Technology has been a winning investment theme for several years, and it remains in the spotlight as the stock market enters 2026.
The world is becoming increasingly technology driven, and the rapid rise of artificial intelligence (AI) underscores this trend.
But after several years of strong investment returns, most of the top technology stocks have risen to lofty valuations that justifiably warrant a pause before you hit that buy button. I'm not a big believer in buying low-quality stocks simply because they are cheap.
Instead, keep these five winning tech and AI stocks on your watch list. That way, you can pounce when the market's inevitable volatility presents a better buying opportunity.
Image source: Nvidia
1. Nvidia
Artificial intelligence is all the rage, and Nvidia (NVDA 1.32%) has become the runaway leader in accelerator GPU chips that fill AI data centers, where they operate together as clusters to train AI models. Some analysts put Nvidia's data center GPU market share as high as 92%. As a result, the company's trailing-12-month sales have exploded to $187 billion, a nearly 600% increase since the beginning of 2023.
NASDAQ: NVDA
Key Data Points
Experts believe that trillions of dollars will continue pouring into data centers worldwide, setting the stage for Nvidia's prolonged growth. However, competition will continue to mount for Nvidia, coming from rivals and even customers who may not want to rely solely on Nvidia's chips in the future. The stock's lofty price-to-sales ratio of 25 doesn't leave much room for error, so it may be wise to wait for a dip before buying shares.
2. Arm Holdings
Central processing units (CPUs) are like the brain of an electronic device. Arm Holdings (ARM 4.41%) generates billions of dollars in royalties and fees from customers who use its proprietary designs to make their chips. Arm Holdings has continued to increase its market share over the past several years, from 44% in 2022 to 50% now. That speaks volumes about the quality of its intellectual property.
There is a long runway ahead for Arm as well. Emerging opportunities in CPU-intensive industries, such as autonomous vehicles, data centers, networking equipment, and humanoid robotics, all offer potential growth over the next decade and beyond. The stock's valuation is currently its biggest drawback. Its aggressive price-to-earnings ratio of 64 times full-year earnings estimates could weigh on near-term investment returns.
3. Broadcom
Leading semiconductor company Broadcom (AVGO 1.07%) has long excelled in chips for networking applications, which have proven particularly useful in the AI data center boom, where they enable chips within a cluster to communicate and process vast amounts of data quickly. However, Broadcom has also found some opportunities with custom-built chips that could compete with Nvidia's.
NASDAQ: AVGO
Key Data Points
Broadcom also has a software unit that accounts for 30% to 40% of the company's total revenue. It offers stable, predictable revenue that complements its more volatile chip business. That said, investors have bid Broadcom up to 36 times its full-year earnings estimates, primarily on expectations for AI chip growth. Investors who are uncomfortable with the unpredictable nature of the AI landscape may want to invest with a larger margin of safety.
4. Apple
It's safe to say that Apple (AAPL 2.05%) hasn't gotten off to the start it hoped for with AI. The company has delayed the launch of its revamped Siri and has experienced extensive turnover in its AI workforce. Yet people continue to buy iPhones and other iOS devices, and the stock is trading near its all-time high. Ultimately, Apple remains a world-class consumer-facing brand and business model.
At this point, the stock is priced for perfection at 34 times earnings. That puts investors at risk of some downside if Apple doesn't begin to execute on the AI front. Thus far, Apple's slow AI start hasn't meaningfully affected the company. Still, it could eventually risk eroding its brand if AI becomes important enough to consumers and Apple is unable to keep up with the competition. Investors may want to avoid the stock until the price comes down again or Apple shows some traction with a successful AI product.
5. Palantir Technologies
Few companies have emerged as AI winners like Palantir Technologies (PLTR +1.40%). The custom software company's growth has accelerated significantly since it launched its AIP platform for developing custom AI applications. Keep in mind that Palantir still has fewer than 1,000 total customers, serving both government and corporate clients. Its highly flexible software creates an enormous total addressable market that could help Palantir grow for the foreseeable future.
NASDAQ: PLTR
Key Data Points
The market is well aware of this, as evidenced by the stock's electric 2,800% surge since early 2023. Unfortunately, that has made Palantir arguably the most expensive stock on Wall Street. Although Palantir's business has performed remarkably well, the stock has become a potential bubble. Investors who have missed the boat should consider staying on the sidelines until the stock releases much of its hot air.
