In 2025, the S&P 500 rallied more than 16%, marking its third consecutive year of gains topping 15%. While the prospect of lower interest rates and stock-split euphoria have played a role in lifting the tide on Wall Street, the rise of artificial intelligence (AI) has undeniably been the stock market's hottest trend.
Providing software and systems with the tools to make near-instantaneous decisions without human oversight is an advancement that the analysts at PwC believe can add more than $15 trillion to global gross domestic product by 2030.
Image source: Getty Images.
However, a pie-in-the-sky addressable market doesn't mean every AI stock will be a winner. In 2026, two unstoppable AI stocks make for no-brainer buys, while another ultra-popular stock is worth avoiding.
Artificial intelligence stock No. 1 to buy hand over fist in the new year: Meta Platforms
Among the dozens of companies that are directly benefiting from the AI revolution, none is more of a genius buy in the new year than social media colossus Meta Platforms (META 1.81%).
The advantage of buying Meta Platforms' stock, compared to purchasing shares of the face of the AI movement, Nvidia, is that investors have a rock-solid foundation to fall back on if history were to repeat and the AI bubble bursts in 2026.
NASDAQ: META
Key Data Points
Meta generates approximately 98% of its net sales from advertising on its family of apps. In September, an average of 3.54 billion people visited its websites daily, including Facebook, WhatsApp, Instagram, Threads, and Facebook Messenger. No other social media platform is particularly close to matching the number of eyeballs that Meta can offer advertisers, which means it often possesses exceptional ad-pricing power.
Although Meta has several uses for AI, it's already deploying generative AI solutions on its social media advertising platforms. These tools are allowing advertisers to tailor static and video messages to individual users, with the goal of improving click-through rates. With Meta Platforms primarily relying on AI to enhance its existing operations, it would be mostly shielded from an AI bubble-bursting event.
What's more, Mark Zuckerberg's company is swimming in cash. It ended September with over $44 billion in cash, cash equivalents, and marketable securities, and has generated nearly $80 billion in net cash from its operating activities through the first nine months of 2025. Meta has the luxury of taking risks and investing in high-growth initiatives without needing an immediate payoff from these investments.
Meta Platforms' forward price-to-earnings (P/E) ratio of 22 is a bargain amid a historically pricey stock market.
Image source: Getty Images.
Artificial intelligence stock No. 2 to buy hand over fist in 2026: Super Micro Computer
Investors on Wall Street have to be objective and willing to adjust their opinion(s) on a publicly traded company if the variables change. While I've been a decisive skeptic of customizable rack server and storage solutions specialist Super Micro Computer (SMCI 1.74%) over the previous two years, my tune has changed for 2026.
In 2024, Supermicro, as the company is more commonly known, faced accounting allegations from a noted short-seller, which were denied by an independent third-party investigation, as well as concerns about its operating margin. Historically, the rapid expansion of enterprise data centers has led to a brief surge, followed by a decline, in Supermicro's margins.
Although the risk of significant downside stemming from an AI bubble-bursting event is considerably greater with Super Micro Computer than with Meta Platforms, the risk-versus-reward profile has shifted completely to favor reward.
Supermicro's biggest catalyst in the new year is the insatiable demand for Nvidia's graphics processing units (GPUs). Nvidia's unrivaled GPUs are incorporated into Supermicro's customizable rack servers, leading to reasonably strong pricing power and a substantial order backlog for its infrastructure. The willingness of hyperscalers to throw tens of billions of dollars at AI-accelerated data centers practically ensures sustained double-digit growth for Super Micro Computer. Management's annual sales forecast of "at least $36 billion" for fiscal 2026 equates to 64% revenue growth.
NASDAQ: SMCI
Key Data Points
Taiwan Semiconductor Manufacturing's ability to ramp up its GPU output for Nvidia and its external rivals should be another driver of Super Micro Computer's outperformance in 2026. Though GPU scarcity remains an issue, a ramp in production by Taiwan Semi can help lessen or eliminate the supply chain constraints that have slowed deliveries or limited Supermicro's sales growth ceiling.
With Supermicro stock now trading at a forward P/E of only 10, yet sporting estimated sales growth of 64% (per management for fiscal 2026) and 22% (based on Wall Street's estimate for fiscal 2027) over the next two years, its shares look like a bargain.
The AI stock investors would be wise to avoid in 2026: Palantir Technologies
However, not all AI stocks are necessarily worth buying in the new year. Although it's been one of Wall Street's hottest stocks to own, with a gain of more than 2,500% over the previous three years, Palantir Technologies (PLTR +1.00%) heads the list of AI stocks to avoid in 2026.
To clear up any confusion, Palantir isn't a bad or poorly run company. It's simply a solid business whose valuation no longer makes any sense.
NASDAQ: PLTR
Key Data Points
On the one hand, Palantir's competitive advantages appear sustainable. Its AI- and machine learning-powered Gotham platform, which is responsible for helping the U.S. government and its allies plan and oversee military missions, has no scalable replacement. Wall Street and investors consistently place a premium valuation on public companies that can maintain their competitive edge.
But there's a limit as to how far this valuation premium can be stretched.
Since the dawn of the internet revolution in the mid-1990s, companies at the forefront of next-big-thing innovations have run into trouble when their price-to-sales (P/S) ratios have topped 30. While no leading company has been able to sustain a P/S ratio above 30 for any extended period over the last three decades, Palantir ended Jan. 2 at a P/S ratio of 110! There isn't an earnings beat or revenue guide that would justify this premium.
The stock market is also historically expensive, and that's potentially bad news for pricey stocks like Palantir. Historical precedent strongly suggests a sizable stock market correction, bear market, or even short-lived crash may occur in 2026. If this were to happen, companies with premium valuations tend to be hit the hardest.
Palantir's otherworldly valuation makes it an easy stock to shy away from in the new year.
