AI stocks have been the sweet spot for the past few years. The S&P 500 returned 18% last year, with the "Magnificent Seven" currently making up 34% of the index. This marks three consecutive years of double-digit gains, as growing adoption of AI remains a high-growth market for leading tech companies.
Here are two top AI stocks that are trading at reasonable valuations that can outperform the S&P 500 in 2026.
Image source: Nvidia.
Nvidia
Demand for AI chips remains incredibly high as we enter the new year. Larger AI models are requiring increasing amounts of computing power, and this demand is expected to grow as agentic AI and other advanced computing systems gain adoption.
As the dominant supplier of AI chips, this bodes well for Nvidia's (NVDA 1.53%) prospects. In the third quarter, the company's revenue increased 22% over the previous quarter, reaching $57 billion, with sales to data centers being the predominant driver. Company guidance calls for fiscal fourth-quarter revenue to grow to approximately $65 billion, representing sequential growth of about 14%.
Nvidia's lead in graphics processing units (GPUs) is also evident by its stellar profitability. The company's adjusted operating profit grew 25% over the previous quarter, reaching nearly $38 billion, representing a lucrative margin on its revenue. Strong growth on the bottom line is amplifying the stock's long-term return potential.
NASDAQ: NVDA
Key Data Points
Profitable growth makes Nvidia's stock look like a steal, trading at just 25 times this year's earnings forecasts on Wall Street. The modest valuation reflects investor concern about the potential for slowing spending on data centers in the near term. However, top hyperscalers continue to sign multibillion-dollar deals for data center leases, which points to a long-term buildout of AI infrastructure, positioning Nvidia for more growth.
Agentic AI is expected to drive demand for advanced chips. To address this opportunity, Nvidia is launching its Vera Rubin AI platform this year, which is powered by seven chips. All the leading cloud providers are lined up to deploy Vera Rubin, including Microsoft's next-generation AI data centers.
Nvidia sees $10 trillion of legacy computing hardware transitioning to modern compute systems. Analysts on Wall Street are forecasting the company's earnings to increase by 57% this year. This growth for a stock trading at a modest forward earnings multiple should support market-beating returns.
Meta Platforms
Only a few companies can quickly convert billions of AI investments into revenue, and Meta Platforms (META 2.52%) is one of them. It boasts more than 3.5 billion daily active users across its social media platforms, like Instagram and Facebook. Instagram alone hit 3 billion monthly active users last quarter, with Threads reaching 150 million daily users. This is a significant competitive advantage that positions Meta for profitable growth.
Meta spent $62 billion on capital expenditures over the last year, which is being allocated toward data centers and other technologies to support its services. It monetizes its AI capabilities by delivering more relevant recommendations to users, driving growth in advertising revenue.
NASDAQ: META
Key Data Points
When Meta releases its fourth-quarter earnings results, analysts anticipate its full-year revenue to be up 21% for 2025. This is being driven through balanced growth in the number of ads shown and ad pricing. Meta reported solid increases in time spent across its platforms in the third quarter, with time spent watching videos up 30% year over year on Instagram.
When it comes to AI, Meta doesn't get the attention of Google's Gemini or OpenAI's ChatGPT, but its Meta AI feature has more than 1 billion monthly active users. This usage has continued to grow as Meta improves its AI models.
Meta is investing aggressively in AI technology while also returning cash to shareholders in dividends and share repurchases. Meta paid more than $1.3 billion in dividends last quarter (with a trailing dividend yield of 0.33%), while holding over $44 billion in cash and short-term investments on its balance sheet.
This is a rock-solid business that is currently being discounted. Meta Platforms' stock is trading at just 21 times 2026 earnings estimates -- a significant discount to Alphabet's forward multiple of 29. If Meta trades at a valuation comparable to Alphabet, the stock could rise 38% in 2026 -- enough to potentially outperform the S&P 500.
