In the race for AI supremacy, investors are up in arms, trying to snatch anything that offers the potential to change the industry. With governments seeing its potential as well, it comes as no surprise that investors are flocking to stocks at the mere mention of AI in any of their announcements. Here, however, lies the problem: When everyone wants a piece of the pie, everyone gets a smaller piece.
Like in the dot-com bubble, AI stocks are getting expensive. That, and their financials are nowhere near enough to justify their inflated values. That’s why I like to forgo the noise and focus on stocks that deserve their top spots through robust financials, proven excellence or outstanding prospects. Here are three AI stocks to own at the forefront of the industry.
Nvidia (NVDA)
There’s no doubt that Nvidia (NASDAQ:NVDA) is one of the biggest winners of the AI revolution. Before that, the company was well-known for its GPUs, primarily aimed at gaming and workstation computers. Then came the cryptocurrency boom in 2020, and miners quickly emptied Nvidia GPU shelves worldwide.
When the AI boom came, the company successfully leveraged its leading position in the GPU space to develop faster, more energy-efficient GPUs and processors that matched the massive demands of generative AI systems. Thanks to the explosion in generative AI apps, its data center business has become its biggest revenue stream. Estimates of NVDA’s market share for AI data center chips range from 70% to 90%, making it the undisputed leader in the space and the primary driver for its current trillion-dollar market cap.
On February 21, NVDA released its 4th quarter earnings and showed precisely how hard it is to stop a snowball once it starts rolling. Revenue got a massive 265% bump year-over-year (YoY), ending at $22.1 billion. Net income reached $12.28 billion, up nearly 33% from Q3. The company’s data center segment continues to be its primary growth driver. This quarter, it came in at $18.40 billion, representing a 409% growth rate YoY. Gaming also saw a 56% increase YoY, primarily driven by its RTX line. NVDA continues to impress with its growing results, further cementing its place as a market leader and one of the best AI stocks to own.
Microsoft (MSFT)
The maker of the Windows operating system, Microsoft (NASDAQ:MSFT), has come a long way from being a software developer. It has grown from a software provider to a technology giant that caters to consumers, businesses and enterprises with its wide suite of productivity, personal computing and intelligent cloud services.
While its position in tech is undeniable, MSFT’s biggest and most recent success story is betting on OpenAI in 2019. By investing $1 billion, MSFT secured an exclusive partnership with the ChatGPT creator. Microsoft is now entitled to a share of OpenAI’s profits and rights to integrate the AI system into its products, among other perks, but without direct operational control.
Its latest financials showcased a strong reception for its services that support the growing AI trend. Microsoft Cloud’s revenue hit $33.7 billion, up 24% YoY. Its dynamics products and cloud services revenue also rose by 21%, and its Intelligent Cloud segment, server products and cloud services revenues increased by 22%, driven by Azure and other cloud services. In addition, total revenue reached $62.0 billion, an 18% YoY growth.
These outstanding numbers show that MSFT is on the right track. Its CEO, Satya Nadella, highlighted that the company’s transition from discussing AI to implementing AI at scale has attracted new customers and improved productivity across various sectors. So, if you’re ready to jump onto the AI train, MSFT has one more seat just for you.
Alphabet (GOOG, GOOGL)
A company that came from humble beginnings, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), more popularly known as Google, has grown from one of the most used search engines into a diversified industry giant. It offers various products and services like Android Ads, Google Maps and YouTube.
Google’s entry into the generative AI space, Gemini (previously known as Bard), is seen as one of the closest rivals to ChatGPT. GOOGL is at the forefront of the technical revolution and is making waves with AI integration in its products and other services like Google Cloud, which offers analytics and AI infrastructure.
The company’s consolidated revenue is up 13% YoY, reaching $86.31 billion in Q4. Meanwhile, full-year revenue reached $307.4 billion for 2023. Google Cloud paid off for the company, as it showed promising expansion by reaching $9.19 billion in quarterly revenue compared to its previous year’s $7.31 billion. Capping off this great quarter was a 51.84% jump in net income from $13.62 billion to $20.69 billion.
CEO Sundar Pichai highlighted the company’s promising growth and investments into AI and innovation, touting that the company is starting the “Gemini era.” The promise of brighter horizons for Google makes for a compelling reason to consider it one of the top AI stocks to own.
On the date of publication, Rick Orford held long positions in MSFT and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
