The tech sector continues to be a driving force in the stock market, with artificial intelligence (AI) leading the way. With AI quickly reshaping the world we live in, this is an area where investors need some exposure if they want to benefit.
Here's a look at three great tech stocks to buy now.
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1. Nvidia
Nvidia (NVDA 1.65%) remains the leader in AI chips by a wide margin. Its market share for graphics processing units (GPUs), which are the main chips used to run AI workloads, was 92% in Q1. Meanwhile, its data center revenue hit $39.1 billion in Q1, which was a more than ninefold surge from just two years ago. For a company the size of Nvidia, that revenue growth is just mind-boggling.
Nvidia's huge market share and outsized revenue growth stem from the wide moat the company has been able to build. However, this moat doesn't come from its chips; instead, it comes from the ecosystem it has built around them.
Its moat starts with CUDA, the software platform it created to allow its graphics GPUs to be programmed for tasks other than speeding up the graphics rendering in video games. However, it doesn't stop there.
Early on, Nvidia made the smart decision to give its CUDA software platform to universities and research labs for free, which led to developers learning to program GPUs on its platform. Because of this, a huge number of tools and libraries were built on top of CUDA. This not only helped optimize its GPUs for AI tasks, but also made switching difficult because customers would need to rewrite a huge amount of code.
In addition, Nvidia's proprietary NVLink technology, which provides high-speed GPU interconnects, also adds to this moat. NVLink allows multiple Nvidia GPUs to communicate with each other at high speeds, essentially letting them function as a single unit. As the size of AI clusters continues to increase, NVLink becomes vital for seamless data flow.
Given its market dominance and deep moat, Nvidia remains one of the best long-term opportunities in the AI space.
2. Advanced Micro Devices
While Nvidia has a clear advantage in the GPU space, there's still an opening for rival Advanced Micro Devices (AMD 2.23%) to take some share. The company is a distant second to Nvidia in GPUs but is carving out a valuable niche in AI inference.
Inference, which is the process of running an AI model after it's been trained, is expected to eventually eclipse the training market in size. AMD has previously said one of the world's largest AI model companies is already using its GPUs for a meaningful portion of its daily inference, while major cloud providers are also deploying its chips for things like search and personalizing recommendations.
One area where AMD is becoming the clear leader is in the data center central processing units (CPUs) market. The company has been taking market share. While the market isn't anywhere close in size to the market for GPUs, as the brains of the operations, CPU sales are also growing as part of the AI infrastructure buildout.
The company is also working with others like Intel and Broadcom on the UALink Consortium, which aims to create an open standard for high-speed interconnects for AI chips in data centers. If they succeed, it could take away Nvidia's big NVLink advantage and allow companies to use multiple vendors' chips within an AI cluster.
AMD doesn't have to take a huge amount of share away from Nvidia to be a winner. The GPU market continues to grow, especially for inference, and taking just a little share would go a long way for the company and its stock.
3. Alphabet
Alphabet (GOOGL 3.05%) (GOOG 3.00%) is a classic example of a company proving its doubters wrong. Some investors have worried that AI would kill its search business, but the opposite is happening. In fact, last quarter, its search revenue growth accelerated.
Over 2 billion people are now using its AI Overviews on a monthly basis, and Google global search queries have been increasing because of AI. Last quarter, its search revenue climbed 12% to $54.2 billion. Meanwhile, its new AI mode is still in its early days of rolling out and allows people to easily toggle between a search and an AI chatbot experience without having to change apps.
Its cloud computing unit Google Cloud is another major AI winner. Its revenue surged 32% year over year to $13.6 billion last quarter, and operating profit more than doubled to $2.8 billion, thanks to strong AI demand. Alphabet's custom AI chips, called tensor processing units (TPUs), are proving to be cost-efficient and are seeing strong adoption.
Alphabet is facing capacity constraints, but that's a good problem to have. Meanwhile, the company generates lots of cash, so the $85 billion in capital expenditures (capex) it plans on spending this year building out its data center infrastructure is easily covered by its operating cash flow.
The company also has another big opportunity in Waymo, its robotaxi business. Waymo has taken an impressive lead in this space and is now beginning to quickly expand its services to new cities. While still early, this business has a lot of potential.
Overall, Alphabet is proving to be an AI winner. It's a stock that investors can own for the long haul.
