtuous cycle. It generates so much more revenue than its competitors that it can heavily invest in the next generation of manufacturing technology. And that technology lead in turn gives it an edge in attracting the biggest, highest-spending customers.
Nvidia CEO Jensen Huang said his company uses TSMC because it's the best in the industry "by an incredible margin." While it could use another company if it had to, it would result in lower performance and higher costs for Nvidia.
TSMC stands to benefit as more and more customers look to use its services. The biggest tech companies in the world are ramping up the development and production of their own custom AI chips, and TSMC is in charge of manufacturing them.
As demand increases on TSMC's limited resources (setting up a new manufacturing facility takes a long time), it should see strong margins on its sales. Management targets a 53% gross margin, but the potential in the near term could be much higher.
The potential growth might not be fully priced into its stock. Shares trade for just 22 times analysts' consensus earnings expectations for 2025. Meanwhile, AI-driven demand should produce average annual earnings growth above 20% for the next five years, according to analysts. That makes the stock an incredible value at today's price of around $180 per share.
NYSE: PATH
Key Data Points
3. UiPath
UiPath (PATH 1.15%) is the market leader in robotic process automation (RPA), which replaces repetitive tasks with software. As businesses look to improve efficiency, its capabilities improve, and developing automation software becomes easier, the company has seen strong growth.
The company's Business Automation Platform helps enterprises discover new opportunities for efficiencies in their workflows using AI. Once UiPath lands a new customer, it can often expand its business with that customer as it uncovers new ways to streamline the customer's operations.
Its dollar-based net retention rate was 115% in the second quarter, meaning the average UiPath customer spent 15% more than last year.
That said, the company has disappointed investors lately as competition has curbed its overall growth. Total revenue increased just 10% year over year last quarter, and management expects just 9% growth for the full year. Meanwhile, higher stock-based compensation has weighed on its earnings as measured by generally accepted accounting principles.
But there are reasons to be optimistic. UiPath's 115% dollar-based net retention rate and 19% increase in remaining performance obligations suggest it can grow faster in the future. And the market for robotic process automation is set to grow 40% per year through 2030 driven by the cloud service model, an area where UiPath is seeing great success.
The stock currently trades for around 30 times forward adjusted earnings estimates. With strong operating leverage left in the company and double-digit revenue growth ahead of it, you should expect earnings growth that can more than justify that valuation. At about $12.60 per share, it's worth adding to your portfolio.
