Artificial intelligence (AI) stocks were last year's biggest winners, leading the Nasdaq, the S&P 500, and the Dow Jones Industrial Average to double-digit gains. This is thanks to investors' enthusiasm for the technology's potential to spark game-changing advancements -- from automating certain tasks throughout a company to helping researchers discover better drugs faster. All of this could supercharge companies' revenue growth and stock performance.
Investors, aiming to get in early on this major story, piled into AI stocks, and these players in many cases delivered double- and triple-digit gains in 2024. This momentum continued into the new year -- until recently. Concerns about the economy and President Donald Trump's tariffs on imports from Canada, China, and Mexico have weighed on the overall stock market, and growth stocks such as AI players have been hit particularly hard.
But here's the good news for AI investors. The AI story hasn't changed. Companies still are investing billions of dollars in AI infrastructure and platforms, and analysts predict that today's $200 billion AI market will reach $1 trillion by the end of the decade. And today, following recent price declines, you have the opportunity to get in on these stocks at dirt cheap levels.
Let's check out two no-brainer stocks to ride the potentially trillion-dollar AI wave.
Image source: Getty Images.
1. Nvidia
Nvidia (NVDA +0.64%) started out offering graphics processing units (GPUs) -- the chips that power crucial AI tasks like the training and inferencing -- to the AI market, but didn't stick to just that. The tech giant has built a complete AI empire, offering customers everything from networking to software, and is therefore able to accompany them on their entire AI journey.
This has translated into soaring earnings for Nvidia, with revenue rising in the double or triple digits. In the latest full year, revenue surged 114% to a record $130 billion. And an important point that stands out is this is at a high level of profitability on sales, with gross margin consistently topping 70%.
Nvidia serves all of the major tech companies -- from Meta Platforms to Microsoft -- as they build out their AI infrastructure and platforms. These companies have the financial strength to continue investing, and their desire to win in the AI boom suggests they'll stick with the most powerful products. Not only does Nvidia make the best-performing chip around, but the company's focus on innovation and pledge to update its GPUs annually suggest its dominance will continue.
NASDAQ: NVDA
Key Data Points
Finally, as mentioned, Nvidia's expansion throughout the areas of AI means it has what it takes to excel through every stage of AI growth -- from the infrastructure buildout to the application of AI to real-world problems.
Today, trading at 24 times earnings estimates, down from as much as 50 just a few weeks ago, Nvidia is a must-buy for any AI investor.
2. Amazon
You may think more of e-commerce than anything else when you think of Amazon (AMZN 1.19%). But along with being an e-commerce leader, the company also has become an AI giant. Amazon benefits from AI in two ways: by applying it to its e-commerce business to gain in efficiency and by selling AI products and services through its Amazon Web Services (AWS) unit.
AI has helped reduce the e-commerce business's "cost to serve," for example, by designing the shortest and fastest delivery routes for packages. And you may be familiar with Rufus, Amazon's AI shopping assistant, which has been improving the shopping experience for customers, which is key to keeping them coming back.
NASDAQ: AMZN
Key Data Points
But where Amazon truly is hitting it out of the park is through AWS. The unit recently reached a $115 billion annual revenue run rate thanks to its AI products and services. Amazon offers everything a customer may need along the AI path -- from premium Nvidia chips and Amazon's own lower-cost chips to a fully managed AI service called Amazon Bedrock that helps you build generative AI applications. And since AWS is the world's leading cloud services provider, it has immediate access to a huge audience of potential customers.
Amazon stock right now is trading for 31 times earnings estimates, down from more than 45 late last year. The company's successes in AI so far and its market position make it a no-brainer stock to ride the trillion-dollar AI wave.
