AI Giants Face Market Turbulence Amid Technological Advancements and Global Economic Shifts

3 Top Artificial Intelligence Stocks to Buy Right Now | The Motley Fool

Although DeepSeek gave investors a scare when its R1 model impressed everyone with its performance at its price point, it's becoming clearer that this breakthrough wasn't a death blow to the domestic artificial intelligence (AI) industry. Instead, it challenged the notion that the U.S. is the only place where AI innovation is happening and could be an even bigger catalyst for AI over the long term. Still, some stocks remain on sale after the AI sell-off, and I think a few are fantastic buys right now. Here's a look at three of them DeepSeek's training was done on H800 Nvidia GPUs, which are downgraded versions from the more popular H100 GPUs in order to meet export restrictions placed on China. Inside these GPUs are chips from Taiwan, specifically Taiwan Semiconductor Manufacturing (TSM 0.56%). TSMC is the world's top contract chip manufacturer, making chips for giants like Apple, Nvidia, and AMD. Its chips go into products all across the world, making it a benefactor of the AI movement regardless of which country is leading the race. Additionally, its chips go into other products like smartphones and cars, making it one of the most vital companies for global commerce. All of this adds to management's bold projections that revenue will grow at a nearly 20% compound annual growth rate over the next five years. That's a strong projection, and if TSMC delivers on that projection, the stock would easily outperform the market over that time frame, as long as the stock is priced right. Following the tech sell-off, TSMC's stock trades for about 22.5 times forward earnings, which is a great price to pay for one of the world's most important businesses. Despite fears of AI investing decreasing, TSMC is likely to continue growing over the next decade, and any marketwide sell-off is a great opportunity to scoop up more shares. Meta Platforms (META 0.32%) may seem like an odd pick here. DeepSeek's R1 training efficiencies directly challenged Meta's Llama generative AI model, causing some investors to believe Meta may fail in the AI arms race. While DeepSeek may be more efficient, Llama is becoming more powerful. In 2025, Meta CEO Mark Zuckerberg thinks it will be possible to build an AI engineering agent with the same prowess as a good mid-level software engineer. That's an incredible projection and shows that Meta is still at the forefront of AI innovation, even if it's spending a lot of money to achieve its goal. Meta isn't going for the most efficient training method right now (unlike DeepSeek). Instead, it's focusing on how powerful it can make its AI, which is the better long-term strategy. Still, AI is only a cost center for Meta; it isn't making it any money. The base business still derives practically all of its revenue from advertising on its family of apps (Facebook, Instagram, Threads, Messenger, and WhatsApp), and companywide revenue rose 21% year over year in Q4. So, even if Meta loses the AI arms race, it still has a tremendous base business that is valuable in its own right, making Meta a great stock to buy now. Alphabet (GOOG 1.47%) (GOOGL 1.57%) is in the same boat as Meta. While AI is still a huge investment area, it's just a side business of Alphabet's main advertising business. The company has integrated AI tools into its various Google ad tools, which helps users create ads at record speed that can be tailored to the audience viewing them. All of this supports Alphabet's advertising business, which makes up three-fourths of its total revenue. Another area where Alphabet can still benefit, regardless of whether it wins developers over, is Google Cloud. Cloud computing gives its users access to computing power, which is incredibly expensive for most companies. However, renting it from a cloud computing provider brings the cost of entry down, allowing many smaller companies to run workloads on their servers that would be out of reach if they had to buy the computing power on their own. Whether a user is building on a free-to-use model like DeepSeek's R1 or Meta's Llama or using Google Gemini (Google Cloud's native AI model), cloud computing providers are still set to grow strongly as the need to run AI models increases. Alphabet didn't experience a massive sell-off after DeepSeek's innovation was announced, but Alphabet's shares still trade for an attractive 22 times forward earnings. As a result, I think Alphabet is a strong stock to buy now, because it still has plenty of upside.

1 No-Brainer Artificial Intelligence (AI) Stock That Will Crush the Market in 2025

Artificial intelligence (AI) investing experienced a shakeup when DeepSeek announced that its R1 model was trained for just $5.6 million. However, that doesn't include hardware costs or any pre-training that was done. Still, it left some investors wondering why U.S. competitors are spending billions of dollars on their AI models. While DeepSeek has made a few impressive breakthroughs in terms of efficiencies, some of the capabilities of AI models developed by companies like Meta Platforms (META 1.20%) are jaw-dropping. Despite a scare from DeepSeek, I think Meta will be OK for 2025, and it's still primed to crush the market. Meta is still heavily investing in AI despite DeepSeek's breakthrough Meta Platforms may be more recognizable by its former name, Facebook. As with Facebook, it's the parent company of social media apps like Instagram, Threads, Messenger, and WhatsApp. This is still where Meta generates nearly all of its revenue, as $46.8 billion of its $48.4 billion in fourth-quarter revenue came from advertising on its Family of Apps. The profits from this incredible segment are what Meta uses to invest in its various AI technologies, so it's playing with the house's money in the AI field. This is a key investment point for Meta: It doesn't need to win the AI arms race to continue being a successful investment. In fact, if Meta pulled out of the AI arms race (instead of spending $60 billion to $65 billion on capital expenditures in 2025 to help build out its AI computing power), it would generate an unbelievable amount of earnings. Still, I think Meta should continue investing in the AI realm, as the breakthroughs it is seeing are incredible. In 2025, CEO Mark Zuckerberg predicts that it will be possible to build an engineering AI agent that can code and problem-solve like a "good mid-level engineer." That's a huge breakthrough that could unlock serious cost savings for nearly any business that develops software. Zuckerberg also stated that it's too early to assess if DeepSeek's breakthrough will affect how much money it spends on its AI servers. He pointed out that Meta is serving an AI audience of billions of people, whereas DeepSeek isn't. Still, it will look to implement some of the efficiency breakthroughs that DeepSeek discovered. Meta's investing thesis is still intact despite a DeepSeek scare, but is the stock still priced right? Meta's stock is attractively priced Although Meta's stock fell initially following the DeepSeek announcement, it has already notched a new all-time high thanks to the strength of its fourth-quarter earnings. With revenue rising 21% year over year and earnings per share (EPS) increasing 50%, Meta has one of the strongest big tech businesses in terms of performance. Still, the stock isn't all that expensive, trading for 32 times trailing earnings and 27 times forward earnings. META PE Ratio (Forward) data by YCharts Compared to other big tech companies (like Apple and Microsoft, which each trade at 32 times forward earnings), that's a reasonable price to pay, and it shows that Meta represents a great combination of growth at a reasonable price. While Meta didn't provide full-year 2025 guidance, an average estimate of 37 Wall Street analysts projects it will grow its revenue by 14% this year. That's incredible growth considering its size, and almost none of that revenue comes from AI. Should Meta have a groundbreaking AI product that consumers pay for, it will open up a new revenue stream for the company. This combination of a solid base business with a potential wild card for massive growth makes Meta a fantastic pick in the AI space. While the AI arms race is heating up, Meta is still delivering innovative breakthroughs, making the stock a top pick in the AI space.

When You Look Back on This Moment, You'll Wish You'd Bought This Trillion-Dollar Artificial Intelligence (AI) Stock | The Motley Fool

A new quarterly earnings season is underway in corporate America. Hundreds of companies will report their latest financial results over the next few weeks, but investors are particularly focused on the trillion-dollar tech giants leading the artificial intelligence (AI) revolution. Meta Platforms (META 1.20%) is the parent company of social networks like Facebook, Instagram, and WhatsApp, which serve over 3.3 billion people every day. But it's also becoming a leader in the AI race after developing the most popular open-source large language models (LLMs) in the world. Meta reported its results for the fourth quarter (ended Dec. 31) last week. It delivered record revenue and earnings, in addition to significant progress across its AI projects. Meta stock is up 47% over the past year, but it still looks cheap, so here's why investors might wish they'd bought it today when they look back on this moment in the future. The way people use social media is changing. Platforms like Facebook used to be a place where you viewed posts from your friends and family, but now, your feed is mostly filled with entertaining content from creators you don't follow at all. AI algorithms shape that experience by learning what posts or videos you enjoy viewing, in order to show you more of them. To capture an even greater share of your time each day, Meta launched an AI assistant called Meta AI. It can be accessed through all of the company's flagship social media apps, and it's capable of answering complex questions, generating images, and even suggesting fun activities in your group chats. In many cases, it can be used as a substitute for traditional search engines like Alphabet's Google, allowing Meta to capture a significant amount of new traffic. Meta AI had 700 million monthly active users at the end of 2024, which was a 50% increase from the third quarter. It's now one of the most frequently used chatbots in the world. Meta AI was built on the company's Llama family of LLMs, similar to the way OpenAI's GPT-4o LLMs power its ChatGPT chatbot. But the Llama models are open source, so Meta can basically crowdsource the troubleshooting process to fix bugs and technical issues faster. The models have been downloaded more than 600 million times, which is a lot of developer expertise to lean on. That's one of the reasons Meta caught up to industry leaders like OpenAI so quickly. The company only started working on AI models in 2022, whereas OpenAI's development dates back to 2015. Meta CEO Mark Zuckerberg thinks Llama 4 could be the most advanced model in the industry when it launches this year. Most of Meta's revenue comes from the advertising slots it sells to businesses on Facebook and Instagram. That's why it's so important to keep users engaged -- if they spend more time online, they will see more ads, and funnel more revenue into the company's pockets. The company's AI-powered content algorithms drove an uptick in usage last year, and they are likely to become even better at doing so. Meta generated a record $48.3 billion in total revenue during the fourth quarter, which was a 20.6% increase from the year-ago period. The company's annual revenue for 2024 also came in at a record high of $164.5 billion, representing 22% growth compared to 2023. Besides driving engagement, AI features like Meta AI will open up new revenue streams in the future. Meta could sell a more advanced version of the chatbot on a subscription basis (like OpenAI does with ChatGPT), and it will also attract advertising dollars. For example, a business might pay to insert a product link within Meta AI's responses to a specific prompt or query, which would be a highly targeted form of advertising. Alphabet has found success with this strategy for its AI Overviews feature in Google Search. Zuckerberg has also talked about introducing AI agents for businesses, which are highly customizable assistants capable of handling incoming queries from customers through WhatsApp and Messenger. It would be equivalent to having a highly proficient customer service representative available 24 hours per day, which is something many businesses might be happy to pay for. Meta says monetization won't be a priority for its AI initiatives in 2025. It wants to scale features like Meta AI to billions of users before trying to make money. The company has an incredible track record with that strategy, based on the success of video features like Stories and Reels. Meta generated a record $23.86 in earnings per share (EPS) during 2024, placing its stock at a price-to-earnings (P/E) ratio of 28.8. That's an attractive discount to the Nasdaq-100 index, which trades at a P/E ratio of 33.4. Plus, it makes Meta the second-cheapest out of the eight American technology stocks in the $1 trillion club: Meta's EPS result is especially impressive when you consider the company allocated a whopping $39.2 billion to capital expenditures during 2024, most of which went toward building data center infrastructure and chips to fuel its AI ambitions. Meta plans to spend another $65 billion in 2025, yet Wall Street thinks the company can still deliver modest EPS growth for the year, which makes its stock appear even cheaper on a forward basis. Cathie Wood, who founded Ark Investment Management, believes AI software companies could eventually generate $8 in revenue for every $1 they invest in chips and hardware. If she's right, Meta could yield an astronomical payoff for the money it's currently spending. Meta's business is firing on all cylinders and the future monetization of AI features like Meta AI could unlock a new phase of growth for the company. That's why when investors look back on this moment in a few years from now, they might wish they had bought the stock at its current price.

Got 10 Years and $1000? These 3 Artificial Intelligence (AI) Stocks Are Set to Soar. | The Motley Fool

Investing with a longer time horizon empowers investors to zoom out and focus on the big picture. These companies are poised to thrive over the next decade. The recent controversy around DeepSeek, a Chinese artificial intelligence company, has prompted investors to reconsider the AI landscape. It's a reminder that as dynamic and rapidly growing as the AI opportunity is, it will throw investors several curve balls over the coming years. Investors who want to buy and hold AI stocks long-term must zoom out and consider where AI is today and where it might go. Here are three AI stocks with promising long-term potential. They have an inside track to AI leadership today as technology blossoms and finds its way into our daily lives. You can buy a share of each company for a total of just $1,000. Consider buying and holding them for the next decade. DeepSeek's apparent ability to launch a lower-cost AI model raises valid questions about whether large language models ultimately become a commodity. In other words, the actual value lies in the ability to build specialized applications on top of generic AI models. In such a case, Palantir Technologies (PLTR -2.38%) is potentially an enormous long-term winner. The company builds and deploys custom AI software for government and enterprise clients. Its history dates back more than a decade, but the business has leaped forward since launching its AIP platform for enterprise clients in mid-2023. Palantir helps companies deploy AI applications for various use cases. The software's flexibility is key because it makes almost any large enterprise a potential customer. Last year, Palantir generated $2.87 billion in (highly profitable) revenue despite only having 711 customers. There are a whopping 20,000 large corporations in the U.S. alone, and as AI matures and becomes increasingly cost-effective, Palantir could potentially move downstream, selling to medium and small businesses. The company's success since 2023 has pushed the stock to an aggressive valuation, so investors shouldn't rush to take a position. Consider buying a share to get started and adding to it on declines. Palantir may take some time to grow into its current price, but it should still be a winner over the next decade. No company is better positioned than Apple (AAPL -0.14%) to deliver AI technology at the consumer level. Its devices are already like personal computers in the palm of your hand, the perfect delivery mechanism for consumer AI. The smartphone giant has more than 2.35 billion active iOS devices worldwide, an enormous ecosystem with which it can quickly scale AI products and services. However, it's essential to consider just how young AI technology is. A few months back, Apple launched Apple Intelligence, a package of iOS AI features and tools for device users, and the early reception has been somewhat standoffish. However, this doesn't mean user interest will not increase as AI becomes more commonplace (and features improve) over time. Ultimately, if AI is to realize its potential, it will likely need widespread adoption among everyday people. Otherwise, it will be much more challenging to justify the investments in building and developing it. The company's growth has stalled in recent years, raising questions about Apple's valuation. That has intensified with Warren Buffett trimming Berkshire's position in the company. Again, a dollar-cost average strategy combined with a multiyear time horizon will help investors navigate the short-term uncertainty. Investors shouldn't dismiss Apple's iOS ecosystem's upside in delivering AI to individuals -- even if it takes time. Social media behemoth Meta Platforms (META 0.10%) is leaning into AI as an opportunity to build businesses outside of the closed ecosystems Apple and Alphabet (Google) enjoy via their app stores and mobile phone dominance. For instance, Meta has developed and launched an open-source AI model (Llama) to build a large developer base. As of Q4, Meta's AI has more than 700 million monthly active users. Additionally, Meta is working to establish itself with new types of personal devices, such as smart glasses and headsets. The key here is that Meta potentially has AI growth potential both in consumer-facing AI opportunities and on the enterprise side. That includes AI improving its core digital advertising business and new products and services, like AI agents that could replace human workers in call centers. Meta has enjoyed a slingshot trajectory. The stock sank to less than $100 in 2022 when Apple enabled users to block apps from tracking its users. It has since soared to surpass $700 for the first time, with Meta delivering continued social media user growth and strong ad performance. Meta's worth buying for its existing fundamentals, but its AI plans could yield years of outsized returns.

3 Best AI Stocks to Buy in February | The Motley Fool

The artificial intelligence (AI) revolution continues to reshape entire industries at a blistering pace. Market leaders are leveraging AI technology to solve complex problems, automate processes, and create entirely new business models that were impossible just a few years ago. The recent emergence of sophisticated AI models from tech leaders like OpenAI, Alphabet, and Anthropic has catapulted AI into everyday use. These advancements are driving unprecedented demand for AI-related products and services across the technology sector. Let's dive into three compelling AI stocks that stand out as particularly attractive investments in February. Palo Alto Networks (PANW -1.60%) powers enterprise cybersecurity by embedding AI across its entire security platform. The company protects critical infrastructure for over 80,000 enterprise customers worldwide, using AI to anticipate and block cyber threats, aiming for real-time prevention. Palo Alto Networks stock commands a breathtaking forward price-to-earnings (P/E) ratio of 58.8, more than double the S&P 500 multiple of 24. While this premium valuation reflects high growth expectations, the company has backed it up by delivering shareholders a stellar 371.3% return over the past five years. Palo Alto Networks leverages AI to analyze an immense volume of security events daily -- a scale far exceeding the capabilities of human analysts. This fact highlights the essential role of AI in modern cybersecurity. Toward the end of February, Palo Alto Networks will release its fiscal Q2 2025 earnings covering the period through Jan. 31. Wall Street expects strong enterprise spending on AI security tools to drive results. With cybersecurity spending showing no signs of slowing, this upcoming earnings announcement could provide a powerful catalyst for the stock. Upstart (UPST -3.82%) transforms traditional lending by deploying AI across the loan approval process. The company's platform evaluates over 1,600 unique data points to assess borrower creditworthiness, aiming to provide lenders with deeper insights than conventional FICO scores alone. Upstart stock commands an eye-popping forward P/E ratio of 69.9, nearly triple the market average. Despite this premium valuation, the company has rewarded early believers with a robust 119% return over the past five years, validating its disruptive approach to credit assessment. The lending platform's AI models analyze millions of repayment events daily, continuously refining their predictive accuracy. Each new loan approval strengthens the algorithm's understanding of credit risk factors traditional models might miss, creating substantial technological barriers to entry. On Feb. 11, Upstart will release its Q4 2024 earnings results amid heightened interest in AI-powered fintech solutions. With lending markets stabilizing and interest rates potentially moderating over the next 24 months, this earnings announcement could spotlight Upstart's expanding market opportunity. Nvidia (NVDA -3.67%) dominates the AI chip market through its graphics processing units and specialized accelerators. The company's semiconductors power AI workloads across every major cloud provider, from training large language models to enabling real-time inference at scale. Nvidia stock carries a surprisingly modest forward P/E ratio of 29. This reasonable valuation looks even more compelling given the company's staggering 1,930% return to shareholders over the past five years. The semiconductor giant's latest AI chips process complex neural networks at unprecedented speeds, enabling breakthroughs like the DeepSeek language model. Each new AI advancement drives demand for more powerful processors, strengthening Nvidia's position as the backbone of AI infrastructure. On Feb. 26, Nvidia will announce its Q4 fiscal 2025 earnings results amid surging AI adoption. With data centers racing to expand AI computing capacity, this earnings report could reveal fresh evidence of Nvidia's accelerating growth trajectory.

DeepSeek Just Changed Generative Artificial Intelligence (AI) Forever. 2 Surprising Winners From Its Innovation. | The Motley Fool

Faster and more efficient generative AI opens the door for a lot more use cases. On Jan. 20, Chinese artificial intelligence start-up DeepSeek released its first-generation reasoning models. In the release, the company made some astonishing claims. First, DeepSeek said its DeepSeek-R1 model achieves performance comparable with OpenAI-o1, widely considered the best-performing model available across most domains. Considering the Chinese company is working with significantly worse hardware than OpenAI and other American companies, that's certainly remarkable. Even more impressive is that the company claims to have achieved these results at an incredibly low cost. R1 was built on DeepSeek's V3 large language model, released in December. The company estimates the compute cost for training V3 came to just $5.6 million. To put that in perspective, OpenAI's GPT-4 cost $100 million to train. DeepSeek achieved similar performance at a fraction of the cost. And since it's completely open source, allowing anyone to copy its techniques, it will have lasting implications on the entire industry. Two companies, in particular, are in a great position to benefit from DeepSeek's innovations. DeepSeek focused on maximizing the efficiency of its limited hardware capabilities. Because of AI chip export restrictions, Nvidia isn't able to sell its most powerful H100 GPUs in China. Instead, it sells H800 GPUs, which are specifically designed to comply with U.S. regulations. The H800 reduces the chip-to-chip transfer rate, reducing the speed at which it's possible to train large AI models. Due to such limitations, DeepSeek developed processes that enable it to reduce the amount of data it needs to transfer throughout the system at any given time. For example, its "mixture of experts," or DeepSeekMoE, introduced last year, made it so it only had to activate part of the model to respond to queries. DeepSeek isn't the only company using this method, but its novel approach also made its training more efficient. Most methods involve more training overhead in order to reduce the cost of inference later on. The start-up also developed methods to reduce the amount of memory required for AI inference by compressing important data before storing and transmitting it. It brought new approaches to load balancing, which is how processes are distributed across its network of GPUs. The result of these and other breakthroughs isn't just an AI model that's faster to train and costs less. The longer-term impact of DeepSeek's innovations are that it's cheaper to run, and it can run on less-capable hardware. In other words, AI inference just got a lot more accessible. In a world with the potential to run AI systems on hardware that fits in your pocket and for a tiny fraction of a penny, there are two very big winners: Apple (AAPL -0.67%) and Meta Platforms (META 0.32%). Here's why. When Apple started developing its artificial intelligence features for the iPhone and other devices, it put data privacy at the forefront of its efforts. Apple Intelligence is designed to run as much as possible on the iPhone. When it has to make a call to the cloud, it takes every step it can to encrypt user data in the process. There's a reason the new AI features Apple introduced last year are only available on iPhones released in the last 15 months. Since Apple is trying to keep everything on the device, it needs enough processing power and memory to run its AI. The newest iPhone chip, the A18 Pro, boosted the memory bandwidth to support faster AI processing. Apple could adopt many of DeepSeek's methods to make the iPhone more capable of handling AI inference. That opens the door for features like a more conversational and context-aware Siri, faster translation with no internet connection needed, smart camera features, and better productivity tools. More advanced AI features could boost Apple's iPhone sales and services revenue. Apple stock currently trades for a relatively high multiple of 32.5 times forward earnings. But with its massive cash flow, which it uses to buy back shares, and improving profitability from services revenue, it can justify that high multiple, especially considering the consistency Apple has exhibited in recent years. The potential boost from major improvements to on-device AI could be a catalyst for growth over the next few years. Meta's AI spending is growing fast as it works to scale its capabilities and expand AI features to more parts of its business. Capital expenditures grew about 40% in 2024, and management said it expects a 60% increase in 2025. Those AI investments have paid off well for Meta, resulting in stronger engagement, better advertising tools, and new features like Meta AI, which have the potential to become meaningful sources of revenue down the road. One important decision Meta made when it came to AI was to open-source its AI model Llama. One of the impetuses behind that decision was to help make the model more efficient. In fact, DeepSeek used Llama as the foundation for developing R1, so this is exactly what Meta hoped for. Reducing the cost of AI inference could unlock huge profits for Meta. It's a problem Meta's been working on for a long time. "A lot of the stuff is expensive, right, to kind of generate an image or a video or a chat interaction," Zuckerberg said during an earnings call in Feb. 2023. "So one of the big interesting challenges here also is going to be how do we scale this and make this work more efficient so that way, we can bring it to a much larger user base." DeepSeek's answering that challenge and giving Meta the tools it needs to scale AI to its 3 billion users. While Meta might not slow down its spending on AI anytime soon, it's now capable of making a lot more money off the spending it's committed to. Meta stock has zoomed higher on the DeepSeek news, reaching a new all-time high. Still, shares trade for 26.8 times forward earnings estimates as of this writing. Meta's also a cash cow, using excess free cash flow to buy back shares and support strong earnings-per-share growth. If it can make AI more profitable, it stands to see earnings climb substantially over the next few years, making it well worth the price.

Buying This Top Artificial Intelligence (AI) Stock Looks Like a No-Brainer Right Now

The artificial intelligence (AI) ecosystem was rocked recently by news that Chinese start-up DeepSeek had developed a cost-effective and competent large language model on the cheap. That revelation called into question the tens of billions of dollars that are being poured into the buildout of AI infrastructure, but it looks like the robust spending environment in the tech sector is here to stay. Even after the DeepSeek news, the CEOs of both Meta Platforms and Microsoft asserted that heavy capital expenses would still be necessary to meet the computing power requirements for the forecast increase in demand for AI applications. Moreover, DeepSeek's ability to build an AI model with a significantly lower investment is expected to spur the demand for AI, based on an economic concept called Jevons Paradox. The management team at ASML Holding (ASML 1.53%) holds a similar view. In an interview with CNBC discussing the Dutch company's fourth-quarter results (which it released on Jan. 29), CEO Christophe Fouquet remarked that a low-cost AI model could drive demand for AI applications, which in turn would increase the need for processing power to support them. Fouquet added that he doesn't see a slowdown in chip demand following DeepSeek's breakthrough, and demand for its chipmaking equipment was solid in Q4. All this was enough to send shares of ASML up by more than 3% following its earnings report. Here's why this semiconductor sector bellwether seems worth buying right now. ASML's bookings shattered Wall Street's expectations ASML sells lithography equipment that's used by chipmakers in their foundries. So, the health of the semiconductor industry and the state of chip demand tend to dictate ASML's financial performance. However, the stock has been underperforming over the past couple of years. ASML is up by just 9% in the last two years as compared to the 63% gains registered by the PHLX Semiconductor Sector index over the same period. That below-par performance can be attributed to weaknesses in certain pockets of the semiconductor market, which counterbalanced the sharp growth in demand for high-end AI chips. However, ASML's latest results suggest that a better year is in the cards in 2025. The company recorded new bookings worth 7.1 billion euros in Q4, an increase of almost 170% from the third quarter. Analysts were expecting just 3.5 billion euros worth of new bookings in Q4. ASML smashed that target thanks to the robust demand for its extreme ultraviolet lithography (EUV) machines. EUV machines are used to print the most advanced chips, such as the ones that are best suited to handle AI workloads. ASML received 3 billion euros worth of orders for these machines during the quarter, suggesting that demand for AI chips will remain healthy. As a result, ASML entered 2025 with a solid order backlog of 36 billion euros. Management is confident that it will be able to hit the higher end of its 2025 revenue forecast range of 30 billion euros to 35 billion euros if "AI demand continues to be strong and customers are successful in bringing on additional capacity online to support that demand." The higher end of the guidance range would equate to a jump of 24% in revenue. Additionally, the company expects its gross margin to land between 51% and 53% this year, which at the midpoint would be a slight improvement over its 2024 gross margin. This could set ASML up for better bottom-line performance in 2025 following a slight dip in its earnings per share last year. An improved bottom line could lead to a nice jump in the stock price Analysts' consensus estimate is for a 24% increase in ASML's earnings in 2025 to 23.92 euros per share. That would translate into $24.50 at the current exchange rate. Assuming ASML indeed hits that mark and trades at 33.4 times earnings at that time (in line with the tech-laden Nasdaq-100 index's earnings multiple), its stock price would rise by 11% to $819 in the next 12 months. However, stronger gains cannot be ruled out if the company clocks stronger earnings growth and the market decides to reward the stock with an even higher multiple. Given that ASML is trading at 29 times forward earnings right now, investors can get a good deal on a semiconductor stock with the potential to deliver healthy gains.

Prediction: This Artificial Intelligence (AI) Chip Stock Will Win Big From DeepSeek's Feat | The Motley Fool

Chinese artificial intelligence (AI) start-up DeepSeek sent shockwaves through the U.S. tech sector after its cost-effective, open-source, large language model (LLM) topped the download charts in Apple's App Store in the U.S., overtaking OpenAI's ChatGPT, which has been pouring billions of dollars in its AI infrastructure and burning through cash. The Chinese company claims that it trained its DeepSeek-V3 model, which was launched on Jan. 10, with just $6 million. The company launched a new reasoning model known as DeepSeek-R1 last week, claiming that it can compete with OpenAI's o1 model and is 20 to 50 times cheaper than the latter. The cost-efficiency and quality of DeepSeek's model sent shares of semiconductor companies plunging. Investors were probably wondering if companies and governments spending huge amounts of money on building AI infrastructure would start cutting back following the efficiency demonstrated by DeepSeek, which reportedly built the model despite sanctions and limited resources. Broadcom (AVGO -0.28%) was one of those chip giants whose shares were hammered following DeepSeek's revelation. The stock plunged more than 17% on Jan. 27. However, the breakthrough achieved by DeepSeek could actually be a tailwind for Broadcom. DeepSeek's claim about the costs involved in the training of its models is still being debated. Some reports suggest that the company has access to top-tier chips from Nvidia and it may be underplaying the actual expenditure incurred to train its models. However, there is no doubting the fact that the Chinese start-up has definitely brought into focus the amount of money and computational power required to train and deploy AI models. Technology giants such as Meta Platforms, Amazon, OpenAI, and Alphabet have already been working to lower computing costs by reducing their reliance on Nvidia hardware. Broadcom has been benefiting from this trend as the above-mentioned technology giants have been developing AI-focused application-specific integrated circuits (ASICs), which cost less than graphics processing units (GPUs). These ASICs that Broadcom designs are meant for performing specific tasks, compared to GPUs that can perform a variety of tasks, including AI model training and inferencing. However, the specific nature of ASICs means that they are faster in performing the task they are designed for, and their lower cost explains why many companies have been turning toward Broadcom for making custom AI processors. The company claims that it already has three big hyperscale cloud companies using its custom AI chips, with another two in negotiations with the company. It won't be surprising to see more companies adopting Broadcom's custom AI chip designs in a bid to reduce costs following DeepSeek's popularity. After all, DeepSeek has employed a method of "distilling" LLMs to reduce costs. LLM distillation refers to the method of breaking down an LLM into smaller versions to perform specific tasks. While DeepSeek-V3 has a massive 671 billion parameters, R1 gives customers access to distilled variants that range from 1.5 billion to 70 billion parameters. As the R1 is a reasoning model that's reportedly good for specific applications in the fields of education and research that require logical reasoning and problem-solving skills, there is a good chance that such models could increase the requirement for custom AI processors. Broadcom sees the total addressable market for custom AI processors and networking chips increasing to a range of $60 billion to $90 billion over the next three years. That points toward a massive increase in its potential AI revenue considering that it generated $12.2 billion from sales of AI chips in the most recent fiscal year. Broadcom's latest plunge means investors can now buy the stock at a relatively cheaper valuation. As the chart above indicates, Broadcom is now trading at 35 times forward earnings. That brings the company's multiple close to the tech-heavy Nasdaq-100 index's earnings multiple of 33.5. Buying the stock at this level could turn out to be a smart move as the discussion above suggests that the demand for Broadcom's custom chips is likely to head higher to develop more cost-efficient AI models. So, DeepSeek's breakthrough isn't necessarily a bad thing for Broadcom, and investors would do well to look at the bigger picture before this AI stock starts soaring once again.

3 No-Brainer Artificial Intelligence (AI) Stocks to Buy With $500 Right Now | The Motley Fool

Artificial intelligence pushed many stock prices higher, but these three remain particularly attractive for investors. By far the biggest driving force behind the stock market returns over the last two years has been artificial intelligence (AI). With big tech spending heavily to build out data centers and develop new AI capabilities, the promises of AI are moving closer to a reality. Generative AI could increase worker productivity, reduce operational costs, and open new revenue streams for businesses. But there could be a lot more growth yet to come. The excitement and potential for growth from AI sent many stocks soaring higher. While many companies already have high expectations baked into their stock prices, these three AI stocks offer a chance to buy great companies at a fair price (or better). And it doesn't take much to get started. With just $500, these are some of the most appealing AI stocks you could buy in the market right now. There are two big factors driving demand for Palo Alto Networks' (PANW -1.60%) cybersecurity services. First, as more companies shift their systems from on-premise computers to a hybrid of on-premise and cloud computing, they increase the number of potential vulnerabilities in their system. Second, with many workplaces adopting remote work, at least part time, there are more potential security breaches there as well. A key factor in identifying and stopping cybersecurity threats is a strong artificial intelligence model. Palo Alto uses machine learning to ingest all the relevant data across multiple security tools and make a decision to protect the system without causing undue downtime for its customers. As a leading provider in the space, Palo Alto has a massive advantage over the competition: It has more data. That advantage allows it to create better tools for detecting and mitigating attacks. That, in turn, makes its solutions more attractive to customers, who start using more Palo Alto services, giving it more data to work with, further improving its AI. The virtuous cycle should ensure Palo Alto remains a leader in the space for a long time. Palo Alto is shifting more customers to software solutions, which have a positive impact on its gross margin as it continues to scale the business. Gross margin improved from 72% in fiscal 2023 to 74% last year. Despite the already substantial profitability of Palo Alto's sales, it could continue to expand that margin over the next few years. Palo Alto shares trade for an enterprise value-to-revenue multiple of 13.6 as of this writing. That's a fair price to pay for the company that's growing its top line at a double-digit rate with expanding profitability. At its current stock price, investors could buy a couple shares of this leading cybersecurity AI company with $500. Adobe (ADBE -1.92%) positioned itself as a leader in commercial-safe generative AI for images and video. Its Firefly AI model is trained on its library of stock images and video, separating it from other creative AI tools. Over the last couple years, Adobe has integrated AI-powered features into its creative suite and its document cloud software. Last year, Adobe introduced GenStudio, which combines its creative and marketing software with its generative AI capabilities to help businesses develop new ad campaigns. The platform points to the unique position of Adobe, with its market-leading creative software and access to valuable data. Many see the rise of artificial intelligence as a threat to Adobe because it opens the door for new competitors. New tools like Midjourney or Dall-E could be seen as a threat to Photoshop and other Adobe creative tools. In fact, AI may expand the total market by bringing more amateurs into the creative space where Adobe is still the industry standard. Adobe is leaning into that trend by offering Firefly features in its free Adobe Express package, which successfully expanded the top of its sales funnel. Meanwhile, few professional creatives are going to switch to another product. Designers are expected to be able to work with Adobe's creative software and may be provided files formatted for Adobe products. They need to ensure that their products are received as intended, so Adobe will remain essential software for anyone in the design industry. With the integration of new AI features, Adobe increased the price for most of its subscription software, and its customers were fine paying it. Adobe stock trades for less than 22 times forward earnings as of this writing. With the potential to drive down costs for Firefly while steadily growing its top line, the company should be able to grow earnings at a pace that more than justifies that price. Investors with $500 could buy a full share of Adobe, and still have enough money left over for a month of its Creative Cloud software. Salesforce (CRM -0.54%) offers a growing suite of enterprise software ranging from its flagship customer relationship management software to marketing automation, to data organization and analysis. In 2023, management said 20% of its customers use four or more of its subscription offerings, accounting for 85% of the company's annualized recurring revenue. Management also found success with its land and expand strategy, where it brings in a customer for one service but grows the number of services over time. The longer a company works with Salesforce, the more services they use and the more revenue they bring in. Growing adoption of Salesforce's offerings has another big advantage for the company. It has a ton of data about each of its enterprise customers. CEO Marc Benioff says that gives it a "unfair advantage" in developing its latest product, Agentforce. Agentforce provides the tools companies need to automate decisions and actions using artificial intelligence. Access to unique and relevant data is necessary for a business to trust AI enough for it to independently act on its behalf. Many businesses are willing to try out what Salesforce has been working on. Management said it signed 200 deals in the first week of putting Agentforce into production. There are a lot more deals in the pipeline, too. The adoption of Agentforce could provide a strong source of revenue growth in and of itself, but it could also drive further adoption of other Salesforce products as well. Salesforce stock isn't cheap. It trades for about 31 times analysts estimates for fiscal 2026 (ending next January) earnings. That's a fair price to pay for a business with a strong pipeline showing acceleration in remaining performance obligations. Management's focus on improved profitability should continue to show up in expanding margins, especially as the cost of artificial intelligence comes down. At its current price, investors should consider using some of their $500 to add Salesforce to their portfolio.

Mark Zuckerberg Says This Will Be a Huge AI Breakthrough in 2025 for Meta Platforms | The Motley Fool

Meta Platforms (META 1.20%) is at the forefront of innovation in artificial intelligence (AI). Led by CEO Mark Zuckerberg, it made significant investments in the AI space, and he believes that 2025 could be a year for several massive breakthroughs. However, it's not without competition. Chinese company DeepSeek said that it trained its generative AI platform for just $5.6 million, far less than what Meta spends to train its Llama AI model. This caused some to question why it is spending over $60 billion in infrastructure for 2025. When you see what the company believes is possible with AI, it's clear that this money would be well spent. It could produce several breakthroughs that will make DeepSeek's model look primitive. Meta Platforms may be better known by its former name, Facebook. It's the parent company of other social media sites like Threads, Instagram, WhatsApp, and Messenger, and it derives nearly all of its revenue from advertising dollars produced on those platforms. These cash cows allow management to invest heavily in AI without fear of going bankrupt, which is one of the reasons it isn't focused on producing an AI model as efficient as DeepSeek's. That's not to say that Meta isn't going to integrate some of DeepSeek's improvements into its model, as Zuckerberg has indicated that it will. But the company isn't as concerned with efficiency right now. Instead, it's working on making its AI model as powerful as possible. In 2025, Zuckerberg is very excited about one innovation that could have major effects across the industry: I also expect that 2025 will be the year when it becomes possible to build an AI engineering agent that has coding and problem-solving abilities of around a good mid-level engineer. This is going to be a profound milestone and potentially one of the most important innovations in history, as well as over time, potentially a very large market. Whichever company builds this first, I think is going to have a meaningful advantage in deploying it to advance their AI research and shape the field. If it's truly possible to build an AI agent that replicates what a mid-level engineer can do, then Meta can do one of two things. First, it could eliminate a significant portion of its workforce and save massive amounts of money, boosting profits. Second, it could keep the engineers and have them build multiple engineering AI agents, dramatically multiplying its engineering power by having them assisted by multiple AI agents. This will rapidly increase the pace of innovation and create a flywheel effect for whoever discovers it first. I believe the company will likely choose the second option, which could lead to its victory in the AI arms race. It could also lead to significant advances in its pursuit of augmented reality (AR) glasses, something Meta sunk billions into developing. This is the main reason I'm not concerned with Meta's massive AI spending: The company looks to be incredibly close to creating an AI model that could change the world. It's also a great reason to buy the stock, as it really isn't all that expensive. While AI isn't adding any revenue to Meta's business right now, its core advertising business is doing so well that it doesn't really need it. In the fourth quarter, revenue rose 21% year over year to $48.4 billion. The business was also efficient, as costs and expenses only rose 5% year over year. This allowed its operating margin to expand from 41% last year to 48% this year, leading to massive earnings per share (EPS) growth: 50% higher year over year in in the fourth quarter to $8.02. For 2024, EPS was up 60% year over year to $23.86, pricing the stock at 29 times trailing earnings. Considering the strong growth rate, that's a reasonable price tag for the stock. However, it trades for 27 times forward earnings, which indicates that Wall Street analysts aren't expecting much earnings growth from Meta over the next year due to increased infrastructure spending. I think that's probably a conservative estimate, as the business is still growing at a strong pace. Management expects 8% to 15% higher revenue in the first quarter. Meta Platforms could be incredibly close to having an earth-shattering breakthrough in AI. The stock is also only priced to include its advertising business, which means right now, it is still a great buying opportunity, as there could be a massive upside if the company wins the race to produce the first AI engineering agent.

1 No-Brainer Artificial Intelligence (AI) Stock to Buy With $35 and Hold for the Long Run | The Motley Fool

According to a 2024 study by McKinsey and Company, 72% of businesses have adopted artificial intelligence (AI) in at least one business function. However, a mere 8% are using it in five functions or more, which indicates most businesses are still in the experimental phase of adoption. While the cost to develop AI is coming down (as highlighted by the DeepSeek saga), it still requires significant financial resources, not to mention expertise. C3.ai (AI 8.20%) is an enterprise AI company trying to bridge that gap for its business customers by offering more than 130 ready-made applications to help them accelerate their adoption of AI. C3.ai stock is trading 80% below the all-time high it set during the tech frenzy of 2020, but its valuation is starting to look attractive, especially in light of the company's accelerating revenue growth. Here's why investors with a spare $35 might want to consider buying a share in this AI powerhouse. C3.ai serves businesses in industries spanning financial services, manufacturing, healthcare, transportation, and oil and natural gas. Many of them aren't normally associated with cutting-edge technologies, which is why they turn to third parties like C3.ai for help. The company says that within three to six months of an initial client briefing, it can deliver a functional AI application that's capable of tackling a specific business problem. Deployment is also simple. Most businesses use a major cloud services provider to manage their digital operations, so C3.ai has made its applications accessible through leading platforms like Microsoft Azure and Amazon Web Services. This strategy also allows C3.ai to leverage the enormous computing power those platforms offer to give its customers the performance they need to successfully deploy AI. Oil and natural gas giant Shell, for example, has more than 100 AI applications at various stages of development, which it uses to monitor more than 10,000 pieces of equipment to prevent catastrophic failures. It even uses C3.ai's Real Time Production Optimization app to improve efficiency at its liquefied natural gas facilities, which has driven a significant reduction in carbon emissions. This is just one example of how a business is optimizing its operations with the help of C3.ai. The company's reach could expand significantly in the near future thanks to a new strategic partnership with Microsoft Azure, which will run until 2030. It will help Azure customers accelerate their adoption of C3.ai's applications, and Microsoft will even subsidize pilot programs to help them get set up. Two and a half years ago, C3.ai decided to switch from a subscription-based revenue model to a consumption-based model instead. This eliminated lengthy contract negotiating processes and allowed clients to sign on with it far more quickly because they only pay for what they use. The transition initially caused a sharp decline in C3.ai's revenue growth -- an outcome management fully expected -- because it took time for consumption to scale up. However, the goal was to drive much faster revenue growth over the long term, and that is exactly what's happening right now. C3.ai delivered a record $94.3 million in revenue during its fiscal 2025 second quarter (which ended Oct. 31), which was a 29% increase from the prior-year period. It was the seventh consecutive quarter that its growth rate had accelerated. C3.ai continues to lose money on the bottom line, primarily because it's spending heavily on research and development to expand its product portfolio and marketing to attract new customers. The company lost $128.8 million through the first six months of its fiscal 2025, which was only a slight improvement from its $134.1 million net loss in the prior-year period. But its results were significantly better on a non-GAAP basis, excluding one-off and non-cash expenses like stock-based compensation. By that measure, C3.ai's adjusted net loss for the first six months of fiscal 2025 was only $14.7 million. The company has more than $730 million in cash and marketable securities on its balance sheet, so it can afford to run losses for a few more years, but investors should look for continuing declines in those losses to signal a healthy trend toward profitability. C3.ai went public in late 2020 amid a frenzy in the stock market driven by pandemic-related stimulus from both the U.S. government and the Federal Reserve. Its stock peaked at $161 that year, with its price-to-sales (P/S) ratio topping 80 -- an unsustainable valuation. Despite recently climbing from its 52-week low, C3.ai stock is still down 80% from that record high. That decline, combined with the company's steady revenue growth since then, has pushed its P/S ratio down to a more reasonable 11.2. That is actually a discount to its long-term average of 16. C3.ai CEO Thomas Siebel calls AI a mega-market event similar to the inventions of the internet and the smartphone. He believes it will create a staggering $1.3 trillion market opportunity for C3.ai (citing research by Bloomberg), so the company's current revenue is barely a drop in the bucket by comparison. Combine that enormous addressable market with C3.ai's accelerating growth and attractive valuation, and I think its stock is a no-brainer buy for the long term.

3 Tech and AI Stocks That Just Blew the Cover Off of Earnings | The Motley Fool

With earnings season now in full swing, investors and analysts are carefully monitoring the results, particularly on high-flying tech and artificial intelligence stocks trading at rich valuations and after the emergence of DeepSeek, which rocked the sector. Most publicly traded companies report their financial results every three months to update investors on how much money they made and on the current state of their balance sheets. Many companies will also provide financial guidance for the upcoming quarters or year so the market has some idea of how things will progress. Earnings and guidance are extremely important, because investors and analysts use these figures to make projections and value stocks. Strong earnings and guidance typically lead to positive movements for the associated stocks. Here are three tech and AI companies that just blew the cover off of earnings. The popular streaming service Netflix (NFLX 0.36%) continues to impress, recording strong subscriber growth in what many analysts and investors see as a saturated streaming market. Paid subscriptions rose by nearly 19 million in the fourth quarter when the Street modeled only 8.2 million. Earnings and revenue also posted nice beats. During the fourth quarter, Netflix streamed several big live events, including two NFL Christmas Day games and the highly anticipated boxing match between Jake Paul and Mike Tyson. Those events each brought in tens of millions of viewers. Perhaps even more impressive is that management said viewers that came to the platform for those events remained on the platform, and also that the growth could be attributed to a variety of content across the platform. Management also increased its projected revenue range in 2025 by about $500 million to a range of $43.5 billion to $44.5 billion, while also announcing a $15 billion share repurchase plan. Netflix also raised the price on its subscriptions. The company is increasing its basic ad-supported plan by $1 to $7.99 per month, its first ad-free plan by $2.50 to $17.99 per month, and its premium subscription by $2 to $24.99 per month. Jefferies analyst James Heaney called the results "near flawless." Macquarie analyst Tim Nollen also opined on the results: "With no more sub reporting to come, investor focus shifts to Netflix's ability to monetize its member base; advertising and price increases help answer this." GE Aerospace (GE -0.97%), the company's main business after spinning off its other divisions, enjoyed nice gains after reporting strong earnings for the fourth quarter. The company beat analyst estimates on revenue, earnings, and operating profits: Guidance also came in as expected with the midpoint of expected EPS and free-cash-flow guidance actually coming in ahead of estimates. Analysts praised the results, saying that GE came into the quarter with pretty high expectations. GE's decision to spin off its healthcare and energy businesses in April 2024 has worked out well so far for GE Aerospace and the energy business GE Vernova. Shares of the Dutch AI giant ASML (ASML 0.32%) enjoyed nice gains following its fourth-quarter earnings report on Jan. 29 that beat estimates and delivered guidance ahead of expectations. ASML reported net income of $2.8 billion, roughly $500 million ahead of analyst estimates. Net sales came in at $9.64 billion, nearly $200 million above estimates. Management also left its 2025 revenue outlook unchanged. As many investors know, AI stocks struggled since the emergence of China's DeepSeek AI chatbot, which allegedly built a version similar to OpenAI's ChatGPT at a fraction of the cost. But on ASML's earnings call, CEO Christophe Fouquet told investors that he views DeepSeek as a bullish catalyst for the sector because cheaper AI will ultimately lead to more demand for semiconductors. ASML is the sole manufacturer of lithography machines needed to make the advanced chips that power AI. Lithography machines carve patterns into silicon wafers. Fouquet also told investors that the company's outlook for its sales to China remains unchanged, and that Chinese sales should make up about 20% of revenue in 2025, although further export controls and geopolitical tensions are a risk. Given what has happened in the AI sector recently, ASML's report is at the very least a small sigh of relief for AI investors.

2 Top AI Stocks I'm Buying on the Dip | The Motley Fool

In 2024, U.S. tech stocks experienced a widespread surge, driven by rapid advancements in artificial intelligence (AI), the expansion of data centers, and steady progress in autonomous systems powered by machine learning. This momentum attracted both institutional and retail investors in large numbers. However, as 2025 unfolds, major U.S. tech players have faced early setbacks. The rise of China's DeepSeek chatbot and a new wave of proposed tariffs from President Donald Trump aimed at restructuring global trade has contributed to market turbulence early in the new year. While seeing your net worth decline is never enjoyable, this market pullback presents compelling opportunities for long-term investors. I'm taking this chance to buy and hold two of the biggest names in AI for the long haul. Read on to discover which ones are at the top of my buying list this month. Nvidia's (NVDA 2.80%) stock has dropped 13% since the start of 2025 at the time of this writing, but analyst estimates project a staggering 49% upside potential over the next 12 months. While concerns over China's DeepSeek chatbot have weighed on sentiment this year, Morningstar analyst Brian Colello suggests this represents a healthy correction rather than a fundamental shift. While DeepSeek's efficient AI models may reduce the need for massive clusters of graphics processing units (GPUs) in some cases, I see this driving broader market expansion. Much like how declining compute costs catalyzed the PC and cloud computing waves, the optimization of AI infrastructure should accelerate adoption across industries. At its core, Nvidia's competitive advantage stems from its world-class GPUs and Compute Unified Device Architecture (CUDA) software, which has become the foundation for AI development. The deep integration of CUDA into the AI ecosystem and the significant costs of switching platforms provide Nvidia with a robust competitive moat. Beyond GPUs, Nvidia's strategic expansion into AI networking, software platforms, and enterprise services strengthens its market position. Given the accelerating pace of AI adoption and Nvidia's expanding technological leadership, I believe this price dip offers an attractive opportunity to invest in a company reshaping computing's future. Microsoft's (MSFT -0.24%) recent earnings outperformed expectations, yet its stock has declined 2.5% since the start of 2025 as I write this. While analysts project a sizzling 23% upside potential over the next 12 months, I'm particularly drawn to Azure, the tech behemoth's managed services platform that now generates $75 billion in annual revenue. The migration to cloud computing has reached a critical inflection point, and Microsoft stands at the center of enterprise adoption. The seamless integration of Azure with existing systems has proven to be a key advantage, significantly reducing the complexity that typically slows cloud transitions. Beyond the cloud story, Microsoft has demonstrated remarkable business evolution. The company continues to expand Office's cloud capabilities while building Azure into a dominant platform, maintaining an impressive 35.6% profit margin throughout this transformation. Even the massive Activision acquisition hasn't derailed Microsoft's execution or profitability. With enterprise IT spending accelerating and Azure capacity expanding to meet demand, I believe today's price represents an attractive entry point for this technology leader. While market sentiment has temporarily shifted at the onset of 2025, the fundamentals driving AI adoption continue to strengthen globally. Both Nvidia and Microsoft have grown profits while investing heavily in AI's future. With one dominating AI infrastructure and the other leading enterprise cloud adoption, I'm confident these dips present ideal buying opportunities for my long-term investment in computing's next wave.

3 Best Artificial Intelligence (AI) Stocks to Buy in February | The Motley Fool

Artificial intelligence (AI) investing experienced a shakeup at the end of January with the release of DeepSeek's R1 model. This model was reported to have been trained far more cheaply than its U.S. counterparts and performed similarly in some areas. This caused a short-term panic in some AI stocks, but some have recovered. Still, I think the AI investing realm has some great stocks to buy, and the DeepSeek breakthrough shouldn't be seen as a showstopper. Instead, it should be viewed as a catalyst. Here's a look at three stocks to consider in February. Nvidia (NVDA 5.21%) was one of the hardest-hit AI stocks after the DeepSeek announcement, because everyone assumed that companies wouldn't need as many high-powered graphics processing units (GPUs) from Nvidia. However, I think that's the wrong way of looking at it. DeepSeek used Nvidia H800 GPUs because of U.S. export restrictions to China. As a result, it was forced to use these GPUs more efficiently than its U.S. counterparts. However, efficiency isn't the goal of the U.S. AI companies (although DeepSeek's breakthroughs will undoubtedly be incorporated). Instead, U.S. AI firms are going for the most powerful model, which requires loads of Nvidia GPUs to train. This direction hasn't changed, making this dip in Nvidia's stock a strong buying opportunity. Nvidia is still projected to have a fantastic 2026 fiscal year, with revenue growth of 52% expected. After the sell-off, the stock trades for just 27 times forward earnings, making it a reasonably priced big tech stock. This sale won't last forever, and I'd suggest investors take advantage of it before Nvidia reports fourth-quarter FY 2025 results later this month. Meta Platforms (META 0.10%) also sold off following the DeepSeek release, but quickly recovered thanks to incredibly strong Q4 results. Meta is the parent company of dominant social media sites like Facebook, Instagram, WhatsApp, Threads, and Messenger, and it derives nearly all its revenue from advertising. Ad revenue increased 21% in Q4, which dramatically boosted Meta's profits. Meta's earnings per share (EPS) rose 50% thanks to revenue increasing and expenses only growing a mere 5%. This is an incredibly strong company, and those profits come on top of its hefty AI spending. For 2025, Meta plans to spend between $60 billion and $65 billion on capital expenditures, which will mostly be focused on AI. This clearly indicates that Meta won't be focused on making the most efficient model -- it's focused on making the most powerful one. In 2025, CEO Mark Zuckerberg anticipates it will be possible to create an AI engineering agent with the equivalent coding and problem-solving skills of a good mid-level engineer. This would be a huge breakthrough, rapidly accelerating the pace of innovation at Meta and propelling it to become an AI leader. There are a lot of great things happening at Meta, and even though the stock is near all-time highs, I'm convinced that it will continue to march higher with the various breakthroughs that will occur throughout 2025. ASML (ASML 1.53%) is far less known than Meta or Nvidia, but its role in AI may be even more important than these two. ASML makes extreme ultraviolet lithography machines that are crucial in the manufacturing process of high-end chips. It's the only company in the world with this technology. None of the advanced chips that make these AI models possible would be viable without its machines. As a result of its positioning, ASML has strict export controls on its machines, which has hurt its China business. This caused the stock to plummet in October when the company cut FY 2025 guidance from the range of 30 billion to 40 billion euros to 30 billion to 35 billion euros. Still, this indicates 15% revenue growth at the midpoint, which is a strong figure considering ASML's size. ASML's Q4 net bookings were more than 7 billion euros, far exceeding the 2.63 billion euros it booked in the third quarter and the 3.99 billion euros that Wall Street analysts expected. This indicates strong growth ahead for ASML and eases fears that its business is struggling. Lastly, during an interview with CNBC, ASML's CEO Christophe Fouquet stated that low-cost AI models are actually a positive thing for the chip business, not a drawback. This is because low-cost AI now opens its usability up to the masses, which will require more computing hardware to satisfy. This is a bullish sign for all chip companies, and with ASML providing vital machines to every player, it makes for a no-brainer buy in February.

3 Leading Tech Stocks to Buy in 2025 | The Motley Fool

While there has been some recent volatility in the sector, technology stocks are still one of the best places to invest long-term. Whether it's DeepSeek introducing a vastly less expensive large language model (LLM) artificial intelligence (AI) interface that creates doubt about levels of spending on AI or it's a war of tariffs between rival nations that could affect revenue levels, the factors causing price volatility in tech stocks right now are likely to be temporary. That creates a nice buying opportunity for select tech stocks with the potential to take advantage. Let's look at three leading tech stocks that are to buy in 2025. When Chinese AI company DeepSeek claimed to have trained a world-class LLM for under $6 million and released it to the public last week, Nvidia (NVDA 3.08%) was the stock most affected. Many questions remain regarding DeepSeek's product, including the true cost and whether DeepSeek improperly distilled material from OpenAI's models. But the potential that a quality LLM could be developed on the cheap raised issues about whether there was really an overwhelming need for the most advanced semiconductor chipsets. Thus far U.S. companies haven't publicly backed down from their AI infrastructure spending plans. Microsoft (MSFT 0.61%), Nvidia's largest customer, is still moving forward with a planned $80 billion in AI-focused data center capital expenditures (capex) in 2025, while Meta Platforms (META 1.01%) plans to spend between $60 billion and $65 billion this year. When asked about Meta's spending plans, Meta CEO Mark Zuckerberg said he believes that investing heavily in AI infrastructure will give it an advantage, and that while the company could learn that this isn't the case, it's way too early to determine that. Others, such as Microsoft CEO Satya Nadella, believe that any successes in lowering the costs of AI training will just lead to a lot more AI consumption. As it is, Nvidia remains the AI infrastructure leader, as its graphics processing units (GPUs) are still the primary way to train LLMs for AI use. Until proven otherwise, there's likely to be a lot of continued demand for its chips. The newest LLMs have used considerably more GPUs to be trained, quite often 10 times as many. If costs were rising by a factor of 10 per new model iteration but DeepSeek could reduce training costs by a factor of 10, that would largely be a wash. In turn, flattish training costs could lead to increases in the number of AI models being trained, which could also lead to more AI inference. In the end, that would be a positive for Nvidia. The stock currently trades at an attractive valuation, with a forward price-to-earnings (P/E) ratio of 21 based on analysts' 2025 estimates, and a forward price-to-earnings-to-growth (PEG) ratio of around 0.4. A PEG under 1 is considered undervalued. Leading semiconductor manufacturer Taiwan Semiconductor Manufacturing (TSM 0.93%), or TSMC for short, is another tech-company bargain that's gotten caught in the sell-off based on DeepSeek and tariffs. TSMC is the primary advanced chip manufacturer in the world. So as long as the data center and AI buildout continue, it remains well positioned. TSMC has become an invaluable part of the semiconductor value chain, where its leading 3-nanometer and 5nm technologies are used to produce the world's most advanced chips, including graphics processing units (GPUs) from Nvidia and Apple's flagship A18 chip, used in the iPhone 16 Pro. TSMC's technological expertise and scale have given it tremendous pricing power, and it's set to raise prices once again in 2025. This is leading to both strong revenue growth and improving margins. In the fourth quarter, TSMC saw revenue climb 37% year over year to $26.9 billion, while gross margin improved by 600 basis points to 59%. As gross margins improve, this means more revenue filters down to the bottom line as profit. Increasing chip demand, rising prices, and expanding gross margins make a great combination for the company's future. TSMC is currently attractively priced with a forward P/E of 19 and a PEG of around 0.8. Meta Platforms is one of the leading digital advertising companies in the world, through its portfolio of social media and messaging apps. Meanwhile, the company is investing heavily in AI models, both to help keep users on its platforms longer and to better connect advertisers with these users. Thus far, the strategy has been working; Meta had a 21% year-over-year jump in Q4 ad revenue to $46.8 billion. It continues to add new users to its platforms and to profit more from each user. Last quarter, it grew its user base by 5% while average revenue per person (ARPP) climbed 16% to $14.25. Meta has shown to be much better than any other social media company at monetizing its user base. It does this by keeping users engaged, as well as by better targeting them through its ad platform. Last quarter, its average price per ad jumped 14%, because ad demand increased as a result of ad performance. At the same time, it was able to serve 6% more ads across its platforms. Meta is working to make Threads its next big social media platform. It already had 320 million monthly active users at the end of 2024, and has been growing the Threads user base by about 1 million users a day. The company also has big plans to turn its Llama LLM into a leading AI assistant, with the newest version set to have both agentic AI and multimodal capabilities. Investors can get this leading AI and digital advertising company, with one of the best business models around, for a low forward P/E of just 24.

Nvidia Stock Investors Just Got the Best News of 2025 So Far | The Motley Fool

Shares of the artificial intelligence (AI) chip leader have been crushed this year, but recent developments suggest the best is yet to come. It's been a rocky year for Nvidia (NVDA 3.08%) investors. After soaring to new heights, the chipmaker was taken out behind the woodshed and soundly thrashed, at one point losing as much as 22% of its value. There was widespread panic among some investors after Chinese artificial intelligence (AI) start-up DeepSeek claimed that its R1 model delivered state-of-the-art results at a fraction of the cost. Experts have since debated the veracity of those claims, but the fears about its impact on the future of AI remain. The popular narrative suggests that since this AI model was developed using older, less advanced Nvidia processors, there will be little reason to buy the company's top-of-the-line AI chips. The truth is much more nuanced and evidence has begun to pour in that this narrative is flawed. But don't take my word for it. Several of the company's largest customers have weighed in, giving Nvidia shareholders the best news they've received so far this year -- and it could ultimately be worth billions of dollars for the chipmaker. Despite investors' knee-jerk reaction to the news, big technology companies apparently have no plans to reduce spending and are continuing to build at their AI infrastructure -- namely the data centers and servers needed to support the technology. Microsoft (MSFT 0.61%) CEO Satya Nadella conceded that "DeepSeek has had some real innovations" and believes these advancements will cause AI to be more "broadly used." Microsoft had already announced its intention to shell out $80 billion for AI data centers is fiscal 2025, and the company hasn't altered its plans. In fact, after spending $20 billion on capital expenditures (capex) in its fiscal Q1, Microsoft laid out another $22.6 billion in Q2 and expects to spend similar amounts in fiscal third and fourth quarters. That adds up to nearly $88 billion in all, which is a far cry from a slowdown in spending. Meta Platforms (META 1.01%) CEO Mark Zuckerberg noted that while DeepSeek did "a number of novel things," it didn't change the company's plan to spend as much as $65 billion on capex in 2025. Zuckerberg went on to say, "I continue to think that investing very heavily in capex and [infrastructure] is going to be a strategic advantage over time." CFO Susan Li confirmed that "servers will be the biggest growth driver that remains the largest portion of our overall capex budget." Amazon has yet to report its results as of this writing, but it invested roughly $75 billion in capex in 2024 and expects to spend even more in 2025. Alphabet (GOOGL 0.14%) (GOOG 0.01%) CEO Sundar Pichai provided his two cents, calling the developers at DeepSeek a "tremendous team" that has "done very, very, good work." Despite those innovations, Alphabet still plans to spend roughly $75 billion in capex in 2025, with "the majority going to ... servers and data centers." The available commentary suggests that despite the changing AI landscape, big tech's AI spending spree is far from over. Contrary to the popular narrative, the biggest names in AI and cloud computing plan to increase spending on the data centers and servers that support AI. Lest there be any doubt, the single biggest beneficiary of this spending will be Nvidia. Nvidia is cagey and hasn't revealed exactly who its biggest customers are, but Wall Street has read the tea leaves and come to its own conclusion. Analysts with Bloomberg and Barclays Research believe Nvidia's four biggest customers -- generating roughly 40% of its revenue -- are: The available commentary from these companies signals that the biggest names in technology are planning to ramp up capex spending to support their AI and cloud computing ambitions. Nvidia is the undisputed market leader in the data center GPU space. The company controlled an unrivaled 98% of the market in 2022 and 2023, and while rivals may have chipped into its lead, Nvidia is expected to control a dominant part of the market when the final numbers have been compiled for 2024. It stands to reason, then, that the company has the most to gain from big tech's spending bonanza. This, combined with the rollout of the high-profile Blackwell processor -- which was custom built for AI applications -- suggests that Nvidia still has a long runway for growth ahead. For all the opportunity, Nvidia shareholders have been on a gut-wrenching thrill ride, with the stock losing more than 20% of its value several times over the past year alone. If you still need convincing, consider this: Nvidia stock shed 66% of its value between late 2021 and late 2022 -- so it isn't for the faint of heart. That said, if you have a strong constitution and the stomach for a little risk, Nvidia stock is currently selling for just 28 times next year's expected earnings, well below its average multiple of 42 over the past three years. This gives astute investors the opportunity to own an industry leader with strong secular tailwinds at a compelling valuation.

The Smartest Growth Stock to Buy With $1,000 Right Now | The Motley Fool

Broadcom (AVGO -0.28%) doesn't have the same name recognition as some of its peers, like Nvidia, but that doesn't make the company any less influential in the artificial intelligence (AI) space. The company is making huge waves in the AI semiconductor market as companies ramp up spending to build new AI infrastructure. It also has the added benefit of delivering impressive financial results. Even after Broadcom's share price surge over the past few years, its stock looks well-priced, considering its growth opportunities. Let's take a closer look at what's happening with Broadcom and why it might be a good place to invest $1,000 right now. One of Broadcom's biggest opportunities comes from its application-specific integrated circuits (ASICs), which are used in AI data center infrastructure. Dominant tech companies, including Alphabet and Meta Platforms, use Broadcom's chips for some of their AI needs, and a projected rise in spending could boost demand further. For example, Nvidia CEO Jensen Huang says tech leaders will spend an estimated $2 trillion over the next few years to build AI data center infrastructure. This opportunity is more than just a potential growth area for Broadcom -- the company is already seeing significant financial benefits from it. Broadcom's 2024 AI revenue soared 220% to $12.2 billion and represented nearly 24% of the company's total sales last year. With companies continuing to ramp up spending to compete for AI dominance, Broadcom could see further gains from its semiconductor business. Broadcom CEO Hock Tan highlighted this opportunity on the company's recent earnings call, saying, "[W]e see our opportunity over the next three years in AI as massive." He added that companies have begun to see their need for custom AI accelerators, saying, "For each of them, this represents a multiyear, not a quarter-to-quarter journey." Many high-flying tech stocks are benefiting from AI, but not all of them have the same solid financial foundation as Broadcom. The company is consistently profitable and reported impressive non-GAAP (generally accepted accounting principles) earnings per share of $4.87 in 2024. Broadcom also had an impressive $19.4 billion in free cash flow at the end of the year. Broadcom benefits from its high-margin semiconductor and infrastructure software business, and at the end of the fourth quarter, its gross margins were nearly 77%. That's great news for current Broadcom shareholders and potential investors because it shows the company is turning rising AI chip and software sales into profits -- not all AI companies are having the same success. With AI spending ramping up, Broadcom's bottom line will likely continue benefiting. While there's no guarantee of its success, Broadcom's unique position in ASICs gives it a long-term opportunity to tap into artificial intelligence infrastructure spending over the next few years. Broadcom's shares have soared 274% over the past three years (as of this writing). That's pushed up the valuation of Broadcom's stock, giving it a forward price-to-earnings ratio of 34.6. While it's not wildly expensive, Broadcom's stock is more pricey than peers like Nvidia, which has a forward P/E of 27.2. That doesn't mean Broadcom isn't a good buy -- it's just a reminder that with any AI stock right now, it's worth considering how much of a premium you're willing to spend in this space. I still think Broadcom has room to run as it taps further into a broadening AI market, but more conservative investors may want to add a small position to their portfolio, adding more shares if Broadcom's stock takes a dip.

Prediction: 2 Artificial Intelligence (AI) Stocks That Will Be Worth More Than Nvidia 3 Years From Now | The Motley Fool

Nvidia has been the big artificial intelligence (AI) winner so far, but these two companies might have better long-term prospects. Few companies have benefited from the rise of generative artificial intelligence (AI) as much as Nvidia (NVDA 0.90%). The chipmaker saw its stock price increase nearly eightfold from the launch of OpenAI's ChatGPT on Nov. 30, 2022, through the end of 2024. It's briefly spent time as the most valuable company in the world, and its current market cap sits around $2.9 trillion, as of this writing. Nvidia's strong financial results look poised to continue in 2025 as big tech plans to spend tens of billions of dollars on AI data centers outfitted with its GPUs. Tech companies have remained committed to their spending plans, even after DeepSeek's open-source R1 model showed the cost-saving potential of software innovations over adding more advanced hardware. Still, there's now more apparent long-term vulnerability to Nvidia's cash cow than many investors saw previously. Two other AI leaders have seen their long-term outlooks improve recently, and it could lead each of them to overtake the semiconductor giant's valuation in just a few years, if not sooner. Here are two companies that could see their stocks worth more than Nvidia within three years. Meta Platforms (META 0.35%) is one of Nvidia's biggest customers. The company behind social media platforms Facebook, Instagram, and WhatsApp has committed to between $60 billion and $65 billion in capital expenditures in 2025, including plans to build a massive data center in Louisiana. That data center will be filled with GPUs, mostly supplied by Nvidia. There's good reason for Meta's continued investment in AI. It stands to benefit massively from the innovations of the last two years. It's already seen significant improvements to its recommendation algorithm for content across Facebook and Instagram by scaling it to a more general model based on principles it learned developing large language models. The result is higher engagement and better ad targeting. That's evidenced by the 6% increase in ad impressions and 14% increase in average price per ad last quarter. When it comes to generative AI, Meta has a lot to gain as well. It can make creating content more accessible to more users, further increasing engagement and active user count. It's developing tools that make it easier for marketers to create and test ad campaigns. Its AI-powered Advantage+ shopping campaigns fueled $5 billion worth of ad spending in the fourth quarter, and adoption is growing quickly. Further down the road, Meta has massive opportunities with AI chatbots for businesses on WhatsApp. It's also integrating its Meta AI service into all of its products, including the Ray-Ban Meta glasses. As Meta AI scales to 1 billion users, it could become another revenue source for the company. Meta's stock trades for 27.8 times forward earnings estimates, as of this writing. The multiple looks much more attractive if you look at earnings before interest, taxation, depreciation, and amortization (EBITDA) with an enterprise value-to-forward EBITDA ratio of just 15x. Meta should experience significant depreciation expenses over the next few years following its massive step-up in capital expenditures. But if its investments pay off as expected, it will be well worth the price for Meta's stock at its current valuation. Meta could be a $3 trillion stock within three years by maintaining a P/E ratio in the mid-20s while growing earnings at a rate in the high teens. If Nvidia stock stagnates in that period as big tech looks to make AI profitable, it could overtake the chip giant's market value. Amazon (AMZN -4.05%) has seen its profitability explode over the last two years. Free cash flow went from negative $19.7 billion for the 12 months ending in September 2022 to $47.7 billion for the most recent 12-month period. And that growth looks poised to continue over the next few years. The biggest driving force behind Amazon's recent success is its cloud computing business, Amazon Web Services, or AWS. Amazon operates the largest public cloud platform, and it's building tools to help developers build on top of the leading-edge foundation models for generative AI. While Amazon was caught flat-footed in 2023 as competitors grew quickly, it rebounded well in 2024. After a flat year of operating income in 2023, it soared in 2024, climbing 60% in the trailing 12 months ending in September. That was fueled largely by margin expansion as operations scaled to catch up to its investments. Amazon's also increasing the profitability of its core e-commerce segment in several important ways. First, its Prime membership program continues to be extremely popular, driving strong subscription revenue growth. Second, advertising is growing across its marketplace and on Prime Video, offering a massive source of extremely high-margin revenue. Finally, improvements to its logistics network and operations have enabled it to reduce its shipping costs per paid unit, increasing its operating margin. In fact, Amazon's North American operating margin reached 5.9% over the trailing 12 months, and its International reporting segment turned positive in mid-2024. Amazon's investing a lot of money in building out both AWS and its e-commerce business. Management expects capital expenditures for 2024 to come to about $75 billion, and it plans to spend even more in 2025. But Amazon historically makes big steps up in capital expenditures before easing back and letting those investments produce strong free cash flow. When management takes its foot off the pedal and looks to make the most of all it's spent, it should see another step up in free cash flow. Amazon stock currently trades for about 59 times trailing free cash flow, slightly above its historical average around 50. That suggests investors are pricing in faster growth in free cash flow going forward. As that free cash flow growth comes to fruition over the next few years, Amazon should see its share price climb higher, even if that multiple comes down. That could easily result in a $3 trillion valuation for the stock in the next couple of years, eventually overtaking Nvidia.