There are loads of artificial intelligence (AI) stocks to invest in, but not all of them are worth buying. As valuations get out of control in the market, it's important to focus on the stocks with the most value, and that can generate the best returns for your portfolio in the future. This involves not only looking at earnings multiples but also taking into account what the future may hold for the stocks you're investing in.
If you're able to invest $5,000 into the stock market today, three top AI stocks I think you should consider buying are Amazon (AMZN +1.06%), Alphabet (GOOG +2.52%)(GOOGL +2.52%), and Advanced Micro Devices (AMD +7.29%). Here's why these can be among the best AI stocks to own right now.
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1. Amazon
I think tech giant Amazon is the company that can most benefit from AI. It already utilizes robotics in its facilities and uses predictive intelligence to determine what someone may want to buy on its marketplace. Enhancing those aspects of its business with generative AI can lead to more revenue growth and increased efficiencies in the long run.
Its use of data and analytics also enables it to make the best data-driven decisions that it can. This can be key in the rollout of same-day fresh food delivery, which Amazon is expanding to thousands of locations this year. By making its online site even more of a one-stop shop by adding fresh food into the mix, Amazon can unlock more revenue and profit growth. And this is another example of where AI can help, by determining which products to offer and which markets to enter.
NASDAQ: AMZN
Key Data Points
The business is already a beast, with Amazon reporting $70.6 billion in earnings over the past four quarters, on revenue of $670 billion. What's surprising is that with so much AI-related growth potential, the stock is actually down 2% this year (as of Oct. 17). It trades at a forward price-to-earnings (P/E) multiple of 29 (based on analyst expectations). That's lower than the average stock on the Technology Select Sector SPDR Fund, which trades at 32 times its future profits. At such an attractive valuation, Amazon may be one of the most underrated AI stocks to own right now.
2. Alphabet
Another AI stock that is attractively priced is Alphabet, the big name behind YouTube and Google Search. At a forward P/E multiple of just 23, it's an even cheaper buy than Amazon.
The stock is up 35% this year as antitrust concerns may no longer be weighing on its valuation, since a large breakup of the business doesn't look probable anymore. But there is still far more upside available for the stock, particularly in the long term as the company looks to be a big player in AI with its Gemini chatbot. Gemini can help make Google's and YouTube's search results more efficient, generate images and videos, and provide a lot of value for users. Investors were once concerned AI might hurt Alphabet's business but it may instead prove to be a huge growth opportunity.
NASDAQ: GOOG
Key Data Points
What's also great about Alphabet's business are its impressive margins. Over the past four quarters, the company's profit margin has been 31%, with Alphabet netting $115.6 billion in earnings on sales of $371.4 billion. As the business gets more efficient due to AI, the company's already higher margins may end up looking even better.
3. Advanced Micro Devices
Another solid stock to buy right now is Advanced Micro Devices, also known as AMD. Its forward P/E of 29 puts its valuation in line with Amazon.
AMD is establishing itself as a bona fide competitor to its much larger rival, Nvidia. Its latest chips have drawn the attention of big-name tech players such as Microsoft, Meta Platforms, and OpenAI, which are all planning to use them as alternatives to Nvidia's high-priced products. AMD may not catch up to Nvidia in market share anytime soon, but its AI chips can provide tech companies with valuable alternatives and generate plenty of revenue for its business.
NASDAQ: AMD
Key Data Points
As AMD solidifies itself as a much bigger player in the chip market and capitalizes on new growth opportunities, the stock's valuation may look much more reasonable in the future. CEO Lisa Su previously projected that AMD's AI business could generate tens of billions in revenue in the years ahead.
Through the first six months of the year, AMD's revenue has risen by 34% to $15.1 billion. And with plenty more growth in its future, it may not be too late to invest in the stock, even though it has already doubled in value this year.
