Investors rushed to get in on technology stocks over the past three years, particularly those involved in the high-potential area of artificial intelligence (AI) -- and this powered the S&P 500 bull market. The next new thing in tech, from the internet to smartphones, has always led to enormous revenue growth for the leaders in those arenas, and investors have benefited. And today, this next new thing may be AI.
But many concerns have been popping up over the past few months, and that's weighed on these generally hot stocks. Late last year, investors worried about the high valuations of some and the possibility of an AI bubble taking shape. In more recent weeks, investors have questioned the pace of AI spending -- and whether the revenue opportunity will fall short of expectations. And as AI has proven its strengths, another worry has popped up: Could AI replace certain tools of today, such as software?
However, tech prospects continue to look bright, and evidence doesn't support the concerns that have circulated. For example, AI demand remains strong, and experts have suggested that AI will be complementary to other technologies. Meanwhile, recent declines have lowered valuations of many top players, offering us buying opportunities. Here are my top three mega-cap AI stocks to buy after February's tech pullback.
Image source: Getty Images.
1. Nvidia
Nvidia (NVDA 1.36%) has been almost a surefire route to gains in recent years. Shares of the AI chip leader have soared more than 600% over the past three. And this isn't surprising, considering the company's earnings growth. Profit and revenue have climbed in the double or triple digits as the AI boom accelerated, and the momentum continues.
NASDAQ: NVDA
Key Data Points
In Nvidia's latest report, the company spoke of ongoing high demand and its optimism about the next stages of AI growth, from the use of AI through AI agents to the development of physical AI, such as robotics. Nvidia's AI chips and related products are well-positioned to play a key role as this story continues.
Meanwhile, Nvidia stock is offering us a rare opportunity: It's trading at its lowest in relation to earnings in nearly a year, making right now an ideal time to invest.
NVDA PE Ratio (Forward) data by YCharts
2. Amazon
Amazon (AMZN 1.43%) is a key player in the AI story as it's the world's No. 1 cloud service provider, through Amazon Web Services (AWS). Customers turn to AWS for a variety of services that may or may not be related to AI, but in recent times, AI-related business has been a huge growth driver. In fact, it's helped AWS reach a $142 billion annual revenue run rate.
AWS offers customers everything from the basics, such as AI chips, to a fully managed system called Amazon Bedrock that helps them advance their AI projects. The cloud provider also offers solutions for every budget, from its own in-house-designed chips for the budget-conscious customer to top-of-the-line Nvidia chips.
NASDAQ: AMZN
Key Data Points
Amazon also offers investors the safety of a long-established e-commerce business, which has helped drive growth over time. And a revamp the company did a few years ago to favor higher profitability should help it maximize its earnings potential over time.
That's why, after the 12% decline in February, this top tech stock is a great buy today.
3. Alphabet
Alphabet (GOOG 1.34%) (GOOGL 1.43%) is a lot like Amazon as it, too, has developed a successful, highly profitable business over time, and today its cloud unit is involved in AI. You may not realize it, but you're probably in contact with Alphabet on a daily basis -- that's because it's the owner of Google Search, the world's most popular search engine.
Advertisers flock to this platform to advertise, and that's resulted in billions of dollars in earnings for the company year after year. So you can count on Alphabet delivering growth.
NASDAQ: GOOGL
Key Data Points
Meanwhile, like Amazon, Alphabet's cloud business, Google Cloud, has seen revenue explode higher as customers rush to get in on its AI products and services. In the recent quarter, Google Cloud revenue rose 48% to more than $17 billion.
Alphabet stock slipped 8% in February, and the stock trades for a bargain 26x forward revenue estimates. This complete package makes it a top mega-cap to buy after the recent pullback.
