With more and more capital going into artificial intelligence (AI) development and infrastructure, and investors growing increasingly excited about the tech's potential impact on various businesses, stocks connected to the trend have been some of the market's biggest winners over the last two and a half years.
Despite that rapid growth, many of those stocks could still have plenty of room to keep climbing. The world's biggest tech companies plan to spend hundreds of billions of dollars on building out data centers this year alone. And from the way their leadership teams talked on their most recent earnings calls, most of them don't expect to slow that capital spending down anytime soon.
Image source: Getty Images.
Of course, not every company will come out ahead from their investments in AI. And even if a company looks poised for financial success, the stock still needs to offer good value for investors. If you have a small amount available to invest at the moment, like $250, finding a good stock to buy could be even harder.
I've identified three AI stocks you can buy now with just $250 that can help you capitalize on the next phase of growth in the industry.
1. Amazon
Amazon (AMZN +0.53%) is the largest public cloud computing infrastructure provider in the world. That said, it was caught flatfooted when the AI trend kicked off. It has worked hard to catch up with its competitors by focusing on providing a diverse range of AI services and making a strategic investment in Anthropic, a leading developer of foundational AI models. Now, when it comes to everything from raw computing power to platforms to build new large language models on top of, Amazon Web Services can meet clients' needs.
Amazon is also working on its own purpose-built AI accelerator chips for both training and inference. It has seen strong demand for its custom silicon, and says customers are seeing significantly better price performance for both training and inference with its chips compared to the leading GPUs on the market.
NASDAQ: AMZN
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Importantly, Amazon expects to lay out more than $100 billion this year in capital expenditures, mostly focused on AI data centers. It wouldn't be spending that much if it didn't see strong demand for computing power. Management reiterated during its most recent earnings call that it remains capacity-constrained, so as more of its new data centers come online later this year, revenue growth for Amazon Web Services (AWS) should accelerate.
Outside of AWS, the company continues to operate a massive online retail business. It has seen strong margin expansion over the last few years as a result of optimizing its logistics network and scaling its advertising business.
While Amazon's massive spending on data centers is cutting into its free cash flow, the long-term trend remains positive. Despite its huge step up in investments over the last year, free cash flow still topped $25 billion over the trailing 12 months. With the stock trading at around $200 per share -- more than 15% below the all-time high it reached earlier this year -- it looks like a no-brainer buy.
2. Tencent
Tencent (TCEHY +0.76%) is the company behind WeChat, the massively popular Chinese super-app. If you took WhatsApp, combined it with Facebook, added Netflix and Spotify, built an app store on top of that, and extended payments from the app store to other websites and even physical stores, you'd have something that looks like the all-in-one app that is WeChat. Tencent also has a massive mobile gaming business, and it's the third-largest cloud computing provider in China.
It has already seen the benefits of putting machine-learning AI algorithms to work in its advertising business. More targeted content leads to higher engagement rates and supports higher ad prices. That has been reflected in the strong gross margin expansion for its value-added services over the last two years. Tencent has also rolled out AI tools for marketers to improve their ad generation.
OTC: TCEHY
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With its strong operating leverage, it is reinvesting its excess capital into AI development to further improve ad targeting and content recommendations, and expand its cloud computing infrastructure. But it has not yet laid out timelines for monetizing newer features like its AI chatbot within WeChat, its AI-powered search engine, or its image generator. As a result, management says it expects its increased AI spending to hold back its margin expansion for the foreseeable future. Still, the long-term benefits should be worth it for investors.
Tencent stock does come with some meaningful risks, not least of which is its position as a Chinese company. Management has long dealt with assertive regulators in Beijing exercising control over its industry and operations. Still, increasingly tight regulations could strangle Tencent's advancements.
Even after considerable price appreciation this year, Tencent stock trades for less than 20 times trailing earnings. Given that it's trading at around $66 per share, investors with about $250 to deploy now could add three or four shares of the stock to their portfolios.
3. Taiwan Semiconductor Manufacturing
Somebody has to manufacture and package all of the high-end chips that go into AI data centers, and more often than not, that somebody is Taiwan Semiconductor Manufacturing (TSM +6.30%), aka, TSMC. It commands roughly two-thirds of the third-party semiconductor fabrication market, and it's responsible for a particularly large share of those semiconductors made with the most advanced processes, which are required for high-end AI accelerator chips.
As a result, the Taiwan-based company has been one of the biggest beneficiaries of the boom in AI spending, and it should continue to benefit well into the future. Management expects revenue from AI accelerators to double in 2025 and grow at an average annual rate of 40% through the end of the decade. That supports its long-term view that its total revenue will grow at a 20% compound annual rate between 2025 and 2029. Meanwhile, the company should be able to maintain its high gross margins.
NYSE: TSM
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TSMC benefits from a virtuous cycle. Its industry-leading technology and scale make it the top foundry choice for any company that's designing cutting-edge chips for data centers or personal computing devices. As a result, TSMC collects a lot more revenue than its competitors, which gives it more money to invest in research and development. In turn, that ensures it can maintain and even extend its technological lead and continue winning more contracts.
TSMC has been in the crosshairs of President Donald Trump's tariffs, and the ongoing trade policy changes he is engaging in present a major risk for the company. However, strong demand for AI chips will likely limit the impact on TSMC's non-AI business, and since AI is driving a significant portion of its growth these days, the overall impact should remain manageable.
After the stock touched a 52-week low in April due to investors' tariff-related fears, it has recovered and is trading in the range it was in last fall. But it's still a relative bargain. Investors can buy shares for just 20 times forward earnings, as its price remains below $200 per share.
