AI Stocks on the Rise: ASML, Nvidia, and Others Poised for Growth

Got $1,000? A Top Artificial Intelligence (AI) Stock Is On Sale Right Now | The Motley Fool

With how popular some artificial intelligence (AI) stocks have become, many investors may feel like they've missed the boat. However, one of the top ways to invest in AI just went on sale. ASML (ASML 0.63%) has a technology that nobody else has, giving it a technological monopoly status. Without its machines, chip companies wouldn't be able to make the same cutting-edge chips that push the limits of computing power. As a result, ASML is one of the most critical companies in the chip value chain, thus making it a key AI player. However, as alluded to earlier, ASML just went on sale due to a poorly received earnings report. Is this a buying opportunity? Or is there a good reason that it fell around 40% from its all-time high? ASML isn't the cheapest stock on the market at $670 per share, but it's a long way off from its all-time high of nearly $1,100. With how critical of a company ASML is in the chip value chain, it may surprise investors not to see this company at its all-time high. After all, Nvidia (NASDAQ: NVDA) is selling more and more graphics processing units (GPUs) each quarter, which requires a lot of chips produced by Taiwan Semiconductor (NYSE: TSM) in a process that uses ASML machines. However, the key thing to remember about ASML is that it isn't directly aligned with the chip business cycle. Orders for ASML's lithography machines are placed years in advance, so the capacity that is being built out now for AI chips has already hit ASML's books. Unfortunately for investors, this has caused management to reduce its expectations for 2025. Previously, management projected between 30 billion and 40 billion euros for 2025. However, that guidance has been reduced to 30 billion to 35 billion euros -- a move that the market didn't appreciate. Following this announcement, the stock tumbled 20% in the following few trading days. This reduction is due to China, which has become an outsized part of its business in recent years. In Q3, 47% of sales went to China, but in 2025, they project it will make up around 20% of sales -- a more historically normal level. The business reduction likely has two factors (although management didn't comment on why in its earnings release). First, Western governments don't want China and its allies getting their hands on ASML's most cutting-edge machines, as this would allow them to produce the most technologically advanced chips available. Through various export bans imposed by the Dutch (ASML is based in the Netherlands) and the U.S., ASML is already limited in what it can sell to China, and further restrictions have recently been implemented. Second, China is currently experiencing an economic downturn, which naturally dampens industry expansion. Both of these factors aren't doing ASML any favors, but these are fairly short-term headwinds. Still, management is still very bullish about the future. While investors didn't appreciate the decreased guidance thanks to China, long-term investors should key in on this statement from ASML: In summary, longer-term trends are still very, very strong. Very, very positive, showing good signs of upside. But the development in the past couple of months and the customer specific circumstances that I mentioned have now led to a more gradual growth curve for our business. Basically, ASML is still strong; it just isn't going to grow as fast as it once projected. The 30 to 35 billion euro range management gave is still pretty strong, considering where 2024 revenue is expected to come in. For 2024, management projects 28 billion euros in revenue, so the 2025 guidance range would indicate 7.1% to 25% growth. If revenue comes in at the bottom end of guidance, I wouldn't be surprised to see more investors head for the exits, but if it hits the top end of guidance, ASML could see a sharp recovery. That's not a bad price, considering that ASML is in a league of its own and has no competition. While ASML's road may be bumpy over the next year, it still looks like smooth sailing for the long term. An investment in ASML is a bet that we'll need more chip capacity built out over the next few years. That's about as no-brainer of a prediction as we get in the investing world, and ASML will be a large benefactor of this move.

1 AI Stock May Be Worth More Than Apple, Microsoft, Amazon, and Tesla Combined by 2030, According to a Wall Street Analyst | The Motley Fool

Beth Kindig, technology analyst at the I/O Fund, thinks Nvidia (NVDA 2.09%) will ride the artificial intelligence (AI) boom to a $10 trillion valuation by 2030. Should that forecast prove correct, the semiconductor company would be worth more than what Apple, Microsoft, Amazon, and Tesla are currently worth combined. Kindig's prediction implies substantial upside for Nvidia shareholders. The company's current market value of $3.5 trillion would need to increase 185% to reach $10 trillion. Hitting that target by 2030 would entail share price appreciation of 19% annually over the next six years. Of course, investors should never put too much stock in price targets (no pun intended), but Nvidia warrants closer consideration due to its strength in AI. Nvidia holds 98% market share in data center graphics processing units (GPU), chips that speed up complex tasks like training large language models and running artificial intelligence (AI) applications. Consequently, despite competition from technology companies like Alphabet and other chipmakers like AMD, Nvidia GPUs are the de facto standard in AI accelerators. Nvidia began laying the groundwork for that dominance when it introduced its CUDA programming model in 2006. CUDA has evolved into an unparalleled ecosystem of software development tools that let programmers write GPU applications. Nvidia has further cemented its leadership by expanding into adjacent data center hardware verticals, including central processing units (CPUs) and networking equipment purpose-built for AI. In short, Nvidia participates in many different parts of the burgeoning AI economy. Its ability to innovate across hardware and software is a key advantage, as it lets the company design data center systems with a superior total cost of ownership, according to CEO Jensen Huang. Put differently, Nvidia GPUs are arguably cheaper (despite premium pricing) than competing chips when accounting for direct and indirect costs. Nvidia reported solid financial results in the second quarter of fiscal 2025, which ended in July 2024, beating estimates on the top and bottom lines. Total revenue increased 122% to $30 billion, driven by particularly strong momentum in the data center segment. Meanwhile, non-GAAP earnings increased 152% to $0.68 per diluted share. Management also gave better guidance that Wall Street anticipated, projecting 80% revenue growth in the third quarter. Importantly, Nvidia has a major catalyst on the horizon in the launch of its next-generation GPU, Blackwell, which provides up to four times faster AI training and 30 times faster AI inferencing versus than the previous Hopper architecture. The Blackwell production ramp began in the fourth quarter (i.e., the current quarter) and will continue into fiscal 2026. Earlier this year, CEO Jensen Huang predicted Blackwell would be "the most successful product" in company history, and perhaps the entire history of computing. Several Wall Street analysts are equally optimistic about the next-generation chip. Blayne Curtis at Jeffries in a recent note to clients wrote, "Nvidia continues to see unprecedented demand that far exceeds even their rapidly expanding capacity." Likewise, Harsh Kumar at Piper Sandler estimates AI accelerator sales will rise $70 billion in 2025, and he believes Nvidia will capture most of that incremental spending as businesses vie for Blackwell chips. Also, Kumar recently mentioned that Nvidia "has historically surprised the Street on the upside during initial stages of product ramps." Going forward, AI accelerator sales are projected to grow at 29% annually through 2030, while spending across AI hardware, software, and services is forecast to increase at 37% annually during the same period. Nvidia may be the company best positioned to capitalize on that opportunity due to its participation in so many parts of the AI economy. However, Nvidia also has an adjacent opportunity as data centers transition from general-purpose computing to accelerated computing. Jensen Huang believes every data center will deploy GPUs in the future, and he expects cumulative spending to total $1 trillion over the next four to five years. Some of that spending will go to data center accelerators, such that sales increase at 25% annually through 2030, according to Grand View Research. Wall Street expects Nvidia's adjusted earning to increase at 37% annually through fiscal 2027, which ends in January 2027. That estimate makes the current valuation of 66 times adjusted earnings look fair. And if Nvidia maintains a similar trajectory, such that earnings grow at 31% annually over the next six years, its market value will reach $10 trillion in mid-2030 while its valuation falls to 37 times earnings. The market currently affords Apple a multiple of 37 times earnings, so it seems reasonable to assume Nvidia will have a similar price tag. Having said that, there can be no question that Nvidia would need near-perfect execution and some luck to hit the $10 trillion mark by 2030. Regardless, investors should consider buying a small position today.

Should You Buy This Millionaire-Maker Stock Instead of Palantir Technologies? | The Motley Fool

There may not be a hotter stock on Wall Street right now than Palantir Technologies. The company's artificial intelligence (AI) software is revving its growth engine, and there is a wide-open market opportunity in both government and the private sector. The stock is up approximately 800% since the start of last year. Be warned. Momentum can sometimes take stock prices to irrational places, and Palantir's valuation has arguably become untenable at more than 50 times the company's revenue. There might be a better AI stock to buy right now. ASML (ASML 0.28%) plays a vital role in producing the cutting-edge chips that power AI technology. However, the company's geopolitical woes have suppressed the share price, creating a buying opportunity for long-term investors. Here is what you need to know. There's a difference between a company and its stock. Palantir is making a convincing argument that it's a fantastic business. Its data analytics software has become increasingly widespread among government and enterprise customers, and its AIP platform, which helps companies deploy AI applications, has ignited its growth. Palantir's revenue grew 30% year over year in the third quarter, a continued acceleration that excited investors about the company's future. But as I said above, the stock has multiplied from where it was just under two years ago. In fact, on a price-to-sales basis, the stock is more expensive today than during the "Everything Bubble" of 2021, a stock market bubble born from zero-interest-rate fiscal policy following the COVID-19 pandemic: This will probably not end well. Stocks generally don't maintain sky-high valuations like this, and it will take either years of the stock going nowhere or a dramatic decline to make Palantir's valuation sensible again. In other words, this is not the stock you want to put fresh money into right now. On the other hand, ASML has headed in the opposite direction since the stock peaked in July. ASML designs and manufactures specialty equipment, called lithography machines, to produce semiconductors (chips). It's a key cog in the technology supply chain because it's the only company that makes extreme ultraviolet lithography (EUV) machines required to produce high-end chips, like those used in data centers for AI. ASML's dominance in lithography has helped the stock produce mind-blowing investment returns. The stock's total returns surpass 31,000% since the mid-1990s, easily outrunning the S&P 500. Long-time investors in ASML stock have probably enjoyed life-changing wealth, perhaps even becoming millionaires. So, why has this fantastic stock declined nearly 40% from its high? The Dutch company has become a victim of geopolitical tensions between China and the United States. China is ASML's core market, representing nearly half of total revenue in Q3. The United States is pressuring ASML to restrict its business with China for national security reasons. These concerns were legitimized by Q3 earnings when ASML lowered its 2025 revenue guidance from its prior range of 30 billion to 40 billion euros to 30 billion to 35 billion euros. The geopolitical fears have merit, and Q3 earnings showed that the tensions are already impacting the business. However, the situation seems more like temporary turbulence than permanent damage. Why? Because it's unlikely that these political tensions will last forever. ASML is the most valuable company in the Netherlands. Will the Dutch government allow ASML to implode over political posturing between other countries? It could, but I wouldn't make that bet. Remember, ASML has a monopoly on EUV machines. As long as global demand for chips rises over time, ASML has a good shot at realizing those growth opportunities, by selling either to China or wherever that manufacturing winds up. Meanwhile, the stock trades at a price-to-earnings (P/E) ratio of 32, below its 10-year average of 37. Few dominant companies trade at a discount to their historical norms in today's market. The stock isn't a sure thing while the geopolitical waters remain choppy, but it looks far safer than Palantir, which has essentially turned into a bubble at these prices.

Missed Out on Nvidia? Buy These 3 AI Stocks. | The Motley Fool

Perhaps no stock benefited more from the boom in artificial intelligence (AI) than Nvidia. Its dominance in the AI chip market redefined the direction of the company and much of the industry at large. Unfortunately, many AI investors missed out on Nvidia's boom. The good news is that most analysts expect AI-driven gains in the technology market for years to come. To this end, three Motley Fool contributors have ideas on where investors should look next for these gains: Palantir Technologies (PLTR 4.49%), Meta Platforms (META -0.40%), and Tesla (TSLA 8.19%). Jake Lerch (Palantir Technologies): I've been bullish on Palantir for a while, and the company's most recent earnings report gives me no reason to change my mind. In short, it is executing at a level that should make every investor sit up and take notice. The company, which operates an AI-driven platform for government and commercial clients, sits at the forefront of the AI revolution. It helps organizations implement large language models for highly specific purposes. For example, the company has helped with jobs as diverse as speeding up the underwriting process for insurance companies and managing battlefield assets for the military. The proof of Palantir's success can be seen in its results. In the most recent quarter (the three months ending on Sept. 30), the company achieved the following: Analysts expect that growth to continue. We're just getting started in the AI revolution, and many organizations have yet to fully explore how they can drive efficiencies with it. Consensus estimates suggest that Palantir's revenue will increase 23% in 2025 to roughly $3.4 billion. Those estimates have been rising since the company's excellent earnings report, and I believe it's likely that they continue to increase as we head into 2025. In short, Palantir is my top choice for an AI company to own in 2025. Justin Pope (Meta Platforms): There hasn't been anything wrong with Meta Platforms' stock, which cruised more than 380% higher since the start of last year. Yet, I think there is still a lot of juice to squeeze here. First, the stock remains a bargain for the growth you're getting. Meta trades at a price-to-earnings ratio (P/E) of 25. And analysts estimate the company will grow earnings by an average of 20% annually over the next three to five years. Assuming Meta hits that number, the stock's price/earnings-to-growth ratio (PEG) is only 1.3, which is inexpensive for a business as strong as Meta's. Now, let's look deeper. Meta is one of the world's prominent advertising companies, selling ads to billions of social media users across Facebook, Instagram, and WhatsApp. The company's app family had 3.29 billion daily active users as of the third quarter, a 5% year-over-year increase. Mid-single-digit user growth is impressive, considering that almost half the global population already uses these apps. Growth in users and ad prices are a potent combination for sustained revenue growth. Meta is leaning heavily into AI, including open-sourcing its Llama AI model and implementing AI tools into its advertising operations. It built an entire business unit focused on AI, Reality Labs, which is still unprofitable due to the massive ongoing investments to accumulate computing resources. Over time, that unit should turn profitable as revenue builds and these investments tail off. At that point, it could supercharge Meta Platforms' broader earnings growth. So investors can buy Meta today for its already-compelling valuation proposition and hold for the eventual AI tailwinds that could continue driving earnings growth in the future. Will Healy (Tesla): Most consumers know Tesla best for Elon Musk and his work to make the automaker the most successful EV company in history. However, the business that shifts Tesla into a higher gear may be autonomous driving. The company just introduced its fully autonomous Cybercab to the market, and Musk forecasts production of these vehicles will reach 2 million units annually by 2026. The Cybercab is just one application of its AI and robotics research that could revolutionize driving and other human activities. Its full self-driving (FSD) relies on its inference chip, while its Dojo system will power Tesla's data centers. It also conducted robotics research that can handle repetitive or dangerous tasks, turning the automaker into a technology powerhouse. A lot of hope rides on this technology, and investment groups like Cathie Wood's ARK Invest believe Tesla will eventually derive most of its revenue from selling its robotaxi technology as a service. It speculates this technology could take the stock to $2,600 per share by 2029, a nearly ninefold gain from today's levels. For now, automobile-related sales accounted for 88% of Tesla's $25 billion in the third quarter of 2024, a gain of 8% from year-ago levels. But efforts to reduce its operating expenses boosted the bottom line, so its $2.2 billion net income in the quarter surged 17% higher over the previous year. It plans an unboxed manufacturing strategy for its robotaxis, increasing efficiency by building subassemblies in separate areas before putting them all together to build the final product. Despite such efforts, the EV stock is down just under 30% from its 2021 highs. Still, optimism about its future has kept its price-to-earnings ratio at 82, and succeeding with robotaxis could mean it makes ARK Invest's forecast for a nearly ninefold gain over the next five years a realistic aspiration.

2 Ultimate Growth Stocks to Buy With $1,000 Right Now | The Motley Fool

The AI tailwind can continue to propel these quality stocks in the long run. Artificial intelligence (AI) is touted as one of the most important themes on Wall Street, and the technology sector continues to be a major beneficiary of this trend. Many AI-powered stocks have seen significant upward price movements in the past couple of years. Since AI technologies are driving a paradigm shift across sectors, companies leveraging them will continue to see share prices grow in the long run. Since 2008, the U.S. stock market has demonstrated remarkable resilience, despite changes in political administrations, fiscal policies, economic indicators, and international relationships. Against this backdrop, it makes sense for investors to start picking small stakes in stocks like Advanced Micro Devices (AMD -0.41%) and Microsoft (MSFT -1.07%), even though they are currently facing headwinds. If investors have $1,000 not required to pay bills or for other contingencies, buying either of these stocks can prove to be a smart move now. Semiconductor giant Advanced Micro Devices' shares tanked after the company released third-quarter fiscal 2024 results on Oct. 29. While the company's revenues surpassed analysts' expectations and earnings came in line with consensus estimates, investors were disappointed with its forward guidance. Investors are concerned about AMD's ability to capture a significant share in the global AI market, amid a tight supply environment. AMD's management expects the AI accelerator target addressable market for its data center GPU segment to grow annually by 60% to $500 billion in 2028. Yet investors remain worried about the current momentum of its AI business, as the company increased revenue guidance for its data center GPU revenues from $4.5 billion to just $5 billion for 2024. Despite these challenges, there are still many reasons to like AMD stock. First, AMD's data center segment posted an impressive 122% year-over-year jump in revenues to $3.5 billion in the third quarter. AMD attributes this mainly to robust enterprise and cloud demand for its EPYC CPUs. The EPYC line of processors is increasingly considered to be "the CPU of choice for the modern data center," and it's being used to power multiple services including Netflix, Microsoft Office 365, and Meta Platforms' Facebook. Second, contrary to investor opinion, AMD's AI accelerator business is all set to grow rapidly in the coming quarters. The company is seeing healthy adoption of its MI300X accelerators from cloud and AI players, as well as original equipment manufacturers. Microsoft is already using MI300X for several services based on the family of GPT-4 models. Meta Platforms is also using MI300X chips to power its inferencing AI infrastructure at scale, including supporting live traffic for its Llama 405B model. AMD is also working to accelerate the pace of launch for next-generation AI accelerators, with the MI325X and MI350 series scheduled for launch in 2025 and 2026, respectively. Third, AMD's client segment also saw robust growth, with revenues jumping 29% year over year to $1.9 billion in the third quarter. The launch of the Ryzen 9000 series processors pushed up sales of the company's desktop channel. AMD is also seeing positive traction for its Ryzen AI 300 series processors from AI PCs. Furthermore, with Windows 10 support ending in 2025 and the emergence of new AI PCs, a new PC refresh cycle can further boost demand for AMD's client processors. Considering these tailwinds and the recent correction in share prices, AMD seems a smart pick now. Technology titan Microsoft's shares also took a beating after releasing first-quarter fiscal 2025 results (ending Sept. 30), despite sales and earnings beating consensus analyst estimates. The company's lower-than-anticipated year-over-year revenue guidance for its Azure business -- around 31% to 32% -- for the second quarter seems to have disappointed investors. Nevertheless, the company remains an attractive pick for the astute investor. Azure cloud computing accounted for 20% of the worldwide cloud infrastructure market in the third quarter of 2024. Azure and other cloud services revenues soared by a healthy 33% year over year in the third quarter of 2024 (ending Sept. 30), with AI services contributing to roughly 12 percentage points of this growth. Microsoft has introduced new Cobalt 100 virtual machines (VMs) that help power general workloads at enterprises with up to 50% better price performance. The company is also the first cloud provider to implement Nvidia's Blackwell system with its GB200-powered AI servers. Not surprisingly, Azure is benefiting from healthy consumption trends, as enterprises continue to migrate their on-premise workloads to the cloud. Furthermore, Azure has also witnessed an increase in the total number of $10 million-plus and $100 million-plus contracts. This implies that customers are entering into long-term commitments with Azure, which ensures higher revenue visibility for Microsoft. The partnership with ChatGPT developer OpenAI has also proved pivotal for Microsoft, enabling the company to rapidly build and scale AI-powered businesses. Microsoft estimates its AI-powered businesses (which mainly include Copilot offerings and Azure AI) to be on track to surpass $10 billion in annual revenue run rate. Since these AI offerings are being rapidly adopted by enterprises in real-time applications (and not merely for training purposes), the company considers its AI revenues to be sustainable and of high quality. Microsoft has established a broad Azure data center footprint across 60 regions worldwide. The company also is aggressively investing capital to build next-generation cloud-native AI infrastructure, and is also optimizing its technology stack for AI workloads, to further capitalize on the long-term AI demand. Hence, while the company is currently facing some AI capacity constraints, it expects to see accelerated growth for its AI businesses starting from the second half of fiscal 2025. It is undeniable that $20 billion quarterly capex spending is a high expense even for a $3 trillion giant like Microsoft. However, thanks to its broad ecosystem of stable, high-growing businesses, the company has been successfully growing its top line and bottom line at double digits in the past years. Plus, the company has also returned a hefty $9 billion to shareholders as dividends and share repurchases in the third quarter. The robust AI and cloud tailwinds, coupled with Microsoft's healthy financials, make the company an excellent choice this November.

2 Top Artificial Intelligence (AI) Stocks Ready for a Bull Run | The Motley Fool

These leading tech companies have underperformed the broader market this year, but that may change in 2025. The market for artificial intelligence (AI) is a generational investment opportunity. But you don't have to chase risky stocks to earn great returns. Leading semiconductor and software companies are benefiting greatly from growing adoption of AI and can help you earn superior returns over the long term. Here are two reasonably priced AI stocks that can hit new highs in 2025 and for years to come. Shares of Advanced Micro Devices (AMD 2.43%) quadrupled in value over the last five years. The company is the second leading supplier of graphics processing units (GPUs), which are required for AI training in data centers. The company has gained significant market share against Intel in recent years, but AMD stock is down about 4% this year and underperforming the S&P 500's 20% increase. However, its latest earnings report shows accelerating growth that could lift the stock in 2025. Revenue grew 18% year over year in the third quarter, but the most telling sign of its momentum is the 17% revenue increase over the previous quarter. The company's data center revenue more than doubled year over year, driven by insatiable demand for AMD's Instinct GPUs and Epyc central processing units (CPUs) for servers. AMD supplies chips for several markets, including video game consoles. Gaming revenue fell 69% over the year-ago quarter, but the momentum in data center and its client segment, including sales of Ryzen desktop processors, is enough to lift the stock next year. Management sees substantial growth opportunities in these markets. It recently announced the acquisition of ZT Systems, which will expand its opportunities in meeting the growing demand for AI infrastructure. Most importantly, the high demand for data center and server chips is benefiting AMD's margins. Adjusted earnings per share were up 33% year over year last quarter, and analysts expect earnings to be up 52% in 2025. AMD shares are not cheap at a forward price-to-earnings (P/E) ratio of 42 on 2024 earnings estimates, but this is a reasonable valuation to pay for a fast-growing AI chip supplier. Microsoft (MSFT 2.12%) is going to be the face of AI for millions of people. The software giant has been rolling out AI features across its offerings for both consumers and businesses, including the Copilot assistant for Windows and Microsoft 365 apps. It has seen more people using Microsoft 365 (e.g., Word and Excel), and the Azure cloud business continues to see strong growth, driven by increased demand for AI services. The stock's 9% year-to-date return trails the S&P 500, but Microsoft's momentum in the cloud and AI should boost the share price. There is some uncertainty about the timing of Microsoft's capital spending to support AI demand, and how those expenditures will convert to profits over the long term. But investors are giving Microsoft the benefit of the doubt. Revenue growth continues to look strong, with Microsoft Cloud revenue reaching $38.9 billion last quarter, up 22% year over year. However, the expenditures needed to support demand for AI services are pressuring earnings, which grew 10% year over year. This is lower than the 16% increase in revenue, but Microsoft is building scale in its cloud and AI services that will lead to better margins over time. Microsoft is capitalizing very well on AI adoption. The company expects revenue from AI to surpass a $10 billion annual revenue run rate in the next quarter, which makes it the fastest-growing business in Microsoft's history. Investments in AI will continue to weigh on margins, but management is countering this trend by focusing on high-margin opportunities in its consumer products. Overall, analysts expect the company's earnings to grow 15% in fiscal 2025 ending in June. The stock is fairly valued at a forward P/E of 31, so investors should expect Microsoft shares to climb in step with earnings.

3 Top Artificial Intelligence Stocks to Buy in November | The Motley Fool

Nearly every technology company touts its artificial intelligence credentials these days. I don't blame them, considering AI is a valuable addition to many software and services. But just because tons of companies are quickly integrating AI into their offerings, it doesn't mean they're top AI stocks. Instead, you should look for leaders who are knee-deep in this segment and setting the pace in the AI race. Here are three top AI stocks leading the pack that are worth buying right now. Palantir Technologies (PLTR 4.49%) was in the business of helping organizations sort data before AI became commonplace. For years, it focused on using artificial intelligence to help the government parse through gobs of data, but it has since expanded into the commercial market. Its early lead in this space is paying off. The company just reported its third-quarter results (which ended Sept. 30), in which revenue rose 30% from the year-ago quarter to $726 million and adjusted earnings per share spiked 43% to $0.10. U.S. commercial revenue, a fast-growing part of Palantir's business, increased sales by 54% to $179 million and accounted for about one-quarter of the company's total revenue in the quarter. Part of that growth comes from Palantir's impressive customer growth, which was up 39% in the quarter amid 104 customer deals that were worth $1 million or more. If I have one hesitation with Palantir, it's the company's sky-high valuation. Palantir's shares have forward price-to-earnings of 101 right now. That's expensive by any measure. However, the company is clearly making the right moves in the AI race and is also profitable, not to mention having $4.6 billion in cash and cash equivalents. With its customers knocking down its doors for its tech, and sales and earnings growing at a healthy clip, Palantir likely still has more room to run. Nvidia (NVDA -0.84%) is one of the obvious choices when it comes to top AI stocks. For years, the company has dominated the graphics processing unit (GPU) market when they were mainly used for gaming, but now its GPUs are far and away the leading choice to power AI data centers as well. The most recent estimates give Nvidia's chips between 70% to 95% of the AI chip market, and its latest product lineup -- including its popular H200 processor -- will likely keep the company ahead of the competition for some time. You might be wondering if demand for AI chips could be high enough to fuel sustained growth for Nvidia, and to that, I'd say that both Nvidia's CEO Jensen Huang and Goldman Sachs think $1 trillion in AI spending will occur over the next few years, most of which will be funneled into data centers. Even with Nvidia's stunning 380% share price increase over the past three years, its forward P/E of 35.8 is still relatively low compared to some other AI stocks. That's still not cheap, but Nvidia is the clear leader in the AI processor market, and AI spending is still just getting underway. The company's early lead and advanced processors should help keep it ahead of the competition, and the intense AI race that's now begun among all tech companies will be the fuel that keeps Nvidia's fire burning for quite some time. There's another critical angle investors can play in the artificial intelligence space, and it comes in the form of chip manufacturing. There are chip designers, like Nvidia, and then there are the companies that actually make the processors, like Taiwan Semiconductor Manufacturing (TSM 0.01%). TSM manufactures about 90% of the world's most advanced processors, and the AI boom is fueling the company's growth. TSM reported impressive third-quarter financial results a few weeks ago (for the period ending Sept. 30), with sales rising 39% to $23.5 billion and diluted EPS soaring 54% to $1.94 per American depository receipt (ADR). TSM's management said third-quarter growth came from "strong smartphone and AI-related demand" and that more is on the way. The company estimates fourth-quarter sales will jump 35% at the midpoint of guidance. TSM has the lowest forward P/E on this list, at just 21.2, making it a relative deal compared to its AI peers. With TSM the definitive leader in advanced chip processor manufacturing, the company is poised to continue to benefit as more companies ramp up their AI data center spending.

Big Tech Capex Spending Is Set to Soar Once Again in 2025: 1 Top Stock to Buy Before That Happens | The Motley Fool

Major technology companies are expected to ramp up their spending in 2025 as they continue to build out AI infrastructure. Major technology companies have ramped up their capital spending significantly since 2023. They have been spending big-time on putting artificial intelligence (AI) infrastructure in place in a bid to make the most of this fast-growing technology. According to Bloomberg Intelligence, Amazon, Microsoft, Alphabet, Meta Platforms, Apple, and Oracle spent a total of $110.2 billion in capital expenditures (capex) last year, up from $104.2 billion in 2022. However, these big tech companies are on track to spend an estimated $165.2 billion in capex this year, which would be a big increase of almost 50% from 2023 levels. What's more, these tech giants are expected to spend almost $200 billion in capex in 2025, thanks to their focus on expanding their data centers to meet the growing demand for AI applications. Bloomberg points out that the majority of this spending will be allocated to graphics processing units (GPUs) and other data center infrastructure. GPU maker, Nvidia (NVDA 2.25%), is in a terrific position to capitalize on this massive capital spending by big tech companies. The big technology companies mentioned above have been spending heavily on AI data centers, and Nvidia has been a big beneficiary of their spending. The GPUs that Nvidia manufactures have witnessed a huge surge in demand because of their ability to train large language models (LLMs), and they are now being deployed for inference applications as well. This explains why the company's data center revenue shot up a remarkable 217% in fiscal 2024 (which ended in January this year) to $47.5 billion. Nvidia's data center revenue in the first half of the current fiscal year has already reached $49 billion, of which $42 billion can be attributed to sales of AI GPUs. At this pace, Nvidia's data center GPU revenue could hit $84 billion this year. This suggests that Nvidia is hypothetically on track to account for just over half of the entire capex of the big tech companies discussed above. Of course, Nvidia supplies its AI GPUs to other companies and governments as well, so all of its data center GPU revenue isn't coming from sales of AI chips to big tech players. However, it is worth noting that the major technology companies at the center of the discussion in this article have been queuing up to buy Nvidia's GPUs. As it turns out, the demand for the chipmaker's next-generation Blackwell graphics cards is so strong that they have been reportedly sold out for the next 12 months. That's not surprising; Nvidia pointed out earlier this year that "among the many organizations expected to adopt Blackwell are Amazon Web Services, Dell Technologies, Google, Meta, Microsoft, OpenAI, Oracle, Tesla and xAI." As a result, there is a solid chance that Nvidia will continue to benefit from a surge in big tech's capex next year, especially considering that it is expected to maintain its robust share of the fast-growing AI chip market. In an interview with CNBC, Bank of America analyst Vivek Arya pointed out that Nvidia is on track to maintain its impressive share of 80% to 85% of the AI chip market, suggesting that it could indeed receive a nice chunk of the $200 billion big tech capex. According to reports, investment bank Mizuho estimates that the AI GPU market could hit an annual size of $400 billion over the next five years, indicating that Nvidia's outstanding data center growth is here to stay. This explains why analysts are expecting Nvidia's revenue to increase at an annual rate of 57% for the next five years, which is why buying this stock right now looks like the right thing to do considering its valuation. Though Nvidia stock's trailing price-to-earnings (P/E) ratio of 65 is expensive, the forward earnings multiple of 36 points toward a big jump in its earnings. More importantly, Nvidia's forward P/E isn't all that expensive when we consider that the Nasdaq-100 index has a forward earnings multiple of almost 30 (using the index as a proxy for tech stocks since it has a heavy concentration of tech companies). The company reported $1.19 per share in earnings in fiscal 2024, and the following chart suggests that its earnings are set to grow at a healthy pace in the current fiscal year and in the next one. NVDA EPS Estimates for Current Fiscal Year data by YCharts. According to Yahoo Finance, Nvidia's (PEG ratio) sits around 1.1. This indicates the stock may be fairly valued. The PEG ratio is a forward-looking valuation metric that takes into account a company's earnings growth potential, and a reading of around 1 indicates that a stock is accurately priced for the growth it is expected to deliver. Another thing worth noting here is that Nvidia's PEG ratio is lower than the S&P 500 Information Technology sector's average PEG ratio of 1.39 in June this year. Since the sector has remained nearly flat since then, it would be safe to assume that the sector has a similar PEG ratio now. As such, investors looking to buy an AI stock right now should consider loading up on shares of Nvidia as it could deliver another solid performance next year following the 184% gains it has clocked in 2024.

1 No-Brainer $3 Trillion Stock to Buy With $420 and Hold Until 2030 | The Motley Fool

Microsoft (MSFT 2.12%), Apple, and Nvidia are the only three companies in the world with a valuation of $3 trillion or more. While Nvidia is the undisputed king of artificial intelligence (AI) chips, Microsoft is fast becoming a leader in AI software. Microsoft just reported its financial results for the fiscal 2025 first quarter (ended Sept. 30), and the company generated incredible growth from its Copilot AI assistant and its AI cloud services. Here's why investors sitting on spare cash -- money they don't need for immediate expenses -- might want to consider using $420 to buy one Microsoft share, with the intention of holding onto it until 2030 (at least). At the beginning of 2023, Microsoft announced plans to invest $10 billion in OpenAI, which is the creator of ChatGPT. Microsoft wasted no time using OpenAI's latest AI models to develop its own virtual assistant called Copilot, which is capable of instantly generating text, images, computer code, and even answering complex questions on a variety of topics. Copilot is available for free on many of Microsoft's flagship software products like Windows, the Bing search engine, and the Edge internet browser. However, paying users of its 365 platform (which includes Word, PowerPoint, Excel, and more) can also use Copilot for an additional monthly subscription fee. This could be an enormous source of revenue for Microsoft in the future because businesses around the world currently pay for over 400 million 365 seats. As of Q1, Microsoft said 70% of the Fortune 500 companies are using Copilot for 365. While the tech giant doesn't disclose exactly how many businesses have adopted it in total, CEO Satya Nadella said the number of people who use it daily more than doubled during Q1 compared to just three months earlier. Telecommunications giant Vodafone is rolling out Copilot for 365 to more than 68,000 of its employees after a trial run showed it was saving three hours per person per week. Microsoft also saw strong growth in its Copilot Studio platform during Q1, which enables businesses to build different Copilots for specific applications. For example, they can create one Copilot for Teams to help schedule meetings and summarize conversations, and one Copilot for 365 to generate data insights in Excel. More than 100,000 organizations had used Copilot Studio as of the end of Q1, which doubled from just three months earlier. Microsoft's Azure cloud platform is routinely one of the fastest-growing parts of the entire organization. It provides hundreds of services to businesses all over the world to help them operate in the digital era, from simple data storage to complex software development tools. The platform is also home to Azure AI, which offers a growing suite of services to help businesses develop AI and deploy it into their operations. Through Azure AI, developers can access state-of-the-art data center computing capacity powered by the latest chips from suppliers like Nvidia and Advanced Micro Devices. In fact, Azure is the first cloud platform to launch a system powered by Nvidia's new Blackwell-based GB200 graphics processing units (GPUs), which are the most advanced in the industry for performing AI inference. Azure also provides access to the industry's latest large language models (LLMs), including OpenAI's new o1 models, which are its most advanced to date. In fact, Microsoft says usage of its Azure OpenAI platform has more than doubled over the last six months as companies build AI-powered digital assistants to make tens of thousands of their employees more productive. Overall, the Azure cloud platform grew its revenue by 33% during Q3 compared to the year-ago period. Microsoft said 12 points of that growth came from AI services, specifically, which was up from eight points during the previous quarter three months earlier. That number has accelerated in every single quarter since Microsoft began reporting it more than a year ago, and the company says demand for its data center infrastructure still outstrips supply. During Q1, Microsoft allocated $20 billion to capital expenditures (capex), most of which went toward AI data center infrastructure and chips. That followed a whopping $55.7 billion in capex spending during the whole of fiscal 2024. Therefore, it's critical that the company shows investors a return on that spending, and the acceleration in Azure AI growth is a very good sign. AI could be the most significant financial opportunity in a generation. Last year, Ark Investment Management issued a forecast suggesting AI could add $200 trillion to the global economy by 2030 thanks to its ability to boost productivity among knowledge workers. Cathie Wood, who is the Chief Investment Officer at Ark, believes AI software companies will eventually generate $8 in revenue for every $1 they spend on chips. If Wood is right, the return on Microsoft's substantial investment in AI infrastructure so far could be hundreds of billions of dollars. But Ark isn't the only firm with multitrillion-dollar forecasts for the AI industry: Microsoft has generated $12.12 in earnings per share over the last four quarters, and based on its stock price of $412.05 as of this writing, it trades at a price-to-earnings (P/E) ratio of 33.9. That's a slight premium to the Nasdaq-100 technology index, which trades at a P/E ratio of 32.3, but it's near the cheapest level the stock has traded at this year: In my opinion, Microsoft deserves a premium valuation to the rest of the tech sector, given its leadership position in AI software, especially when it comes to monetization. Additionally, investors who buy Microsoft stock today might look back on this moment in 2030 and think it was an absolute bargain if the AI forecasts highlighted above prove to be accurate.

Should You Buy Nvidia Stock After It Notched 200% Gains in 2024? Wall Street Is Providing a Nearly Unanimous Answer. | The Motley Fool

Nvidia stock has been the poster child for artificial intelligence and continues to defy the odds. But is the stock still a buy? Another week, another new all-time high for Nvidia (NVDA -0.84%). The stock climbed to record-setting territory again on Thursday after setting a new watermark on Wednesday. Over the past couple of years, the stock has regularly hit new heights, fueled by the roaring adoption of artificial intelligence (AI). In 2024 alone, Nvidia is up 200% (as of this writing) and appears poised to vault higher. After a rally of that magnitude, some investors are understandably wary, concerned about the potential for a slowdown in the adoption of AI and Nvidia's lofty valuation. Let's take a look at the general state of AI, Nvidia's place in the vast scheme of things, and what Wall Street is saying about the company's potential. Investors looking to understand the state of generative AI adoption need look no further than the cloud infrastructure providers that are the biggest purveyors of AI to the masses. Amazon, Microsoft, and Alphabet are the big three cloud providers, and all three reported their calendar third-quarter results during the last week of October. Executives from each of the companies vowed to continue spending heavily on AI, with most of those capital expenditures going toward the servers and data centers needed to further their AI efforts. Meta Platforms, which has used its treasure trove of customer data to fuel its Llama AI model, also plans to continue ramping spending to support its AI development. Investors can also review the results of other notable companies at the forefront of AI technology. Just last week, Palantir Technologies (PLTR 4.49%) delivered third-quarter results that sailed past expectations, driven by "unrelenting AI demand," according to CEO Alex Karp. Revenue grew 30% year over year, driving earnings per share (EPS) up 100%. The results were fueled by demand for its Artificial Intelligence Platform (AIP), the flagship product of its commercial AI segment. U.S. commercial revenue grew 54%, driven by a customer count that surged 77%. As a result, the segment's remaining deal value jumped 73%. Taiwan Semiconductor Manufacturing (TSM 0.01%) is a chip foundry and the leading producer of high-end chips used for AI. The company also reported results, adding to the growing mound of evidence that demand for AI is alive and well. Revenue grew 39% year over year, while EPS surged 54%. The company cited strong "AI-related demand" as fueling the results. Taken together, big tech's heavy capital expenditure spending and the results by Palantir and Taiwan Semiconductor leave little doubt that demand for AI continues to be strong. Lest there be any doubt, without Nvidia's graphics processing units (GPUs) to power the technology, AI -- at least as we know it today -- likely wouldn't exist. The company pioneered parallel processing, or the ability to run a magnitude of mathematical calculations by breaking up massive amounts of data into smaller, more manageable chunks. This technology gave Nvidia an edge that the company has never ceded. While GPUs were originally designed to make images in video games more realistic, parallel processing turned out to be equally adept at running computationally intensive jobs like AI. As a result, Nvidia has become the gold standard in the cloud and in data centers, where much of AI processing takes place. Nvidia captured a dominant 98% share of the data center GPU market in both 2022 and 2023, according to semiconductor analyst firm TechInsights. Given the company's relentless pace of innovation, it's unlikely that it has ceded much of that share this year. This dominance has fueled the company's financial results. For its fiscal 2025 second quarter (ended Jul. 28), Nvidia generated record revenue that soared 122% year over year to $30 billion. The results were driven by record data center revenue that jumped 154% to $26.3 billion. Earnings also surged, resulting in diluted EPS that soared 168% to $0.67. Two elements in the report made investors skittish. The first issue was a gross margin of 75.1%, down from 78.4% in Q1. Given the latter number was an all-time high, investors shouldn't be too concerned. Management chalked up the issue to product mix and inventory provisions related to the upcoming release of its Blackwell AI processors. The second issue was the company's forecast for revenue growth of 79%, a clear deceleration from the triple-digit growth Nvidia has delivered for five consecutive quarters. Veteran investors will recognize that tough comps will eventually catch up with the company, as is the case here. That said, 79% growth is still enviable. Analysts on Wall Street rarely agree on anything, so when they are in agreement, it's noteworthy. Such is the case with Nvidia, which still boasts a buy rating. The bullish sentiment is nearly unanimous: Of the 64 analysts who issued an opinion in October, 92% rated the stock a buy or strong buy, and none recommended selling. With so many disparate opinions, it's unusual for Wall Street to reach a near-universal consensus like that. However, given Nvidia's ongoing series of blockbuster financial results, perhaps it isn't that surprising after all. Rosenblatt analyst Hans Mosesmann is the self-professed biggest Nvidia bull on Wall Street. He maintains a buy rating and Street-high price target of $200 on Nvidia, which represents additional upside of 37% compared to Wednesday's closing price -- even after its record-setting run. While some investors were concerned about Nvidia's waning gross margins, Mosesmann is undeterred. He believes the issue results from the company's rapid product development cadence, saying it's a "high-class problem." He went on to point to the continuing strength of Nvidia's Hopper architecture while suggesting the company's new AI-centric Blackwell chip will be "ramping hard" in the fiscal 2025 fourth quarter, which ends in January. The most consistent question from investors is about Nvidia's valuation. Indeed, the stock is currently selling for 70 times earnings, so their apprehension is understandable. Here's the thing: Analysts' consensus estimates for Nvidia's fiscal 2026, which begins in January, are forecasting EPS of $4.06. That means the stock is currently selling for just 37 times forward earnings. While that's a premium to the overall market, it's a small price to pay for an industry leader with strong secular tailwinds and an impressive track record of execution. That's why Nvidia stock is still a buy, even after notching 200% gains so far this year.

Should You Forget Palantir and Buy These 2 AI Stocks Instead? | The Motley Fool

Nvidia and TSMC look more reasonably valued, relative to their growth potential. Palantir's (PLTR 4.49%) stock hit a record high of $51.13 on Nov. 5. Its 223% year-to-date rally was driven by its accelerating revenue growth, soaring profits, and its inclusion in the S&P 500. The buying frenzy in AI stocks, expectations for lower rates, and the market's post-election rally amplified its gains. It's easy to see why the bulls love Palantir. The analytics software company, which helps its government and commercial clients aggregate data from disparate sources to make smarter decisions, expects revenue to rise 26% this year -- accelerating from its 17% growth in 2023 -- as it stays profitable. Most of that growth will be driven by new government contracts, the robust growth of its U.S. commercial business, and the expansion of its generative AI services. From 2023 to 2026, analysts expect Palantir's revenue and earnings per share (EPS) to grow at compound annual growth rates (CAGR) of 23% and 59%, respectively. But at 186 times forward earnings and 33 times next year's sales, the company's frothy valuations might limit its upside potential. Instead of chasing Palantir's high-flying stock, should investors buy Nvidia (NVDA -0.84%) and TSMC (TSM 0.01%) as their long-term AI plays instead? Nvidia is the linchpin and bellwether of the AI market because it's the dominant producer of high-end data center GPUs for processing AI tasks. The world's leading AI companies -- including OpenAI, Microsoft, Alphabet's Google, and Meta Platforms -- all run their AI applications on Nvidia's GPUs. The soaring popularity of OpenAI's ChatGPT and other generative AI applications drove many companies to upgrade their data centers with Nvidia's GPUs. As a result, the market's demand quickly outstripped the company's available supply, its prices and gross margins soared, and revenue skyrocketed. In fiscal 2024 (which ended this January), Nvidia's revenue soared 126% as its adjusted EPS jumped 288%. Nvidia faces some long-term challenges. Many of its top customers are developing first-party AI accelerator chips, its rival AMD is ramping up its production of cheaper data center GPUs, and its sales to China are being throttled by tighter export restrictions. Its major customer Super Micro Computer also faces some tough questions amid its delayed 10-K filing, its auditor's departure, and a potential regulatory probe. But assuming Nvidia weathers those challenges, analysts expect revenue and EPS to grow at a CAGR of 51% and 56%, respectively, from fiscal 2024 to fiscal 2027, as the AI market expands. Based on those estimates, Nvidia trades at 39 times forward earnings and 20 times next year's sales, so it still looks like a cheaper and faster-growing play on the AI market than Palantir. TSMC is the world's largest and most advanced contract chipmaker. It manufactures chips for "fabless" chipmakers -- including Nvidia, AMD, and Apple -- which outsource their production to third-party foundries. Over the past decade, TSMC pulled ahead of its two closest competitors, Samsung and Intel, in the "process race" to manufacture smaller and denser chips. It gained that lead by adopting ASML's top-tier lithography systems (used to etch circuit patterns onto silicon wafers) before its competitors. From 1997 to 2022, TSMC reduced the size of its chipmaking nodes from 300 nanometers (nm) to 3nm. It plans to start mass producing its first 2nm chips next year. That's why TSMC is often considered the linchpin of the semiconductor market. It suffered a cyclical slowdown in 2023 as the PC and smartphone markets cooled, but it expects revenue to grow "nearly 30%" this year as it books big AI-driven orders from Nvidia, AMD, and other chipmakers. From 2023 to 2026, analysts expect TSMC's revenue and EPS to grow at a CAGR of 25% and 28%, respectively, as it manufactures even smaller and more powerful chips. Those are high growth rates for a stock that trades at just 18 times forward earnings and 8 times next year's sales. Like Nvidia, TSMC might be a good alternative to Palantir for AI-oriented investors who want a more balanced growth stock.

Should You Buy Nvidia Stock Before These Two Major Catalysts? | The Motley Fool

Nvidia (NVDA -0.84%) stock has been on fire not just in recent months but over the past five years -- it's climbed 2,700% over that time period. Investors are flocking to the stock because it's a key player in the artificial intelligence (AI) market, one of today's hottest growth areas. Today's $200 billion AI market is forecast to reach $1 trillion by the end of the decade, and Nvidia could be one of the biggest winners. The technology giant has built an AI empire, offering not only the fastest chip around to power AI tasks, but also a full portfolio of related products and services. All of this has helped Nvidia's earnings to explode higher quarter after quarter. And in recent times, Nvidia's gains have pushed it to milestones such as becoming the world's most valuable company -- it soared past Apple early last week -- and an invitation to join the Dow Jones Industrial Average. On top of this, Nvidia has two major catalysts on the horizon, events that could be crucial for the direction of the stock price. Should you get in on this top stock ahead of the action? Let's find out. First, a quick look at the Nvidia story so far. The company's graphics processing units (GPUs) are considered the world's best, and demand for them is high, with the world's biggest tech companies choosing them above the competition. Oracle co-founder Larry Ellison recently said he and Tesla chief Elon Musk actually "begged" Nvidia for more GPUs. As mentioned, Nvidia doesn't just stick to GPUs. The company offers everything a customer may need to launch and maintain its AI projects -- and that customer can access Nvidia through any public cloud, making it easy to find the company's offerings. All of this has translated into triple-digit quarterly earnings growth, and in the most recent period, Nvidia reported a record $30 billion in revenue. And most importantly, that revenue is resulting in a high level of profit, thanks to gross margin greater than 70%. Now, let's consider the two upcoming catalysts: Nvidia's third-quarter earnings report on Nov. 20 and the launch of its new Blackwell architecture in the fourth quarter. News of any kind -- positive or negative -- clearly could affect stock performance. Nvidia already has given us a taste of what to expect from both of these much-awaited events. The company predicts double-digit growth in revenue and says it will maintain margins in the mid-70% range. The revenue growth figure may at first look like bad news, considering Nvidia's string of triple-digit increases. But it's important to put this into context. The company's comparison quarters are getting more and more difficult after such enormous revenue gains over the past couple of years. AI-related revenue was much lower as recently as the 2023 fiscal year. Quarterly data center revenue then came in at less than $4 billion. In the most recent quarter, the second quarter of the 2025 fiscal year, data center revenue climbed to more than $26 billion. It was much easier to grow in the triple digits from $4 billion levels than it will be from current revenue levels. All of this means a double-digit increase in revenue in the coming quarter would represent strong performance -- not a cause for concern. There's reason to be confident about Nvidia's ability to meet its earnings forecasts as the company has spoken of sustained high demand for its products and services from quarter to quarter. And the company has established a track record of surpassing estimates, surprising on the upside for at least the past four quarters. The second catalyst to watch is the actual launch of Blackwell. Nvidia has said it aims to ramp production in the fourth quarter and even expects billions of dollars in Blackwell revenue during that period. If Nvidia meets or beats its goals, the stock could explode higher. One risk that may lie ahead, though, is the ability to meet demand and smoothly manage the supply chain. Nvidia has said demand for Blackwell surpasses supply and the company expects that to continue into next year. This is positive as it shows customers are eager to get their hands on the new platform, but it could work to Nvidia's disadvantage if the tech giant falls behind in serving orders. So it will be a point to watch. Let's get back to our question: Should you buy Nvidia ahead of these catalysts? Now is a great time to get in on this top AI stock, and if these eagerly awaited events unfold as planned, you may benefit. But it's important to remember that an immediate gain or decline in the stock price won't affect your portfolio much if you hold onto the stock for the long term -- and long-term investing is the best way to grow wealth. That means Nvidia is a fantastic AI player to buy today or after the upcoming catalysts as minor short-term news -- positive or negative -- won't change the company's bright future prospects.

Is Palantir a Better Artificial Intelligence (AI) Stock Than Nvidia? Why Management Thinks It Is. | The Motley Fool

On its blowout earnings release, Palantir makes its case as the best AI stock. Despite already having a stellar year, shares of Palantir (PLTR 4.49%) rocketed higher after the company reported a blowout third quarter last week. After soaring and then crashing in the pandemic-driven software bubble, Palantir has re-emerged this year and soared to new all-time highs as an artificial intelligence (AI) darling. On its recent earnings conference call, Palantir made its case for being the biggest beneficiary of the AI boom -- perhaps even more than other big companies investors might think of first, such as Nvidia (NVDA -0.84%). In the third quarter, Palantir delivered accelerating growth and margin expansion. Revenue grew 30%, nearly doubling the 17% growth rate the company achieved in Q3 of last year, while adjusted operating margins expanded from 29% to 38%. That acceleration is impressive for a large-cap company and speaks to Palantir's product catching on with customers ever since it launched its Artificial Intelligence Platform (AIP) back in 2023. The U.S. region once again bolstered overall growth. And while U.S. commercial revenue surged 54%, mirroring the strong growth in that segment throughout 2024, even Palantir's larger and "slower" government segment accelerated to an impressive 40% growth rate. It seemed unlikely that the government segment could eventually match the growth of the smaller, earlier-stage commercial business. But as last quarter showed, Palantir's newest innovations are taking hold, even in defense and government agencies, in the age of AI. While the AI revolution appears to be taking off, investors are still pondering which stock is best positioned to benefit. Is it chipmakers such as Nvidia? Or is it the large language model (LLM) builders like OpenAI and other cloud computing giants? On its conference call with analysts, Palantir management called out the LLMs as becoming increasingly "commoditized" while making the case for Palantir's value-added software platform as the true AI winner. Chief Technology Officer Shyam Sankar noted: The LLMs are commoditized. But if you look at the models, you see that they're getting better, which is awesome. But they're also getting more similar across both closed and open-source models. While they're improving, they're converging upon each other, all while the price of inference is dropping precipitously. So, if you even look at these model companies, they have to build applications around these models to extract value. That's where we have a decade-long head start. It would be surprising if LLMs were truly commoditized, as all the major cloud providers are drastically boosting their capital expenditures to achieve AI superiority. If these offerings truly did become commoditized, though, that would call into question whether the major clouds will get a sufficient return on that spending. And if the returns on LLM building are compressed, that might also put pricing pressure on Nvidia, whose margins have shot up to sky-high levels. Sure, creating better models would, in theory, necessitate the purchasing of more Nvidia graphics processing units (GPUs). However, if returns are lower, it's possible that model builders may bargain harder or look to lower-cost competitors. While current competitors like Advanced Micro Devices and others have a low market share compared with Nvidia, all the major clouds are increasingly looking to make their own AI accelerators at a much lower cost. Remember that in the dot-com revolution, it was the hardware and infrastructure providers that "boomed" first before crashing when the internet bubble burst. In the aftermath, many of the biggest winners of the internet age were large software companies like today's "Magnificent Seven" or hardware-software integrators like Apple that built large ecosystems on top of that commoditized infrastructure. Now, the AI revolution might not follow the same pattern -- but it also might. Of course, the AI revolution will remain extremely compute-intensive. For now, the AI semiconductor industry appears to remain supply-constrained, not demand-constrained. However, investors should definitely keep an eye on developments in the industry and look for clues that the dynamic may be changing. Palantir is clearly one of the only real AI software winners today. However, should intelligent software applications eventually become the big AI beneficiaries, there could also be others.

Prediction: Nvidia Stock Is Going to Soar After Nov. 20 | The Motley Fool

Its upcoming financial report could carry its stock to new heights. Nvidia (NVDA 2.25%) was a $360 billion company at the start of 2023. In less than two years, its market capitalization ballooned to $3.5 trillion. Its ability to turn artificial intelligence (AI) into piles of cash is the driving force behind that incredible growth. Nvidia's graphics processing units (GPUs) for data centers are the most popular in the world for developing AI, and demand continues to outstrip supply. That propelled the company's revenue to triple-digit percentage growth in each of the last five quarters. On Nov. 20, Nvidia will release a fresh batch of financial results for its fiscal 2025 third quarter (ended Oct. 31), and if past quarters are any indication, it could be an absolute blowout. Here's how I predict the stock will react once the results are announced. Nvidia's flagship H100 GPU went into production in 2022, and it was the go-to choice for AI data center operators throughout 2023. GPUs are designed for parallel processing, so they can complete several tasks simultaneously with a very high throughput. They also have substantial amounts of built-in memory, which makes them ideal for training AI models and performing AI inference. AI applications are forecast to drive a productivity boom across the globe, which could be worth up to $200 trillion in economic activity by 2030, according to Cathie Wood's ARK Investment. Tech giants like Microsoft and Amazon are filling their data centers with AI GPUs and renting the computing capacity to developers for a fee. It's a win for them, a win for Nvidia, and a win for the developers who don't have billions of dollars to spend on their own infrastructure. Nvidia's H100 and the newer H200 are still in high demand, but the company's latest Blackwell architecture promises the biggest leap in performance so far. Blackwell-based GB200 GPU systems can perform AI inference at 30 times the pace of the equivalent H100 systems. CEO Jensen Huang says individual GB200 GPUs will cost around $30,000 to $40,000, which is about the same price for the H100 when it first came out. In other words, Blackwell will drive an incredible improvement in cost efficiency, which will make the most-advanced large language models (LLMs) more financially accessible to a wider group of developers and businesses. GB200 shipments have already begun and will ramp up next year. One estimate suggests Nvidia is on track to ship up to 200,000 individual GB200 GPUs in the final three months of 2024, and we already know Microsoft is currently offering the new GPU to developers. Since Nvidia's fiscal 2025 third quarter includes October, its upcoming report might include billions of dollars in GB200 sales. The company generated a record $30 billion in total revenue during the fiscal 2025 second quarter (ended July 28), which was a 122% increase from the year-ago period. That crushed Wall Street's forecast of $28.7 billion. The result included $26.3 billion in data center revenue alone, which represented 154% growth thanks primarily to GPU sales. The chipmaker also generated a strong result on the bottom line with $0.68 in earnings per share (EPS). It was a 152% increase, and comfortably above Wall Street's estimate of $0.64 per share. Wall Street also underestimated Nvidia's guidance for the third quarter. The company told investors it expects to deliver $32.5 billion in total revenue, whereas the Street had the number pegged at $31.7 billion. Analysts have since revised their estimates higher to $32.9 billion (according to the consensus provided by Yahoo), which now signals that management's own forecast might be too conservative. We'll know for sure on Nov. 20. The performance of a stock on any given day is just noise, but it's worth noting Nvidia stock actually fell by around 6% the day after it reported its second-quarter results in August. However, it has since gained 24% (as of this writing) and now trades at a record high. The stock has soared almost tenfold since the start of last year alone, so the long-term trend is crystal clear. If the company exceeds Wall Street's revenue estimate of $32.9 billion in its upcoming third-quarter report, I would expect the stock to continue moving higher in the weeks and months ahead. Its valuation also supports upside in the medium term. Wall Street expects the company to generate $4.06 in EPS in fiscal 2026 (which begins in February 2025), which places the stock at a forward price-to-earnings ratio (P/E) of 35.8. That means the stock will have to rise by 90% over the next year or so just to maintain its current P/E of 68.1. A P/E of 68.1 isn't cheap relative to the market (the Nasdaq-100 trades at a P/E of 31.8), but Nvidia traded at an average P/E of 58.4 over the last 10 years -- and most of that period didn't even include the incredible tailwind from AI. Therefore, strong upside is definitely on the table in the coming year as long as the company meets Wall Street's earnings estimate: Microsoft just told investors it had $20 billion in capital expenditures (capex) during its fiscal 2025 first quarter (ended Sept. 30), most of which went toward data center infrastructure and AI chips. That followed $55.7 billion in capex spending in fiscal 2024. Since Microsoft is rumored to be the biggest buyer of Blackwell chips right now, that bodes very well for Nvidia's financial results. But Microsoft isn't alone. Amazon is on track to spend over $75 billion on AI capex this calendar year, and Meta Platforms will spend up to $40 billion, with even more money earmarked for 2025. The demand trajectory for Nvidia's GPUs is crystal clear, and that should support strong revenue and earnings growth for the foreseeable future.

3 Technology Stocks to Buy Hand Over Fist in November | The Motley Fool

These three tech giants are poised to deliver future returns with the help of artificial intelligence. Over the past year, artificial intelligence (AI) has captivated companies and investors, showing the potential to drive the next wave of economic growth. Among the prospective beneficiaries, a few standout companies seem well positioned to capitalize on the AI boom -- and, importantly for investors, still maintain relatively reasonable valuations. Here are three such stocks and a look at how each is integrating generative AI into its business strategy. Some investors fear generative AI could destroy Google Search, the largest segment for Alphabet (GOOG 1.17%) (GOOGL 1.12%), as upstarts like OpenAI's ChatGPT have taken market share. There is some validity to those concerns, considering research suggests Google has lost nearly 3% of its total market share since ChatGPT was launched in November 2022. Additionally, experts believe the United States Department of Justice could soon ban Google's longtime deal with Apple, which makes Google Search the default setting on iPhones. But digging into the numbers, according to Statcounter, a web analytics company, Google Search still makes up 89.3% of the total search globally. The segment continues to deliver for Alphabet, generating $49.3 billion in revenue for Q3 2024, representing a year-over-year increase of 12.2%. Additionally, if the deal falls through with Apple, Alphabet will save an estimated $25 billion annually, which it had been paying to the maker of iPhones. Alphabet is taking the threat of AI seriously, having spent a staggering $49.3 billion on capital expenditures, most of which has been spent to build out its AI infrastructure, which includes servers and data centers. Google Search users may have already seen how the company has rolled out "AI Overviews," which summarize search results into short paragraphs. Management claims the new feature reaches more than 1 billion monthly users. Alphabet's stock is up nearly 30% year to date and trades at a valuation of 24 times earnings. Notably, its five-year median price-to-earnings ratio is higher at 26.6 times earnings, suggesting the stock is on sale. With $82.3 billion in net cash at its disposal, the company can continue returning capital to shareholders through dividends and share repurchases. Notably, Alphabet initiated its first-ever dividend in 2024 and has repurchased 11% of its outstanding shares over the past five years, increasing existing shareholders' ownership stake. The next tech giant on this list is Meta Platforms (META -1.05%), the parent company of Facebook and Instagram. The stock has soared over 60% in 2024 and recently posted quarterly revenue and net income records. Like Alphabet, Meta issued its first-ever dividend this year, paying a quarterly dividend of $0.50 per share, equating to an annual yield of 0.35%. Meta is also allocating capital expenditures, with management projecting to spend $38 billion to $40 billion, mainly on building out its AI infrastructure. Management says AI is already transforming the company, with CEO Mark Zuckerberg recently noting, "We're seeing AI have a positive impact on nearly all aspects of our work -- from our core business engagement and monetization to our long-term roadmaps for new services and computing platforms." Meta's financials show that AI could already be making an impact. For Q3 2024, it generated $40.6 billion in revenue and $15.7 billion in net income, representing a 19% and 35% year-over-year increase, respectively. Moreover, Meta's operating margin improved from 40% to 43% in the quarter, marking a three-year high, which could indicate how well AI is improving the company's ability to improve engagement and monetization. Looking at Meta's valuation, the stock trades at 28 times trailing earnings, slightly above its five-year median of 27 times earnings. However, with $42 billion in net cash on its balance sheet and improving margins, the stock appears fairly valued. The last company on this list, Microsoft (MSFT -1.07%), is also the one with the largest capital expenditure spend over the trailing 12 months, with $49.5 billion. Bear in mind that figure does not include its estimated $13.8 billion worth of investments in OpenAI since 2019. As for how Microsoft is integrating AI, the company is already seeing success across its workflow products. On the company's most recent quarterly earnings call, CEO Satya Nadella stated the technology is driving a "fundamental change in the business applications market as customers shift from legacy apps to AI-first business processes." The company claims its AI business is on track to be the fastest-growing business in its history, reaching an annual revenue run rate of $10 billion. With help from the AI transformation and the recent $69 billion acquisition of Activision Blizzard, Microsoft recently set quarterly records for its top and bottom lines. Specifically, in its fiscal Q1 2025, the company generated $65.6 billion in revenue and $24.7 billion in net income, representing year-over-year growth of 16% and 11%, respectively. Similar to the other tech giants on this list, Microsoft is using its net cash hoard of $33.3 billion to pay dividends and repurchase its stock. The company recently announced a quarterly dividend hike to $0.83 per share and a new $60 billion share repurchase program. On a valuation basis, Microsoft trades at 35 times trailing earnings, close to its five-year median of 34 times trailing earnings. Given its fair valuation, combined with its financials and investment in AI, Microsoft is primed for continued growth, making it a compelling choice for long-term investors.

Meet the 3 Supercharged Growth Stocks That Will Be Worth $4 Trillion by 2025, According to a Certain Wall Street Analyst | The Motley Fool

The battle to be the first company to achieve a $4 trillion market cap is heating up. One Wall Street analyst believes investors should take a broader view. Advancements in technology over the past several years have had a distinct impact on the value of some of the tech's most recognizable companies. As the adoption of artificial intelligence (AI) continues to ramp up, so too do the market caps of the main beneficiaries of the technology. A look at the list of the world's most valuable companies is revealing, as the top five -- and eight of the top 10 -- are inexorably linked to generative AI. There are currently just seven companies with market caps that place them in the $1 trillion club and just three worth more than $3 trillion. The debate is raging about which company will be the first to achieve a $4 trillion valuation. However, Wedbush analyst Dan Ives believes investors may be missing the forest for the trees, suggesting there are actually three companies that will be charter members of the $4 trillion club within 12 months. Let's look at the three most likely contenders and what will take them across the finish line. For those watching the developments in technology over the past couple of years, it will come as no surprise that Nvidia (NVDA 2.25%) heads the list. The company is currently the world's most valuable company (as of this writing), with a market cap of $3.38 trillion. As a result, it will only take stock price gains of about 18% for Nvidia's value to surpass $4 trillion. The chipmaker's graphics processing units (GPUs) provide the computational horsepower necessary to advance AI and quickly became the gold standard for running generative AI models in data centers and in the cloud. By some estimates, Nvidia controlled as much as 98% of the market last year and that likely won't be changing anytime soon. Investors have rightly wondered whether the unprecedented demand would continue, but the available evidence is compelling. Microsoft (MSFT 1.25%), Meta Platforms, Amazon, and Alphabet rank among Nvidia's biggest customers. Each of these tech titans reported their results last week, and each announced plans to ramp up their capital expenditures to keep up with the demand for AI. Furthermore, the vast majority of that will be on the chips and servers needed to facilitate AI, suggesting Nvidia will benefit from a good deal of that spending. "The first one to get there is likely to be ... Nvidia because they're the only game in town," Ives said, "Their GPUs are the new oil or gold in the tech world with no real competition." I think Ives hit the nail on the head. As the undisputed leader in the GPU space and dominant force in the market, Nvidia is in the pole position and stands to be the biggest beneficiary of the ongoing adoption of generative AI. Furthermore, the company's margins have expanded with its market share, making Nvidia much more profitable. Apple (AAPL 2.14%) recently ceded to top spot to Nvidia, but with a market cap of roughly $3.35 trillion, it's still nipping at the chipmaker's heels. The iPhone maker needs stock price gains of just 20% to clear the $4 trillion threshold and there are plenty of catalysts that could take it there. For its fiscal 2024 fourth quarter (ended Sep. 28), Apple's sales grew 6% year over year, resulting in a September quarter record, while adjusted earnings per share (EPS) jumped 12%. The company noted that its active installed base of devices hit a new all-time high. The biggest driver was the debut of the iPhone 16 with Apple Intelligence, the company's on-device AI. It's important to note that with just nine days of new iPhone sales in the results, there's likely much more to come. Ives believes that thanks to the tough economic conditions of the past few years, consumers have been reluctant to splurge for a new smartphone. There are an estimated 300 million iPhones that haven't been upgraded over the past four years, which represents a fertile field for Apple to plow. Ives suggests that Apple could sell as many as 240 million iPhones in its fiscal 2024, kicking off a new supercycle. I think the analysts' logic is incontestable. The improving macroeconomic environment and Apple's loyal customer base could be the catalysts for a run on the new AI-powered iPhone, which could cement the company's upcoming membership in the $4 trillion club. Microsoft is currently the world's third most valuable company, with a market cap of $3 trillion. As such, the stock is just 32% below the $4 trillion benchmark. The company was quick off the mark to unveil Copilot, its suite of AI-powered productivity tools, followed quickly by Copilot-powered PCs. These are in addition to the AI models offered to its cloud customers. These moves have helped position Microsoft to profit from the growing adoption of AI. During its fiscal 2025 first quarter (ended Sep. 30), Microsoft's Azure Cloud grew 33% year over year, and management noted that 12 percentage points of its growth was driven by demand for AI services, up from 8% in Q4. This helps illustrate the ongoing success of Microsoft's broad AI strategy. Ives notes that Microsoft's AI revenue is on track to exceed a $10 billion run rate in Q2, with further acceleration happening in the second half of fiscal 2025. He also estimates that 70% of Microsoft's customer base will be using its AI solutions within three years, which could drive the stock higher. I think Ives is right on the money. Microsoft's technology extends into both the enterprise and consumer markets and its AI-powered offerings reach beyond that of its cloud rivals -- which should fuel additional growth for years to come. The generative AI market is expected to be worth $1.3 trillion by 2032, according to Bloomberg Intelligence, with a compound annual growth rate (CAGR) of 42% over the coming decade. Despite the magnitude of the opportunity they are pursuing, Apple, Nvidia, and Microsoft are still attractively priced at 32 times, 30 times, and 28 times forward earnings. Taken in the context of this large and growing market, the opportunity is clear.

Should You Buy Nvidia Stock Before Nov. 20? Wall Street Has a Clear Answer for Investors. | The Motley Fool

Wall Street is predominately bullish on artificial intelligence chipmaker Nvidia. Demand for artificial intelligence infrastructure has been an enormous tailwind for semiconductor company Nvidia (NVDA -0.84%). Its revenue and earnings have increased at a triple-digit pace in the last five quarters, and its share price has surged 910% since January 2023. Nvidia will announce financial results for the third quarter after the market closes on Wednesday, Nov. 20. The stock has been exceptionally volatile following recent earnings events, which presents investors with a difficult choice: Is it smart to buy shares now? For what it's worth, Wall Street is overwhelmingly bullish. Among the 65% of analysts who follow Nvidia, 92% rate the stock a buy and the other 8% rate it a hold ahead of the company's third-quarter earnings report. Not a single analyst recommends selling Nvidia at the present time. Here's what investors should know. Nvidia specializes in accelerated computing. The company is known for its graphics processing units (GPUs), chips that are the industry standard in speeding up computationally intensive data center workloads, like artificial intelligence (AI). But Nvidia is truly formidable because it provides vertically integrated compute solutions that span hardware, software, and services. To elaborate, Nvidia has created a rich ecosystem of software development tools called CUDA. The platform includes over 300 code libraries and 600 pretrained models that let programmers write GPU-accelerated applications across use cases, from robotics to scientific simulation. The company also builds adjacent data center hardware, including central processing units (CPUs) and high-speed networking equipment. Nvidia blends those products into an integrated AI service called DGX Cloud, which lets businesses provision through the internet the supercomputing infrastructure and software development tools needed to build and manage AI applications. Importantly, while GPUs are still the primary source of revenue, software and services businesses will reach an annual revenue run rate of $2 billion this year, and its networking business already hit an annual run rate of $14 billion. According to CEO Jensen Huang, Nvidia's vertically integrated approach to accelerated computing lets it build systems with a superior total cost of ownership. In other words, Nvidia GPUs are not only the fastest AI chips on the market but also the cheapest when accounting for direct and indirect costs. That affords the company a durable competitive moat. Nvidia beat estimates in the second quarter of fiscal 2025, which ended in July 2024. Revenue increased 122% to $30 billion, and non-GAAP (non-generally accepted accounting principles) earnings increased 152% to $0.68 per diluted share. That marked the fifth straight quarter in which the company reported double-digit growth on the top and bottom lines. That trend will likely end in the third quarter. Management gave guidance that implies revenue and non-GAAP earnings will increase by 80%, though Wall Street has set the bar a little higher. Analysts expect Nvidia's revenue to increase 81% to $32.9 billion and non-GAAP earnings to increase 85% to $0.74 per diluted share. Importantly, even if Nvidia tops those figures on Nov. 20, there is no guarantee the stock will move higher on the news. Consider what happened last time. Nvidia beat estimates in the second quarter and gave stronger guidance than Wall Street anticipated, yet the stock tumbled about 8% following the announcement. Investors are no longer satisfied with a modest earnings beat but rather expect Nvidia to crush estimates. That attitude led to significant post-earnings volatility in the last three quarters, such that Nvidia's stock price moved by an average of 10.7 percentage points after the company announced its results. Shareholders should be prepared for similar volatility this time around. Susquehanna analyst Christopher Rolland recently wrote, "Nvidia has become the world's de facto enabler of AI." And the company is likely to retain its leadership position for the foreseeable future. Even if a competitor builds a faster AI chip, they will still find it difficult to dethrone Nvidia without a robust ecosystem of software development tools. Nvidia has a significant head start there. It has regularly added new tools to its CUDA platform for nearly two decades. Looking ahead, Wall Street expects Nvidia's adjusted earnings to grow by 50% annually through fiscal 2026, which ends in January 2026. That consensus estimate makes the current valuation of 66.5 times adjusted earnings look reasonable. Personally, I think Nvidia is a must-own stock, given that it participates in so many areas of the AI economy. And like most Wall Street analysts, I think patient investors should consider buying a small position today. If the stock pulls back after the company reports earnings, investors should consider building a slightly larger position at that time.