Artificial intelligence has been a top investing theme since the start of 2023. Two and a half years later, it's still going strong, and there are some incredibly hot AI stocks on the market.
"Hot" doesn't necessarily mean that these stocks are buys; some may be considered overvalued. But there are still plenty of hot stocks that are strong buys, and investors should know which are great buys and which ones to avoid.
Image source: Getty Images.
1. Palantir
Palantir (PLTR +1.32%) may be the hottest AI stock on Wall Street. It's experiencing explosive growth and has a strong client base in the government and commercial sectors.
NASDAQ: PLTR
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However, its stock trades at an unbelievable 110 times sales. Few companies achieve this valuation, and if they do, they're often growing revenue at a 100% or 200% year-over-year pace, while Palantir's was only 39% in the last quarter.
While Palantir may be the hottest AI stock on the market, I think investors should avoid it.
2. SoundHound AI
SoundHound AI (SOUN +1.50%) is another popular AI pick. Its audio recognition platform is a leader in its space. It's also experiencing phenomenal growth, with revenue rising 151% in Q1, and management is projecting 97% growth for 2025.
SOUN Operating Revenue (Quarterly YoY Growth) data by YCharts
Despite growing faster, it's also far cheaper than Palantir, trading for 34 times sales. While that's not necessarily cheap compared to other software stocks, most other stocks aren't doubling their revenue year after year.
SoundHound AI is a fast grower and could be an intriguing AI stock pick.
3. Nvidia
Nvidia's (NVDA +0.87%) graphics processing units (GPUs) have powered the AI arms race. Nvidia's data center GPUs have achieved an impressive 90% market share, which is incredible considering how massive the AI arms race is.
Nvidia is still rapidly growing, with revenue increasing 69% year over year in Q1 and projected to grow at a 50% pace in Q2. We're still a long way from building out the computing power necessary to run an economy from an AI-first perspective, which will continue to bolster Nvidia's growth for years.
NASDAQ: NVDA
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Although it has been an impressive performer since 2023, I still think it's a top AI stock to buy now.
4. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM 0.83%) is the top contract chip manufacturer in the world. It makes chips for companies like Nvidia because they can't make their own. TSMC also has several other key clients in the AI world, and it is an excellent way to play the AI arms race without needing to pick a winner.
Management believes the AI arms race will massively grow TSMC's revenue over the next five years. AI-related revenue is expected to grow at a 45% compound annual growth rate (CAGR), and overall revenue is expected to rise at nearly a 20% CAGR.
That's market-beating growth, and makes TSMC an excellent stock to buy right now.
5. Alphabet
Alphabet (GOOG 0.15%) (GOOGL 0.57%) is the parent company of Google, a key competitor in the AI arms race. Google needs to succeed; otherwise, its Google Search business could lose key market share to various generative AI models.
Google has done a phenomenal job pivoting, with the Gemini model being one of the best around and integrating AI search overviews into every Google search. This leads me to believe Alphabet will be alright over the long term.
To support its case, Alphabet trades at a fairly cheap 18.5 times forward earnings, far cheaper than the broader market as measured by the S&P 500, which trades for 22.9 times forward earnings.
GOOG PE Ratio (Forward) data by YCharts
6. Amazon
When you think of Amazon (AMZN 0.38%), you probably think of the e-commerce business. However, there's a much more important segment to Amazon's profit picture than its online store: Amazon Web Services (AWS), its cloud computing wing.
AWS accounted for 63% of Amazon's operating profits in Q1, making it the most important segment to its profitability. With cloud computing benefiting from the rise of AI workloads, it makes Amazon an excellent stock to buy right now.
7. Broadcom
Like Nvidia, Broadcom (AVGO +0.29%) is also a company that provides vital hardware to AI data centers. Its connectivity switches and custom AI accelerators, which it calls XPUs, are increasing usage as AI hyperscalers begin rolling out more inference-based data centers. Inference occurs when a user asks an AI model a question, so Broadcom's product usage will continue to rise as AI becomes more widely used.
Broadcom is an excellent AI stock to buy now, and could be a huge winner over the next few years.
8. Meta Platforms
Meta Platforms (META 0.82%), the parent company of Facebook, Instagram, Threads, Messenger, and WhatsApp, is another key AI arms race competitor. It's using AI to improve its advertising services on its various apps and develop cutting-edge AI devices, most notably AI glasses.
NASDAQ: META
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The verdict is still out on whether Meta's investments in AI glasses will pay off. Even if they don't, Meta's dominance in the social media field is reason enough to buy the stock, especially given all of AI's improvements.
9. Tesla
Tesla (TSLA 5.46%) is a polarizing stock, and you'd be forgiven if you don't want to invest in it because of its CEO, Elon Musk. However, Tesla's work with AI is undeniable, and its investments in autonomous vehicles and humanoid robots could pay off big time if it can demonstrate that its products are far superior to anyone else's.
AI is a big part of the Tesla bull case, and it will need to maintain its leadership position in AI for the stock to be a successful investment.
10. Microsoft
Microsoft (MSFT +1.01%) is another key competitor in the AI arms race, as it has a cloud computing division like Amazon and Alphabet but also has a significant stake in the leading generative AI company, OpenAI. Microsoft isn't developing its own AI model; instead, it aims to facilitate the various generative AI models that already exist.
This will help Microsoft succeed over the long term, as the company will become a key partner in building AI solutions for years to come.
