AI Stocks: Navigating the Future of Investing in Artificial Intelligence

3 No-Brainer Artificial Intelligence (AI) Stocks to Buy Amid the Stock Market Sell-Off | The Motley Fool

These AI leaders are all trading at a great value after a sell-off. Artificial intelligence stocks have been some of the biggest drivers of the bull market since the end of 2022. Unfortunately, they've also been some of the biggest loss-makers amid the recent market sell-off. Not every AI-fueled company will generate lasting wealth for investors. Some stocks may continue lower over the long run. But buying the best of the best companies with sustainable competitive advantages across multiple areas should produce excellent returns for shareholders. And if you can buy them on a dip in the share price, as we've seen recently, you'll do even better. Here are three no-brainer artificial intelligence stocks to buy amid the current market sell-off. Amazon (AMZN -0.30%) is the leading public cloud provider, an essential resource for AI training and development. While the growth of AI has opened the door for competing hyperscale cloud providers such as Microsoft (MSFT -0.61%) to win new customers, Amazon has been able to hold its own. Its cloud platform, Amazon Web Services, grew revenue 19% in the most recent quarter, helping it maintain its leadership position. But Amazon is much more than a cloud computing company. Its the dominant force in e-commerce. Its Prime membership creates a virtuous cycle for online sales. As more customers sign up, it bring more merchants into the marketplace using Amazon's fulfillment network to access Prime shipping. That gives Amazon more money to invest in logistics, enabling faster shipping speeds, increasing the attractiveness of Prime. Amazon delivered more than 5 billion items to customers' doorsteps same day or next day during the first six months of the year. Amazon's also the third largest digital advertising company in the world. It surpassed a $50 billion run rate in the second quarter, growing 20% year over year. That high-margin revenue has become a significant source of profit for the company as the retail business maintains very slim margins. Amazon goes through cycles of investments and scaling to capitalize on its investments. Every cycle results in more and more free cash flow generation. The most recent efforts have paid off with $53 billion in free cash flow over the last 12 months. Even with its investments in AI, Amazon is poised to keep growing cash flow for some time as it pulls back on fulfillment center spending. Shares currently trade near a 10-year high free cash flow yield, making them attractive at this price. Microsoft is the fastest-growing hyperscale cloud provider, but its 29% growth last quarter in Azure, its cloud platform, still managed to disappoint Wall Street's high expectations. The sell-off could be a great opportunity for long-term investors. That's because despite its strong growth over the past few years, management expects Azure revenue to accelerate in the second half of the year. Microsoft has been investing heavily in AI. Since adding $10 billion to its investment in OpenAI in early 2023, Microsoft has spent billions building out data centers and buying the chips necessary to outfit its servers. But while those capital expenditures hit upfront, it takes time for Microsoft to deploy all those chips and get its servers up and running and ready for Azure customers. As additional capacity comes online, Microsoft expects it won't have any problems finding demand. Microsoft has become a top source for AI-focused developers, and its own consumer and enterprise-facing AI services, which it brands Copilot, have also found good traction. Management says its Copilot customer base increased 60% sequentially last quarter. Considering there are more than 400 million Office 365 customers, there's a long runway for growth, too. Microsoft stock isn't cheap by a valuation standard. Its enterprise value is over 10 times analysts' sales estimates for next year. Its forward P/E of nearly 31 is well above the S&P 500 average, not to mention its own historic valuation over the past 15 years. But Microsoft is growing faster than it has in a long time and it has a long runway of growth ahead of it, justifying the premium valuation. Adobe (ADBE -0.13%) is well known for its creative software suite featuring designer staples like Photoshop, Illustrator, and Lightroom. Last year, the company introduced new generative AI features powered by its Firefly model. Firefly was trained on Adobe's proprietary data, including its stock image library. Firefly features include generative fill and generative expand in Photoshop, text to vector in Illustrator, and remove object in Lightroom. These new features have helped Adobe attract and retain users over the past year. What's more, it's managing to push free users of Adobe Express to sign up for its paid subscription, and paid subscribers to pay more for greater access to AI features. The result is a return to growth in its core metric, annualized recurring revenue. ARR exceeded analysts' expectations last quarter coming in at $487 million, and management provided strong guidance for the current quarter. Adobe's looking to repeat its performance in the creative suite with its Document Cloud (Acrobat) and its marketing platform. New AI tools help automate and generate output for users, which could drive increased subscriptions and higher subscription revenue per user in the future. While generative AI has enabled multiple new creative design tools to enter the market, Adobe benefits from a strong network effect as the industry standard. Any designer looking for work needs to be well versed in Adobe's software, and any company looking for design work needs access to Adobe's tools as well. That creates a virtuous cycle that will make it hard to unseat Adobe. Adobe shares currently trade at an enterprise value-to-revenue ratio around 11, below its 10-year average. Likewise, its forward PE around 27 is below its historic average and very attractive considering its growth prospects. That makes it a great stock to buy amid a sell-off.

Prediction: These "Magnificent Seven" Stocks Will Remain Excellent AI Buys, Despite the Sell-Off | The Motley Fool

Some air has been let out of Wall Street's AI craze. Use the volatility to your advantage. Artificial intelligence (AI) has captivated investors since ChatGPT burst onto the scene with its viral popularity in early 2023. Since then, big technology companies, often called the "Magnificent Seven" stocks, have duked it out with massive AI investments and rising growth expectations that carried the broader stock market to new highs. Lately, however, volatility crept back into the markets, and many of these highfliers have sold off from their highs. Remember that volatility is a feature of investing, not a bug. Nobody knows what stock prices will do in the short term, but the sell-off could be a great long-term buying opportunity for the right stocks. Social media giant Meta Platforms has arguably everything a company needs to build a dominant business around artificial intelligence (AI). You need a ton of data to train AI models, and Meta has tons of first-party data on the 3.27 billion people who log on to Facebook, Instagram, WhatsApp, or Threads daily. AI models require tons of computing power. Nvidia has enjoyed tremendous success as the go-to supplier for AI chips. Meta has accumulated nearly 600,000 of Nvidia's flagship H100 GPUs and is designing its own custom chip. Lastly, Meta has developed its own AI models. Llama is Meta's large language model, which it's implementing throughout its apps and making available to other developers to build on. Add it all up, and Meta is building an AI ecosystem over which it has complete control. Not many AI technology companies can do it all like Meta can. For example, Nvidia's chips serve a specific purpose in AI: computing. Apple has excellent distribution through iOS devices but sought help from OpenAI's AI models. Alphabet has similar advantages to Meta, but it's facing regulatory scrutiny for its monopoly on internet search. The best part about Meta is that it's already a great business that AI makes even better. Meta, already a force in digital advertising, launched AI tools for customers that boost ad effectiveness by helping match ads with their target audiences. Ad impressions grew 10% year over year in Q2, but the price per ad also increased 10%. Meta is already generating $150 billion in annual revenue, and analysts believe it will grow by double digits over the next four years. Investors should see any sell-off as a long-term buying opportunity. The stock's valuation already looks reasonable, so investors don't need to be too picky. Shares trade roughly 25 times Meta's estimated 2024 earnings, and analysts believe those profits will grow at an annualized rate of 19% over the next three to five years. The resulting PEG ratio of 1.3 signals the stock is borderline cheap for its expected earnings growth, so this is a dip worth buying. Microsoft is seemingly everywhere in technology, and AI is no different. The company is planting deep AI roots, including its exclusive partnership with OpenAI, its cloud platform Azure to meet AI's computing needs, and mission-critical enterprise software that gives Microsoft direct access to millions of customers worldwide. The cloud is already Microsoft's most significant and fastest-growing business unit, and AI could continue fueling rampant growth. Microsoft's close ties to OpenAI include funneling all its computing through Azure. In other words, anyone who uses OpenAI's products is technically powering those applications through Azure. That growth is already trickling through to Microsoft's cloud business. Due to AI demand, management reported that Azure's year-over-year growth exceeded Wall Street's expectations in Q2. Management noted on the call that it would have grown more, but there was more AI demand than available computing capacity. Microsoft is aggressively investing in data centers and AI chips to increase that capacity, which should translate to more revenue and earnings over the coming years. Strong AI execution could help push Azure closer to Amazon's AWS in the global market. AWS is the leading cloud, but Azure's market share grew to 25% in Q1, an all-time high. Microsoft's AI positioning and reputation as a blue chip technology stock have earned shares a hefty price tag. The stock's forward P/E ratio of 32 is a bit high for a business that analysts estimate will grow earnings at an annualized rate of 15% over the next several years. A high-quality company like Microsoft can stay expensive for a long time because most investors know and appreciate just how great a stock it is. The sell-off would be a great chance to scoop up shares at a fair price.

Artificial Intelligence Stock Sell-Off: 3 AI Winners to Buy on the Dip

The recent pullback is an opportunity to add to inevitable AI winners. This summer has seen an abrupt correction in most stocks, including many artificial intelligence (AI) tech winners that outperformed in the first half of the year. Fears over the economy have sent just about all stocks down since mid-July. However, even if there is an economic downturn, AI investment should continue. And if we see a slower economy, that should lead to lower interest rates, which should keep up valuations of technology growth stocks. That means stocks poised to benefit from AI could make for excellent buys or adds on the marketwide dip, like these three leaders. Broadcom Broadcom (AVGO -0.25%) CEO Hock Tan has done a masterful job of executing a growth-via-acquisition strategy, targeting dominant franchises in specific niche technologies. And two specific technologies in Broadcom's chip portfolio have taken off with AI. These include Broadcom's dominant switching and routing Tomahawk and Jericho chipsets, which are seeing hypergrowth due to the high data transport requirements of AI. The second AI business is custom ASICs (application-specific integrated circuits), which are used by both Alphabet (GOOG 0.96%) (GOOGL 1.03%) and Meta Platforms (META -1.84%) to make their own custom AI accelerators. Recently, Broadcom claimed a third major ASIC customer for AI accelerators, which some analysts suspect is Tik Tok parent Bytedance. These two AI businesses have absolutely exploded, growing from just over $4.2 billion last year to a projected $11 billion-plus this fiscal year, which ends in October. In addition, Broadcom has other highly profitable franchises, such as supplying Wi-Fi and bluetooth chips for the iPhone. In addition to chips, Broadcom's recent acquisition of software giant VMware is turning out to be a smashing success. Folding the virtualization software giant into its business, Broadcom has been able to slash costs and accelerate revenue, greatly boosting VMware's profits. With its business now nearly evenly split between software and hardware -- a rarity among large tech stocks -- Tan can now hunt either hardware or software companies for his next acquisition. In the fast-evolving AI space, that's an advantageous position to be in. Down about 15% from its highs and trading at just 25 times forward earnings, Broadcom is a solid AI pick to buy on the dip. ASML Holding Another AI winner is ASML Holding (ASML -1.03%), which is in the fortunate position of having a monopoly on extreme ultraviolet lithography (EUV) technology. EUV is necessary for making all leading-edge semiconductors today, and is now being used in the production of advanced DRAM memory -- also crucial in AI systems. Because of its competitive advantage, ASML never really trades "cheaply," but down 23% off its recent highs, this could be a good moment to scoop up shares. ASML's second-quarter results, while beating expectations, may have disappointed some hoping for more near-term growth. But ASML's sales can be lumpy. Management has always pointed to 2024 as a pause year in growth, before a big year likely coming in 2025. Last year, the rest of the chip sector was still mired in a post-COVID slump, except for AI. Yet this year, AI is still growing like gangbusters and now makes up a larger part of the industry. Meanwhile, the AI revolution should grow chip content in more devices, such as AI-enabled PCs and smartphones. That should boost industrywide growth into 2025. There has been recent evidence of a strong pickup in chip demand. Taiwan Semiconductor Manufacturing (TSM 0.33%), the largest foundry for leading-edge chips and ASML's biggest customer, just reported July revenue up a stunning 44.7% compared with last year, and year-to-date revenue up 30.5%. With such fast growth, TSMC will likely turn on the spending soon, and that should mean more revenue for ASML, making it a strong pickup on this dip. Super Micro Computer No matter which GPU vendor wins out for advanced AI applications, future AI GPUs will likely need to be liquid-cooled in a server rack. That's a tricky proposition though, as direct liquid cooling (DLC) technology has been an expensive and cumbersome affair to date, which is why 99% of all data centers were air-cooled coming into 2024. However, the massive electricity requirements of AI are now forcing the hands of data center operators to adopt DLC. And the server maker that has been out in front of this trend is Super Micro Computer (SMCI 0.34%). Super Micro missed earnings estimates last quarter, and the stock plunged accordingly. It's now down 56% from all-time highs set back in March, even though the stock is also still up 100% since the beginning of 2024. But looking under the hood, the reasons for the earnings miss weren't so concerning. Super Micro already has a working DLC server product, and AI customers are clamoring for it. The demand was so great that management had to pay for expedited shipping costs for liquid cooling components, which took a bite out of margins. The supply constraints also pushed $800 million in revenue from the June-ended to the September-ended quarter. Despite the shortage, CEO Charles Liang estimated that Super Micro shipped 1,000 liquid-cooled racks in June and July, accounting for about 15% of all data center deployments, and "at least" 70% to 80% of all DLC servers globally, dominating this nascent market. Those all seem like valid reasons for the quarter's miss, especially in light of Super Micro's recent track record of trouncing expectations. Meanwhile, management projects a gradual improvement in the company's gross margins back into the 14% to 17% target range by the end of the year. Super Micro's management also gave blowout guidance of $26 billion to $30 billion in revenue for the year ahead, relative to the near-$15 billion it made in the 12 months ending in June. And Super Micro has a history of giving conservative guidance. For instance, one year ago, Super Micro forecast $9.5 billion to $10.5 billion in revenue for fiscal 2024, which ended in June. The company wound up doing 50% more than that. This indicates Super Micro could vastly outperform in terms of revenue, which could help 2025 earnings exceed expectations even with some margin compression. Given that the stock only trades around 16 times what could be conservative earnings forecasts for the year ahead, it's a buy on this dip.

3 Spectacular Artificial Intelligence (AI) Stocks You Can Buy Now and Hold Forever

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Parkev Tatevosian, CFA has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. Parkev Tatevosian is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.