It is an interesting time to be an investor. This bull market that has had the best three-year stretch since the dot-com boom in the 1990s. The markets have been driven by the artificial intelligence (AI) computing revolution, which is not slowing down.
At the same time, valuations have soared to levels not seen since the dot-com boom, which is cause for caution.
However, this cycle is different from the 1990s bubble in some key ways. For the most part, it is driven more by megacaps with high earnings and less by speculation like the 1990s bubble.
So, two things can be true -- markets are overvalued and AI is the driving force for stocks. Thus, a good use of $1,000 would be to combine the two in a portfolio. Here are two good choices.
Image source: Getty Images.
Nvidia: AI-fueled growth at a reasonable value
One stock that does that is Nvidia (NVDA 1.36%). The AI chipmaker has been a juggernaut the past few years, becoming the largest company in the world by market cap. But a stock split in 2024 brought the price per share down to a reasonable level, trading now at $190 per share.
Also, it is reasonably valued as the stock price has gone flat over the past six months or so, with investors worried about its high valuation. While the trailing-12-month P/E ratio is still high at 47, the forward P/E is a reasonable 24, meaning it is well priced based on its projected earnings over the next 12 months.
NASDAQ: NVDA
Key Data Points
Its five-year P/E-to-growth (PEG) ratio is even better at 0.73. A PEG ratio under 1 indicates that a stock is undervalued in relation to its long-term earnings power.
With the stock trading at roughly $190 per share, you could add five shares of Nvidia for $1,000. As the leading provider of chips for AI data centers with about a 90% market share, Nvidia remains an earnings machine that will be fueled for years by the AI computing transformation. Some 91% of analysts say it's a buy with a median price target of $250 per share, which suggests 31% upside.
Amazon: Betting big on AI
Amazon (AMZN 1.43%) shocked investors earlier in February when it announced it is allocating $200 billion for capital expenditures in 2026, which is some 50% more than it spent last year.
Many investors are concerned about the size of the spend, which is mostly on AI and Amazon Web Services (AWS). AWS has been losing market share to its key rivals even with massive AI spending. So the concern is, is the company just throwing more money at the problem?
As the cloud computing leader, Amazon has too much at stake to not invest in the major source of its income for years to come. The capex might prove to be a drag on earnings in the near term, but it will position Amazon for long-term success.
NASDAQ: AMZN
Key Data Points
Also, Amazon has a P/E ratio of about 27, which is near its lowest valuation since the early 2010s. That reasonable valuation, combined with its massive earnings power, makes it a great time to buy.
Amazon stock trades at around $200 per share, so you could also buy five shares for $1,000 -- or split the $1,000 between shares of Nvidia and Amazon.
