Artificial intelligence (AI) has been the driving force behind the current bull market since it started in October 2022. Many artificial intelligence stocks have soared to new all-time highs amid the fervor, even if the underlying fundamentals don't always justify those high prices. Investor optimism and exuberance surrounding the potential for AI to improve productivity and profits across industries has left many stocks looking quite expensive.
That can leave many new (and veteran) investors looking at the market and wondering if they've missed out on all the good opportunities. The challenge becomes even more difficult if you have only $200 to invest and have seen many stock prices soar well above that mark.
Fortunately, there are still a lot of great opportunities for investors, even if you only have $200 to buy stocks. Here are three no-brainer AI stocks to buy right now.
Image source: Getty Images.
1. Datadog
Datadog (DDOG +0.39%) helps companies analyze their IT systems to ensure they're operating as smoothly as possible. A few slow-loading pieces of an e-commerce website could be the difference between a successful checkout and someone abandoning their cart. A long wait time for a chatbot response could push customers to another provider. Datadog helps identify the hiccups in a business's IT systems, so its operations run quickly and securely.
Management has made a big push to support the AI industry with its observability tools. It counts 500 AI-native companies using its service, and over 5,000 customers (out of 32,000 total) using its AI integrations to track generative AI applications. AI-native customers accounted for 12% of revenue last quarter, up from 6% a year ago. As more customers add artificial intelligence applications to their workflows, Datadog stands to gain more business from existing and new customers.
NASDAQ: DDOG
Key Data Points
That was the case last quarter, when Datadog produced revenue growth of 28%. Remaining performance obligations climbed 53%, indicating more strong results to come.
And that's not just a result of adding more AI customers. Non-AI customer revenue accelerated to 20% growth last quarter, and management saw further acceleration in October. That's driven by strong retention metrics, indicating Datadog's service is very sticky and has high switching costs, keeping customers locked in.
Shares of the stock aren't cheap by traditional valuation measures. Its forward price-to-earnings ratio (P/E) is 75, and the enterprise value-to-sales estimate ratio is just under 15. But the business is growing sales quickly and has two big secular trends (cloud migration and generative AI applications) working in its favor to support that growth long term. As a software business, it can generate strong operating leverage, driving earnings growth significantly higher over time.
At a share price around $150 at the time of this writing, it looks like a great opportunity for investors.
2. Fortinet
Fortinet (FTNT +1.33%) builds next-gen firewalls, which combine specialized hardware with software for filtering traffic. While that business remains a key part of its operations, its biggest growth drivers are software-based solutions, which include Unified SASE and SecOps. The former provides network security in a remote-work environment. The latter includes tools to detect and respond to cybersecurity threats.
While firewall sales continued to climb last quarter (up 10%) following a product refresh, SASE and SecOps led revenue growth, up 19% and 33%, respectively. Over the long run, management expects to gain share of each market. It cited projections from Gartner that the SASE market will climb 18% per year through 2029 and the larger SecOps market will climb 10% per year. That provides a lot of greenfield for Fortinet to keep growing.
NASDAQ: FTNT
Key Data Points
Its diversified security offerings make it a one-stop shop for many of its customers. That increases retention as customers use more of its products and add modules. Fortinet also benefits from its breadth, as it can gather more data on network attacks to feed into its machine learning algorithms. In turn, that improves its ability to identify threats quickly and mitigate them.
Fortinet stock's forward P/E of 31 and EV-to-sales ratio of 8.7 are attractive prices to pay for a company growing sales at a double-digit pace. With more sales coming from software solutions, it should produce strong margin expansion, enabling it to grow the bottom line even faster.
At around $83 per share, investors with $200 can buy a couple of shares and still have some cash left to deploy.
3. Tencent
Tencent (TCEHY 2.70%) owns a portfolio of popular mobile games, as well as the widely used WeChat (Weixin in China) platform. It also offers cloud services, and it's one of the largest cloud providers in China.
Tencent's AI developments are driving results across its business segments. The company introduced a new AI algorithm last quarter, along with new AI tools to help marketers target ads and optimize their campaign creatives. That helped push ad revenue 21% higher last quarter, accelerating from the previous period. Management also says it's seeing increased engagement across its media services and games, as it improves AI recommendations, presenting more monetization opportunities.
Despite supply constraints, management reassured investors that it had enough GPUs to meet its internal needs. Tencent develops the open-source Hunyuan foundation model, which has demonstrated strong performance in 3D modeling and video applications. That's key as it sees AI improving productivity for its game developers. That said, it noted that supply constraints have slowed growth for its cloud computing segment, as it lacks sufficient infrastructure to meet demand.
OTC: TCEHY
Key Data Points
There are numerous ways for Tencent to continue integrating AI into its products and services, including the development of AI agents within WeChat and a framework for other companies to create their own agents. That's supported by the growth of its core gaming and advertising businesses, which generate tons of high-margin revenue for management to reinvest.
With shares trading for about $78, investors are paying just over 17 times forward earnings estimates. With the business growing earnings at a mid-teens rate and lots of potential upside from artificial intelligence-related products and enhancements, that makes it a no-brainer for an investor looking to deploy a couple of hundred dollars.
