Many corporations are pouring their cash into artificial intelligence (AI). This technology allows companies to scale their services and offer more resources for their customers. Artificial intelligence can also help people save time with mundane tasks.
The industry still has great potential, but investors have already been realizing AI’s tailwinds. Artificial intelligence has been the stock market’s buzzword since 2023 as companies talk about their new initiatives. Many AI stocks reached all-time highs in 2024 and look like they can extend their gains. However, some AI stocks are better than others.
Investors should look for companies that have rising revenue and profit margins. These metrics indicate that a company is gaining market share and has the ability to raise prices for its offers. Some AI stocks produce the vital chips that power AI applications, while others have used artificial intelligence to strengthen their underlying businesses. Investing in these three AI stocks with a lengthy timeline can be rewarding for patient investors.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) is the leading AI chipmaker and has rapidly gained market share over the past few years. The company’s wins as a business have translated into impressive gains for investors. Shares are up by 154% YTD and have soared by roughly 2,700% over the past five years. A recent 10-for-1 stock split brought more attention to the company, but financials have also been a highlight.
The AI chipmaker reported 262% YOY revenue growth in the first quarter of fiscal 2025. Net income soared by 628% YOY in the quarter, resulting in a 57.1% net profit margin. These impressive growth rates will not last forever, but they have extended past a year. Both of those growth rates have exceeded Nvidia’s one-year returns which is a good sign for long-term investors.
The stock has generated plenty of buzz among Wall Street analysts. It’s currently rated as a “strong buy” with a projected 19% upside from current levels. The highest price target of $200 per share indicates that Nvidia can gain an additional 70%.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) endured some early headaches with Gemini’s AI model. However, those concerns are in the rearview mirror after the tech giant delivered solid financial results in the first quarter. Revenue increased by 15% YOY while net income was up by 57% YOY.
The tech conglomerate uses artificial intelligence for multiple business segments. AI helps Alphabet display relevant search results to Google and YouTube users. Alphabet also hosts several AI applications on Google Cloud.
While advertising is the main piece of Alphabet’s business, Google Cloud makes up more than 10% of the company’s total revenue. Furthermore, Google Cloud delivered 28.4% YOY revenue growth in the first quarter which outpaced the advertising business. AI tailwinds should lead to Google Cloud revenue staying elevated for a prolonged period of time. The company’s commitment to cut costs and deliver quarterly dividends to its investors also makes the stock more attractive.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is another AI chipmaking giant that has received more attention due to its 10-for-1 stock split. Although the gains aren’t as impressive as Nvidia, Broadcom has still outperformed the stock market for several years. Shares are up by 45% YTD and have gained 443% over the past five years. Even with those gains, Broadcom still offers a respectable 1.33% yield for its investors.
Q2 2024 results indicate that Broadcom’s AI business is growing. Overall revenue jumped by 43% YOY while sales from AI products reached a record $3.1 billion during the quarter. Broadcom can gain even more market share in the AI industry due to its discussions with OpenAI. This partnership can help Broadcom gain more market share and move it closer to Nvidia’s status.
Broadcom has a market cap above $700 billion, and it wouldn’t be shocking to see the stock eclipse a $1 trillion valuation within the next 1-2 years. Wall Street analysts are bullish on the stock with an average price target that implies a 25% upside.
On this date of publication, Marc Guberti held long positions in NVDA, GOOG and AVGO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held LONG positions in NVDA and GOOG.
