AI Revolution Enters New Phase: Top Stocks Poised for Growth

The 3 Best Stocks to Buy and Hold for the Next Stage of the Artificial Intelligence (AI) Revolution | The Motley Fool

Yet, like all revolutions, the AI revolution will have stages. Clearly, Nvidia, the global leader in graphics processing units (GPUs), dominated the first wave of AI. But what will come next? Which stocks could come to rule the second stage of AI? As AI systems continue to improve, one thing is becoming clear: AI-powered tools will be far more powerful than existing systems. Furthermore, those tools will be used for both ethical and unethical purposes. In particular, cybercrime is already an enormous problem. According to the FBI, cybercrime costs hit $12.3 billion in the U.S. alone in 2023. As AI-powered models proliferate and grow more powerful, it's unfortunately true that criminals will attempt to use them. Consequently, organizations will need to fight fire with fire. That's where CrowdStrike comes in. The company's AI-powered cybersecurity tools are dynamic -- built to learn on the fly and adapt to threats as they appear. Just as the personal computer era needed firewalls and anti-virus software, the AI era will need dynamic, AI-powered cybersecurity to keep networks, endpoints, and data secure. Moreover, the new AI era will mean organizations will become more vulnerable than ever as they work in real time to centralize, sort, and analyze their data. Simply put, that will make many organizations sitting ducks for cybercriminals who -- if they were to gain access -- could do enormous harm by either stealing data or shuttering operations, or both. All this presents a huge market opportunity for CrowdStrike. As a result, over the last three years, the company's revenue more than doubled from $1.6 billion to $3.7 billion. Looking ahead, analyst estimates compiled by Yahoo! Finance predict CrowdStrike could generate $4.8 billion in revenue by the end of fiscal year 2026 (the 12 months ending on Jan. 31, 2026). In other words, CrowdStrike is well positioned to scale along with the growth of AI. Therefore, investors looking to capture the next phase of AI growth should consider CrowdStrike stock. Will Healy (Alphabet): In the race for AI leadership, investors seem to have written off industry pioneer Alphabet. Indeed, many analysts and investors questioned the market leadership of the Google parent after the functionality of OpenAI's GPT-4o became known to the public. Some appeared to doubt the future of Google Search amid AI advancements, and the release of the generative AI platform Google Gemini did not necessarily ease those concerns. Still, DeepSeek's breakthrough could finally serve as the opportunity Alphabet needs to build a competitive advantage, setting it up to prosper in this next stage of AI development. Lower-cost AI should increase usage of the company's AI services and products, which should bode well for the company as it seeks to succeed in this burgeoning industry. To that end, Alphabet is now betting its vast resources on a recovery. The company pledged to spend $75 billion in capital expenditures (capex) in 2025, most of which it will likely devote to AI-related spending. While some may perceive that as a sign of desperation, competitors such as Amazon and Meta Platforms also have spent comparable sums on capex. Moreover, Alphabet can likely afford this. In addition to its $96 billion in liquidity, the company generated nearly $73 billion in free cash flow in 2024, which does not include capex. Also, the nearly $53 billion it spent on capex in 2024 indicates Alphabet can still generate massive free cash flows even with that added investment. Alphabet stock has risen by almost 25% over the last year. So, while it has not performed as well as some peers, the stock remains in growth mode. Finally, with a P/E ratio of 23, it is the lowest-cost stock in the "Magnificent Seven." This means it could offer growth stock returns at a reasonable price as it ups its competitive game in this new AI realm. Justin Pope (Apple): Artificial intelligence is steadily entering its next phase. While AI hyperscalers continue to spend billions of dollars on chips and other hardware, the focus may soon shift to AI platforms and applications that bring the technology to consumers and businesses. I think Apple will be a massive long-term winner here. The company is famous for its sticky ecosystem, which includes the iPhone, wearable accessories, tablets, and computers. Thanks to software that seamlessly ties everything together, the user experience is buttery smooth. As of earlier this year, Apple had approximately 2.35 billion active iOS devices worldwide. Its massive footprint gives Apple an inside track to capture market share in consumer-facing AI. You've already seen the earliest iteration of Apple Intelligence, a package of generative AI features Apple introduced through software updates in its newest devices. Thus far, Apple Intelligence reportedly failed to make a great first impression with iOS users. However, it's incredibly early. A full rollout will take several years as iOS users upgrade to AI-capable devices, allowing Apple to experiment and improve Apple Intelligence. The stock trades at a price-to-earnings ratio over 31, which some may argue is expensive for a company trying to reignite growth. However, assuming Apple succeeds in AI, the stock should be fine over the long term. Analysts estimate Apple will grow earnings by an average of almost 14% annually over the next three to five years. Unless a competitor emerges and eats into Apple's vast user base, it seems appropriate to give the company the benefit of the doubt. Apple remains a world-class company that generated nearly $100 billion in free cash flow over the past four quarters alone. Until proven otherwise, Apple is on top of the consumer mountain, making it arguably the most obvious consumer-facing AI stock you can comfortably buy and hold for the next five to 10 years.

1 Unstoppable Artificial Intelligence (AI) Stock to Buy Right Now | The Motley Fool

In 2023, Bank of America analyst Michael Hartnett coined the term "Magnificent Seven" to describe a group of powerhouse tech stocks, inspired by the classic 1960s Western film. These companies, among the market's most valuable, are leading the way in artificial intelligence (AI), cloud computing, online gaming, and advanced hardware and software. Over the past five years, the Magnificent Seven have delivered mind-boggling returns, but 2025 has been more challenging. So far, only Meta Platforms has significantly outperformed the S&P 500 (^GSPC -0.27%) (up 2.4% year to date as of this writing), while others have flat-out struggled. One standout performer this year is Amazon (AMZN -1.65%), a leader in e-commerce and cloud computing. With its stock outperforming the S&P 500 by a little over 2% year to date, Amazon is proving to be an unstoppable force as it deepens its push into AI. Let's explore why this AI pioneer scans as a top buy right now. During Amazon's Feb. 6 earnings call, CEO Andrew Jassy outlined the company's comprehensive AI strategy, revealing approximately 1,000 different generative AI applications either already built or in development. Amazon's approach spans three critical technology layers, each showing significant progress. Amazon develops proprietary AI chips at its foundation. The recently launched Trainium2 delivers 30% to 40% better price performance than current graphics processing unit (GPU) alternatives, according to the company. Building on this success, Amazon plans to release Trainium3 in late 2025 and has begun defining Trainium4. It is also partnering with chatbot pioneer Anthropic for frontier model development. In the middle layer, Amazon Bedrock provides foundation models for building AI applications. In Q4 2024, the company introduced its Nova models inside the Bedrock platform, delivering comparable intelligence to leading models at a staggering 75% lower cost than its other offerings. This technological breakthrough has already attracted several major customers like Palantir Technologies, SAP, and Robinhood. At the application level, Amazon's AI assistant, Q, demonstrates practical value for users. In early implementations, Q generated substantial savings, including $260 million and 4,500 developer years in Java migrations. The company is expanding Q's capabilities to help customers more efficiently migrate existing Windows servers, VMware systems, and mainframe computers to Amazon Web Services (AWS). Amazon's 2024 Q4 earnings report demonstrated its massive investment capacity, with capital investments reaching $26.3 billion in the quarter. While this spending spans various business needs, the company has prioritized AI development as a key strategic focus. This aggressive investment strategy is already showing results, with AWS's AI-related revenue growing at a blistering pace and contributing to the division's $115 billion annualized revenue run rate. While current growth faces hardware supply and power infrastructure constraints, Amazon expects these limitations to ease in the second half of 2025. As Jassy emphasized during the earnings call, "AI represents, for sure, the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the internet." Amazon stock trades at 35.4 times forward earnings, compared to 24.2 times for the benchmark S&P 500. This premium reflects the company's comprehensive AI strategy and proven execution across multiple layers of the tech value chain. The tech giant offers investors exposure to every critical layer of the AI stack, from custom chips to enterprise applications. Moreover, Amazon's AI business is already generating a triple-digit annualized revenue growth rate. With supply constraints expected to ease in the second half of 2025, Amazon appears well-positioned for the next wave of AI growth. For investors seeking AI exposure, Amazon offers proven capability and a substantial capital investment in the technology that should drive significant revenue growth for years to come.

25 Top AI Stocks That Could Boost Your Portfolio | The Motley Fool

The artificial intelligence (AI) revolution is reshaping the global economy at an unprecedented pace, with innovations emerging across every sector from healthcare to transportation. As companies race to integrate AI capabilities into products and services, investors are keenly searching for opportunities to capitalize on this technological transformation. After all, industry leaders like Nvidia (NVDA 2.63%) CEO Jensen Huang project that AI could generate up to $100 trillion in economic value -- a figure that would dwarf the impact of previous technological revolutions. The hype surrounding such noteworthy economic projections has caused scores of AI-related equities to soar over the past two years. Yet despite this remarkable appreciation, the AI investment landscape remains rich with opportunity. To help navigate the AI revolution, I've compiled a snapshot of 25 top players, ranging from established tech leaders to emerging entities across multiple industries. This overview of each company's core AI focus and market position can serve as a starting point for prospective AI investors looking for the best equities in the space. 1. Nvidia dominates the AI chip market, and its graphics processing units (GPUs) power most major AI applications and cloud services. The company's first-mover advantage and extensive software ecosystem make it the de facto standard for AI computing. 2. Advanced Micro Devices (AMD 1.15%) challenges Nvidia's dominance with its MI300 AI accelerators. The company leverages strong relationships with cloud providers and a competitive price-to-performance ratio. 3. Intel (INTC -2.20%) aims to reclaim chip leadership through its AI-focused Gaudi processors and manufacturing investments, backed by deep enterprise relationships and substantial research and development (R&D) resources. 4. ASML (ASML -3.27%) holds a monopoly on the extreme ultraviolet (EUV) lithography machines essential for manufacturing advanced AI chips, making it a critical infrastructure play in the AI revolution. 5. Wolfspeed (WOLF 4.92%) leads in silicon carbide semiconductor production, vital for power management in AI data centers and electric vehicles (EVs). 6. Navitas Corporation (NVTS 3.45%) specializes in gallium nitride power systems that enable more efficient AI hardware implementations, particularly in data centers and fast-charging applications. 7. Microsoft (MSFT -0.51%) leads in enterprise AI through its exclusive partnership with OpenAI, integrating GPT-4 technology across its cloud and software products while holding a significant stake in OpenAI. 8. Oracle (ORCL 0.17%) provides AI-powered cloud infrastructure and applications, with a focus on enterprise databases and business intelligence solutions. 9. C3.ai (AI -4.10%) provides ready-to-deploy enterprise AI applications across industries, with a focus on predictive analytics and process optimization. 10. BigBear.ai Holdings (BBAI -7.77%) delivers AI-powered decision support primarily to government and defense sectors, specializing in data analytics and mission-critical applications. 11. SoundHound AI (SOUN -28.10%) develops voice recognition and natural language processing solutions, competing in the growing market for conversational AI interfaces. 12. Applied Digital Corporation (APLD 15.17%) designs and operates specialized data centers optimized for AI workloads, targeting the high-growth AI infrastructure market. 13. TeraWulf (WULF -0.41%) builds sustainable computing infrastructure for AI applications, emphasizing renewable energy sources and efficient operations. 14. Poet Technologies (POET -4.28%) develops integrated photonic solutions aimed at increasing speed and reducing power consumption in AI systems. 15. Recursion Pharmaceuticals (RXRX 23.88%) applies machine learning to drug discovery, with a vast proprietary biological and chemical dataset powering its AI platform. 16. Tempus AI (TEM 6.79%) specializes in AI-driven precision medicine, using clinical and molecular data to personalize cancer treatments. 17. BlackSky Technologies (BKSY -5.24%) combines satellite imagery with AI analytics, providing real-time geospatial intelligence for defense, intelligence, and commercial applications. 18. Palantir Technologies (PLTR 1.06%) specializes in AI-powered data analytics platforms for government agencies and large enterprises, with deep roots in defense and intelligence operations. 19. Kratos Defense & Security Solutions, Inc. (KTOS -4.90%) develops AI-enabled autonomous systems and combat drones, positioning itself at the intersection of AI and military modernization. 20. Apple (AAPL 1.27%) integrates AI across its device ecosystem while developing Apple Intelligence, its generative AI initiative, along with specialized AI chips focusing on on-device machine learning and privacy-preserving AI applications. 21. Alphabet (GOOG -0.54%) (GOOGL -0.49%) deploys AI across search, cloud services, and research divisions while generating significant revenue from AI-powered advertising and enterprise solutions. 22. Meta Platforms (META 1.11%) leverages AI for content moderation and targeted advertising while investing heavily in AI research for future metaverse applications. 23. Amazon (AMZN -0.73%) implements AI throughout its e-commerce and cloud platforms, offering both proprietary AI services and the infrastructure powering other AI companies. 24. Tesla (TSLA -0.03%) integrates AI in autonomous driving systems and the Optimus humanoid robot project, leveraging its massive real-world data advantage and custom AI chips across both vehicle automation and robotics initiatives. 25. Serve Robotics (SERV -39.57%) targets the autonomous delivery market with AI-powered robots, offering a pure-play investment in the automation of last-mile logistics. Success in AI investing requires understanding how companies monetize the technology. Semiconductor manufacturers generate revenue from AI chips and infrastructure, while software companies must convert AI capabilities into sustainable revenue streams. Tech giants leverage AI to enhance existing profit centers, and emerging players seek to disrupt traditional industries. The AI market's rapid evolution favors companies with strong intellectual property, proven revenue models, and the resources to maintain competitive advantages. While market enthusiasm has driven up valuations across the AI space, selective investments in companies with clear paths to profitability and defensible market positions could handsomely reward patient investors.

2 Artificial Intelligence Stocks That Remain Excellent Long-Term Buys After the DeepSeek News | The Motley Fool

Chinese start-up DeepSeek rocked the artificial intelligence (AI) market when it announced one particular accomplishment. The company said it trained its model in two months for less than $6 million. This is compared to the billions of dollars big tech companies are pouring into their AI programs. Immediately, investors worried this would prompt the tech giants to rein in spending and follow in the footsteps of DeepSeek -- and that would weigh on the revenue of many AI companies, such as chip powerhouse Nvidia. But a closer look at the situation paints a brighter picture. Tech companies aren't likely to change their spending strategy overnight, and experts have even said that DeepSeek probably spent more on the project than it originally announced. Consultant SemiAnalysis says the figure looks more like $500 million, and that's just for the chips to power the training. But whether DeepSeek's news is game changing or not, certain AI stocks still remain excellent long-term buys and aren't likely to be hurt by the company's progress. Let's check out these two AI players to buy now. Amazon (AMZN 1.74%) is benefiting from AI across its two businesses: e-commerce and cloud computing. In e-commerce, it uses AI to streamline operations, for example, by identifying the best delivery routes for packages. In cloud computing, it develops and sells a variety of AI products and services. In fact, the cloud unit, Amazon Web Services (AWS), already has reached a $115 billion annual revenue run rate thanks to the company's push into AI. AWS has gone all in on AI, offering customers everything from the basics, like chips, to a fully managed service that offers them popular large language models (LLMs) tailored to their needs. On top of this, AWS also develops AI applications, such as Amazon Q, an AI assistant for software development. Customers can come to Amazon for premium chips, such as those sold by Nvidia, but the company also has developed its own line of chips for the cost-conscious customer. Known as Trainium, they can be 30% to 40% more economical for computing in the cloud than other chip options, Amazon says. And since AWS is the world's leading cloud player, it already has a solid customer base. These are customers that may find it very convenient to opt for AWS, a service they know well, for AI projects. Today, Amazon trades for 36 times forward earnings estimates, down from about 44 times just a few weeks ago, offering you a fantastic entry point for this top long-term stock. You may know Meta Platforms (META 0.40%) best as a social media giant as it owns Facebook, Messenger, WhatsApp, and Instagram. But the company also has become a major player in the world of AI. It's trained its own LLM, known as Llama, and is working toward several big AI goals. And to potentially reach these AI goals, the company can't rely on a small AI budget. Chief Executive Officer Mark Zuckerberg has been vocal for quite some time about the company's AI ambitions and the need for aggressive spending to achieve them. In fact, just a couple of weeks ago, he said Meta would invest as much as $65 billion in infrastructure this year and expand its AI teams too. Meta also said that by the end of the year, the company would have more than 1.3 million graphics processing units (GPUs) on board. All of this should help Meta as it marches toward goals such as the development of an AI assistant for all of its users. The company already offers Meta AI, the most used assistant globally. How does this translate into revenue? Meta generates sales through advertisers that pay to reach users on Meta's apps. Meta assistants could increase their time spent on Meta, and that means advertisers will have even more reason to spend here to contact users. And Meta's AI leadership could lead to other products, services, and revenue opportunities down the road. All of this makes Meta look particularly cheap today, trading at 28 times forward earnings estimates, especially for investors who aim to hold on to the shares as this long-term story develops.

Cathie Wood Goes Bargain Hunting. Here's 1 "Magnificent Seven" Stock She Just Bought on the DeepSeek Dip. | The Motley Fool

Cathie Wood just scooped up shares in one particular big tech artificial intelligence (AI) stock. For the last couple of years, the stock market has rallied on an unwaveringly positive narrative surrounding the prospects of artificial intelligence (AI). The momentum that's fueled technology stocks in particular carried into 2025 -- until about two weeks ago, when the party music suddenly stopped out of nowhere. An AI start-up out of China called DeepSeek released a model that is similar to those built by ChatGPT or Perplexity. The concern, however, is that DeepSeek claims to have unlocked new methods to train AI models by using older, seemingly less sophisticated architectures. As such, investors have become worried that the hundreds of billions that U.S. technology businesses are pouring into expensive chipware may have been an overzealous move. Unsurprisingly, stock prices for big tech, and in particular the "Magnificent Seven," have been cratering in epic fashion. Nevertheless, one prominent tech investor doesn't seem dissuaded by the DeepSeek drama. Of course, I'm talking about Ark Invest CEO Cathie Wood -- who almost always seems to exhibit a sense of optimism when it comes to new technologies. I'll reveal which Magnificent Seven stock Wood just scooped up and make the case for why I think her decision is a savvy move. One of the nice things about Ark Invest is that the fund publishes its trading history daily. Usually, investors need to wait until the end of the quarter to see which stocks institutional investors bought and sold. Wood's transparency is helpful, as it provides investors with a real-time glimpse into what stocks she's monitoring. Around Jan. 24 was when I first started hearing chirps about DeepSeek and began seeing some headlines publish on financial news programming. The chart shows that shares of Amazon (AMZN -0.73%) clearly started to slide in the final days of January -- as more news about DeepSeek started to break. Well, Wood took note of these moves. Between Jan. 27 and Feb. 7, Wood added over 120,000 shares worth more than $28 million to five of her exchange-traded funds (ETFs), including ARK Next Generation Internet, ARK Innovation, ARK Fintech Innovation, ARK Autonomous Technology & Robotics, and ARK Space Exploration & Innovation. Data source: Ark Invest. In addition to the initial sell-off influenced by DeepSeek, Wood doubled down on her conviction in Amazon, as evidenced by her purchases following the company's fourth-quarter and full-year 2024 earnings call on Feb. 6. Since reporting earnings, Amazon stock has dropped again -- primarily due to the company's hefty capital expenditures (capex) plan for 2025, which is forecast to be in excess of $100 billion. I think some investors have reservations about this level of spend due to DeepSeek's initial claims. For these reasons, some investors appear to be souring on big tech at the moment. As an investor in Amazon, I am not personally worried about how much the company is investing in AI infrastructure. Rather, I am more focused on where the company is spending. During the company's recent earnings call, Amazon CEO Andy Jassy said the "the vast majority of that capex spend is on AI for AWS." When you look at the financial profile, it's hard to argue with Jassy's vision. Over the last two years, Amazon has invested $8 billion into an AI start-up called Anthropic -- which the company has integrated tightly with its cloud computing platform, Amazon Web Services (AWS). In this time, AWS has accelerated both revenue and profit growth, now becoming a business generating more than $100 billion in annual sales while generating nearly 50% growth in operating income. Amazon's investments in AI infrastructure are already bearing fruit. For this reason, I see the company's 2025 capex budget as a good sign for more growth to come down the road. Nevertheless, Amazon currently trades at a price-to-free cash flow (P/FCF) multiple of 75 -- well below its five-year average of 104. I think many investors are honing in too closely on Amazon's spending and not giving management enough credit for the growth the company has already witnessed over the last two years in particular (since AI became the main focal point). I think Wood's idea to buy the dip on Amazon right now is incredibly smart. Investors with a long-term time horizon might want to consider following Wood's lead and scoop up some shares of the company while the stock remains at a historical discount.

Got $3,000? 3 Artificial Intelligence (AI) Stocks to Buy and Hold for the Long Term | The Motley Fool

AI hyperscalers are spending billions of dollars on data centers. The result could be a decade of prosperity for long-term investors. There's little doubt that artificial intelligence (AI) is here to stay. The burning question is: Where should investors look for stocks that will benefit from AI's growth over the next decade and beyond? Nvidia (NVDA -0.58%) has been the popular answer over the past couple of years since cloud companies, known as AI hyperscalers, continue to pour billions of dollars into AI data centers and the chips that power them. Yet, the recent controversy surrounding DeepSeek's cheaper-to-produce AI models has raised questions about the longevity of Nvidia's explosive growth. Eventually, hyperscalers may not need to spend all this money on chips. That's why the top three cloud companies, Alphabet's (GOOGL -0.62%) (GOOG -0.60%) Google Cloud, Microsoft (MSFT -0.19%) Azure, and Amazon (AMZN -0.16%) Web Services, could be the actual AI winners. Here is why investing $3,000 in available cash not needed for monthly bills, short-term debt, or to bolster an emergency fund, into them could do wonders for your portfolio over the long term. You can break AI down into a few pieces: Currently, the hyperscalers could have the widest competitive moats. Nvidia dominated the market for chips to train AI models, but that might not last. Alphabet, Amazon, and Microsoft have all started integrating custom chips into their operations, which could slowly chip away at Nvidia's business. Meanwhile, AI models have become increasingly competitive. DeepSeek's sudden arrival and alleged efficiency raise the possibility that generic large language models may eventually become commodities. However, few companies can match the massive investments the hyperscalers have made in building the computing capacity to operate AI applications businesses and consumers will use. Alphabet, Amazon, and Microsoft have captured over 60% of the world's cloud market, which could grow by 22% annually to over $2 trillion by 2030. These three will have the size advantage to offer the computing power AI needs at lower prices than the rest. Another advantage of dominating cloud computing is that it creates cross-selling opportunities. All three companies can use it as a distribution channel to sell their AI products and services to cloud customers. For example, all three companies offer cloud-based tools to build AI agents that perform tasks and interact with customers. They could hypothetically begin displacing humans in call centers. Additionally, all three hyperscalers have existing businesses that can benefit from AI features. For example, Microsoft has a long history in enterprise software. It has embedded AI throughout software products, like Windows and Microsoft 365 (productivity programs like Excel). Alphabet has used AI to enhance its digital advertising business, woven AI features throughout its Google ecosystem, and has long-term potential in self-driving vehicles (Waymo) and quantum computing. Lastly, Amazon uses AI in its e-commerce business and has built a large user base for its Alexa smart home products. It's only natural that these diverse companies will look to use AI anywhere they can throughout their existing segments while simultaneously pursuing new AI opportunities. Sure, new companies will arise from AI innovation, but it's hard not to like the inside track Alphabet, Microsoft, and Amazon have to create value over the coming years. Now, it's time to put some numbers to all this. Currently, all three stocks trade at reasonable valuations for their expected long-term growth: I generally consider high-quality stocks reasonable buys at PEG ratios of 2.5 or less. Today, Alphabet (PEG ratio of 1.4), Microsoft (2.5), and Amazon (1.9) all fall within that threshold. If the market continues to fret over their elevated AI investments, it's likely a buying opportunity. These companies have emphasized that the demand for AI computing exceeds the current supply. That's a good problem to have! At the surface, these three hyperscalers could enjoy years of strong growth as AI increases demand for cloud computing. But looking deeper, it's evident that Alphabet, Microsoft, and Amazon are all worthy AI investments for the additional opportunities their existing businesses will give them to gain the upper hand in bringing AI technology to everyday life for consumers and businesses. It's a no-brainer $3,000 investment that should perform well over the next decade and beyond.

This Tech Giant Could Skyrocket on Its $100 Billion AI Bet in 2025 | The Motley Fool

Amazon will keep playing a critical role in AI technology and cloud computing. Amazon (AMZN -1.65%) demonstrated remarkable financial strength in the fourth quarter, with revenues and earnings beating analysts' consensus expectations. Revenues were up 10.5% year over year to $187.8 billion, ahead of the Wall Street target of $187.3 billion. Adjusted earnings per share rose by 86% to $1.86, dramatically higher than the consensus estimate of $1.49. Despite the robust performance, the market's initial reaction to the Q4 report it delivered on Feb. 6 was negative. Investors were disappointed with management's weaker-than-expected revenue guidance for the first quarter of 2025. While analysts had been forecasting first-quarter revenues of $158.33 billion, management guided for a range of $151 billion to $155.5 billion. Additionally, the company's share price was impacted by the turbulence in the overall technology sector that was triggered by the release of Chinese start-up DeepSeek's new AI model, which has capabilities similar to OpenAI's GPT-4, but which reportedly was developed and trained at a fraction of the price of other large language models. Although Amazon's growth outlook was a little unnerving, its multifaceted artificial intelligence (AI) strategy, which combines custom chip development and cutting-edge AI applications supported by a top-notch cloud computing platform, cannot be ignored. Here's why Amazon looks poised to head higher in 2025. Amazon's AI strategy has positively affected almost all aspects of its business, from cloud computing to advertising to e-commerce. The company plans to make capital expenditures of nearly $100 billion on AI initiatives in 2025, and a big chunk of that will go toward supporting AI for Amazon Web Services (AWS). CEO Andy Jassy considers AI to be a "once-in-a-lifetime" type of opportunity for AWS since he expects all applications to be reinvented with AI technologies embedded in them. AWS's AI-related business is growing at triple-digit percentage rates annually. Amazon expects to grow at an even faster pace since its hardware-related capacity constraints are expected to start easing in the second half of the year. As a part of Amazon's strategy to infuse AI across all layers of the AWS stack, the company designed the custom Trainium chip series. Virtual machines powered by Trainium 2 chips have demonstrated 30% to 40% better price performance than those powered by other GPUs on the market. This has impressed many companies, including Anthropic, Databricks, Adobe, and Qualcomm. It is also working on the Trainium 3 chip, and expects to preview it in late 2025. Besides AI-capable hardware, Amazon is also offering clients a diverse choice of foundational models through its fully managed Amazon Bedrock service. The company has been rapidly adding several popular emerging models including DeepSeek's R1 into its AWS Bedrock and SageMaker platforms. Plus, Amazon has released its internally developed Nova family of frontier models, which have comparable capabilities to other Bedrock models, but significantly lower latency and costs. All these AI initiatives have played a pivotal role in expanding the client base for AWS and boosting its profitability. Amazon has also integrated generative AI technologies into various areas of its retail business such as customer service, shopping assistants, inventory management, and warehouse operations. AWS has boosted its annualized revenue run rate to $115 billion, with growth driven mainly by the dramatic rise in enterprise demand for generative and non-generative AI offerings. Focused on completely tapping into the power of AI, many clients have restarted and accelerated their migrations of workloads to the cloud. In the fourth quarter, AWS' revenues were up 19% year over year to $28.8 billion, while operating income soared by 49.3% to $10.6 billion. AWS has also introduced new services in non-AI infrastructure areas such as computing, storage, databases, and analytics. The company has launched a new serverless distributed SQL database called Amazon Aurora SQL, Amazon S3 tables with fully managed support for Apache Iceberg capabilities, improved Amazon S3 metadata capabilities, and next-generation Amazon SageMaker to integrate analytics and AI at scale. Hence, although its hardware capacity constraints may affect its short-term growth, AWS' long-term fundamentals are exceptionally strong. Amazon trades at 38 times expected forward earnings, which at first glance looks expensive. However, several factors support this rich valuation. Analysts expect Amazon's revenues and earnings per share to grow year over year by 9.58% and 29.65%, respectively, in 2025. Although that estimate for top-line growth is modest, the predicted bottom-line improvement is impressive -- especially considering the company's broad product portfolio and expansive geographic reach. With earnings improvement outpacing revenue growth, Amazon is also demonstrating dramatic improvements in operational efficiency despite its heavy investments in AI-related initiatives. AWS is the global leader in the cloud infrastructure services market, with a 31% share in the fourth quarter. That segment accounts for just 15% of the company's revenues but contributes almost half of its overall profits. The strengths of AWS are undoubtedly a major factor supporting Amazon stock's premium valuation. Amazon's advertising business is also picking up its pace; its annual revenue run rate reached $69 billion in 2024. Besides being a high-margin business, advertising helps boost sales of other products and services in Amazon's ecosystem. Finally, Amazon's e-commerce business is also seeing improved profitability. In sum, this company boasts a diversified business model, extensive scale, and strategic positioning across several high-growth areas. With all these tailwinds propelling it -- as well as the $100 billion in AI-related investments it will make this year to support further high-growth opportunities -- Amazon seems a compelling buy.

1 Must-See Quote for AI Stock Investors From Arm Holdings' CEO | The Motley Fool

The launch of Chinese AI start-up DeepSeek sent shockwaves through the AI sector recently. Stocks like Nvidia plunged double digits on the news as the new competitor threatened to upend the AI ecosystem. DeepSeek, an open-source model, outlined how its engineering allowed it to achieve similar results to models like OpenAI's ChatGPT, but at a much lower cost. In fact, the company said it spent just $5.5 million to train its chatbot, though OpenAI accused it of "distillation," meaning that it used OpenAI's model to train its own, without permission. In the two weeks since the sell-off, the panic around DeepSeek seems to have settled, but the stocks that plunged on the news have not fully recovered. As of Feb. 7, Nvidia is still 10% lower than where it closed on Jan. 24, representing more than $300 billion in value lost. There's still a lot of uncertainty as to how DeepSeek will impact the AI sector over the long term, but it seems unlikely to derail the massive ramp-up in spending on AI infrastructure after big tech companies like Microsoft, Meta Platforms, Alphabet, and Amazon all announced plans to significantly increase their capital expenditures to build cloud infrastructure and AI capabilities. There was another comment from Arm Holdings (ARM -1.93%) CEO Rene Haas about DeepSeek that should give investors confidence as well. Haas said that DeepSeek is good for the AI industry and for Arm because it drives efficiency. Commenting on the recent capital expenditure forecasts, he also acknowledged, "No one is pulling back. And the reason for that is we're nowhere near the capabilities that could be transformational in terms of what AI can do." Referring to DeepSeek, he added, "So, I'm actually -- I think it's a great thing and a good thing, and I think it will actually increase overall compute demand. And for Arm, even better because it allows us to play in areas where efficiency is key, and that's our sweet spot." Arm designs and licenses its CPU and other semiconductor architecture, and the company's historical strength is that its architecture works well for conserving battery power. It's more efficient than the alternative, the x86 from Intel and Advanced Micro Devices. As CFO Jason Child noted in an interview with the Motley Fool, Arm is the only company whose chips are found everywhere from the cloud to virtually any edge device, and the company is uniquely positioned to capitalize on both the investment from cloud hyperscalers into AI and the disruption from DeepSeek. Technology like DeepSeek should accelerate the development of technologies like Edge AI, or programs like Apple Intelligence where computing happens on your device rather than in the data center. That benefits Arm since its chips dominate edge devices like smartphones, especially devices with a battery as its chips are prized for their low power consumption. Arm has forged relationships with a number of cloud infrastructure companies, so it should benefit from increasing capex from those companies. For example, its CPU licenses are in Amazon Web Services' Graviton, Microsoft Cobalt, and Google Axion, and its Grace CPU is in a range of Nvidia Superchips. Arm's market share in cloud computing has improved from 9% in 2022 to 15% in 2024, so it's gaining and still has a large opportunity to capture further share as it seems to be doing with those partnerships above. Technology companies are going to keep investing in AI at least until we've reached artificial general intelligence (AGI) and artificial superintelligence (ASI), and CFO Child argued that getting there is going to be compute-intensive. The DeepSeek development doesn't change that trajectory. DeepSeek could spawn a separate set of less-expensive, low-power applications like Edge AI, but the goal remains a more powerful AI that will have myriad applications in robotics, automation, and beyond. With its strong market share at the edge and close partnerships with the cloud hyperscalers, Arm looks uniquely well-positioned to win no matter what direction AI goes in. For investors looking for an AI stock buy in the DeepSeek era, Arm looks like a great choice.

2 No-Brainer Artificial Intelligence Stocks to Buy Right Now | The Motley Fool

Artificial intelligence (AI) is one of those transformational technologies that's hard to miss. Every technology company talks profusely about it on its earnings calls, and if any one of them is behind its competitors, none admits it. That's because there's a lot at stake. PwC estimates that AI could be worth $15.7 trillion by 2030. With all that opportunity, there's plenty of room for winners. But an AI war is under way, and a handful of companies are already proving their mettle. Here are two to buy right now. Semiconductors are the brains behind AI, with the most advanced processors able to train new AI models to be smarter and more efficient. While DeepSeek's recent debut indicates that the latest and greatest chips may not always be necessary to create impressive AI models, some people have overlooked that its model allegedly used other AI models to learn from, which were trained with advanced processors. The fact remains that the world's largest tech companies aren't going to stop buying advanced processors because one AI start-up didn't use them for its own model. Alphabet, Meta Platforms, Apple, Microsoft, and others are still shelling out billions of dollars for AI infrastructure -- and Nvidia (NVDA -0.58%) is one of the biggest recipients. Nvidia's GPUs have been the go-to AI processors for years, and the company's latest financial results speak for themselves. For the fiscal third quarter of 2025, sales rose 94% to $35.1 billion, and earnings soared 103% to $0.81 per share. That growth was fueled by Nvidia's data center segment, with revenue more than doubling to $30.8 billion. Is it possible for Nvidia to grow more after this? It's entirely possible. Nvidia CEO Jensen Huang believes that spending on AI data centers could reach $2 trillion over the next five years. He could be overshooting the estimate, of course, but keep in mind Microsoft just said it'll spend $80 billion in 2025 alone to continue building out its data centers. Oh, and ChatGPT creator OpenAI, Oracle, and Softbank recently said they'll spend $500 billion over the next four years to build new AI data centers, too. These investments will bode well for Nvidia's processor business and could help the company's stock continue its success. Its share price may not be as expensive as you think, either, with a forward price-to-earnings ratio of 29.1, only slightly more expensive than the S&P 500 index's forward P/E of 24. If you believe that AI processor demand is soaring (and it is) and that it could continue to do so as tech companies invest billions of dollars to build data centers, then it follows that demand could skyrocket at a company that makes the processors. Enter Taiwan Semiconductor Manufacturing (TSM 0.38%). The company, also known as TSMC, has a corner on the advanced processor manufacturing space, holding an estimated 90% of the market. That means as Nvidia and other chipmakers sell their processors to tech giants who need bigger AI data centers, TSMC ramps up its machines to churn them out. TSMC is already reaping the benefits of this increasing demand. In the fourth quarter, the company's revenue jumped 37% to $26.8 billion, and earnings jumped by 57% to $2.24 per ADR unit. Even TSMC's CEO, C.C. Wei, sounded surprised by all of this chip demand on the latest earnings call, saying, "Even after more than tripling in 2024, we forecast our revenue from AI accelerators to double in 2025 as the strong surge in AI-related demand continues," Wei said. Taiwan Semiconductor's share price has surged alongside AI chip demand, yet its stock is still relatively inexpensive. Its shares have a forward P/E of just 23.6, on par with the S&P 500's. This means you can buy this AI stock for a relatively good price just as the company fires up its machines to produce more AI processors for the world's most advanced tech companies. That sure seems like a no-brainer buy to me.

3 Top AI Stocks That Could Crash in 2025 | The Motley Fool

Up 421% over the last three years, Nvidia has made itself the standard bearer of the AI industry by selling the graphics processing units (GPUs) that train and run these advanced algorithms. Booming demand allowed it to grow fiscal 2025 third-quarter revenue by 94% to $35.1 billion. That said, there are some early signs that this level of spending is unsustainable. According to MIT professor Daron Acemoglu, AI technology may never be capable of solving problems complex enough to justify its development costs. And the emergence of low-cost, open-source large language models (LLMs) like China's DeepSeek could make it even harder for Nvidia's clients to profit from its astronomical GPU spending. The good news is that despite Nvidia's high growth rate, its forward price-to-earnings (P/E) ratio of just 30 is relatively affordable compared to the Nasdaq-100 average of 33. This discount suggests that some of Nvidia's long-term challenges may already be priced into its valuation, and shares may not face as much downside risk as other companies on this list. Tesla is a car company desperately trying to rebrand itself as an AI company by pouring billions into building Dojo -- an AI supercomputer designed to support its autonomous driving strategy. If successful, these efforts could transform the company by generating more high-margin software-as-a-service revenue. But that is a big "if." Alarmingly, even Tesla's CEO Elon Musk has called Dojo a "long shot" with a potentially high payoff but a low probability of success. The problem is that the market is treating the AI pivot as a done deal when it isn't. Tesla is clearly still a car company. The automotive business represents 77% of its total sales. And it is struggling with stagnating demand. Fourth-quarter revenue dropped 8% to ($19.8 billion) year over year. Meanwhile, Tesla's forward P/E of 127 is almost four times the Nasdaq-100 average, making its shares look wildly overvalued considering its lackluster growth rate and the uncertainty about its AI transition. Like Nvidia, Palantir Technologies is another big AI winner, with shares up 757% over the last three years. The company is exciting because of its potential to introduce AI technology into the world of government and military contracts. But while Palantir's growth is respectable, its stock valuation seems to have completely lost touch with reality. Fourth-quarter revenue grew 36% year over year to $827.5 million, driven by the popularity of its AI-enhanced data analytics tool, particularly with U.S. commercial clients. Though Palantir's business is growing, it is far from the only game in town. Cloud computing giant Microsoft offers a similar platform called Fabric. And it is unclear what "secret sauce" Palantir has that deep-pocketed rivals can't replicate. With a forward P/E multiple of 200, Palantir's valuation doesn't seem to reflect its modest growth and the potential threat from competition. To be fair, financial markets aren't always rational. But the sheer scale of Palantir's overvaluation makes a serious dip likely. Investors may want to stay far away from all of the AI stocks on this list for the time being.

DeepSeek Is Here: How Amazon Is Using It to Grow Its Artificial Intelligence (AI) Program | The Motley Fool

DeepSeek landed with a bang when the news came out that the China-based artificial intelligence (AI) application was able to produce similar results to OpenAI's ChatGPT and other generative AI applications at a fraction of the price. That threw the markets into brief chaos, and many AI stocks plunged and remain down. However, it didn't affect all AI stocks across the board; Amazon (AMZN -0.16%) stock, for example, was not impacted, although it fell after earnings. It's up 4% year to date. Not one to let an opportunity pass it by, Amazon is leveraging the DeepSeek launch to its benefit, and it recently announced that it's incorporating DeepSeek into its AI platform. Let's go through why DeepSeek doesn't threaten Amazon and how Amazon can benefit from it. By now, most investors have heard about DeepSeek and some of its selling points -- specifically, that its performance matched U.S. companies like OpenAI's ChatGPT but at a much more affordable price -- up to 90% to 95% cheaper. It gets around using expensive training on large data by using a training mechanism called reinforcement learning, which doesn't need the same chip power as large data training. While Nvidia stock tumbled on the news, since it makes the expensive graphics processing units (GPU) that drive training, most AI companies, including Nvidia, see the technology as a win for the overall advancement of AI in applications everywhere. Amazon's AI business is focused on the output of models like DeepSeek, and it offers cloud-computing customers through Amazon Web Services (AWS) a list of foundation models to use in developing AI applications. The platform has many ways to use and produce AI products through developing customized large language models (LLM) as well as using preexisting LLMs. DeepSeek has already been integrated into the platform as an option for customers to use through both the Bedrock and SageMaker programs, both of which give users many tools to create semi-customized AI applications. AWS clients pay according to the tools and programs they choose, and DeepSeek could be a more cost-effective option for use. Amazon still gains from customers choosing DeepSeek as a tool, since customers are paying for the program, which allows them to build full applications. Amazon stock fell after its fourth-quarter earnings report because its guidance was below what analysts are expecting for the 2025 first quarter. Q4 itself was stellar. Revenue increased 10% year over year to $188 billion, and operating income increased from $13.2 billion to $21.2 billion. Net income almost doubled, from $10.6 billion to $20 billion. Those are massive profits. What Amazon is spectacular at, among other things, is anticipating demand and innovating to meet it. That's how it's kept its edge over other companies for so many years. CEO Andy Jassy said in the Q4 earnings call that most of Amazon's more than $26 billion capital expenditures (CapEx) in Q1 went to AI and similar projects, and that there would be a similar run rate for the full year, or more than $100 billion. While that's going to eat into profits in the short term, management is positioning itself for the long-term opportunity. It's also important because AWS is the largest cloud-computing company in the world, with more than a third of all global business according to Statista. To stay ahead, it needs to invest ahead. The next two largest cloud-computing companies are Microsoft, whose Azure has 20% of the market, and Alphabet, which has 12%. Each of those has big CapEx plans in 2025 as well -- $94 billion for Microsoft and $75 billion for Alphabet. Jassy is doubling down on what he sees as an almost unprecedented opportunity for Amazon. He reiterated in the call that "AWS is expanding its CapEx, particularly in what is considered to be one of these once-in-a-lifetime type of business opportunities like AI represents." Adding DeepSeek is just one of many ways Amazon is growing its AI business, and even though it's the talk of the media today, it could end up being a blip on the overall program. Because its business is so vast, with products like its own GPUs, as well as its many AI programs like Bedrock and SageMaker, it's less susceptible to dramatic changes in any one part. Amazon is looking toward the future, and although the stock only dipped a bit since the earnings report, it provides a more attractive entry point for the forward-thinking investor.

Better Artificial Intelligence Stock: Nvidia vs. ASML | The Motley Fool

Artificial intelligence (AI) is rapidly transforming our world, promising to revolutionize everything from human interaction and environmental stewardship to space exploration. This technological revolution, driving us toward what's known as Industry 5.0 (the next phase of industrialization, characterized by human-centric, sustainable, and resilient production through human-machine collaboration), is creating immense opportunities for innovative companies. Two such companies at the forefront of this AI-powered future are chipmaker Nvidia (NVDA 2.87%) and ASML (ASML 2.25%), a lithography giant specializing in extreme ultraviolet (EUV) technology. Both have already seen significant growth thanks to the AI boom, but their potential for future returns remains strong. Which of these top AI stocks is the better buy right now? Let's break down their core value propositions and risk factors to find out. Nvidia is the dominant force in AI hardware, powered by its industry-leading graphics processing units (GPUs) and Compute Unified Device Architecture (CUDA) -- a software platform that enables developers to harness GPU computing power for AI applications. This powerful combination creates a wide competitive moat, though competition from other chipmakers and potential alternative AI solutions pose long-term risks. Beyond hardware, Nvidia is strategically expanding into AI software and robotics, particularly in healthcare, diversifying its revenue streams and strengthening its position in the broader AI ecosystem. However, the emergence of potentially more efficient AI models like China's DeepSeek and the cyclical nature of its gaming GPU business create uncertainty around near-term demand. Trading at approximately 30 times forward earnings compared to the S&P 500's (^GSPC 0.67%) 24 times, Nvidia's premium valuation reflects its strong position in the AI market. The tech stock also pays a minimal dividend yield of 0.03%, meaning its shares are better used as a growth vehicle rather than an income generator. In short, Nvidia's value proposition lies in its AI leadership and ongoing ecosystem expansion, with key risks including competition, evolving AI technologies, and gaming market cycles. ASML is the undisputed leader in lithography equipment, holding a near-monopoly on the crucial extreme ultraviolet (EUV) technology required for manufacturing the most advanced chips. This dominance creates a wide economic moat, driven by substantial R&D investments and deep relationships with key customers like Taiwan Semiconductor Manufacturing (TSMC), Intel, and Samsung, making it incredibly difficult for competitors to emerge. ASML's machines, while expensive, deliver value to chipmakers by reducing the cost per wafer through increased productivity. The long lifespan of these machines, often exceeding 30 years, generates significant recurring revenue through service contracts and high-margin upgrades, further bolstering ASML's financial strength. However, ASML's stock trades at a premium to the S&P 500, with a forward earnings multiple of 29.3 times, reflecting its crucial role in the semiconductor industry and the ongoing AI boom. While the stock's dividend yield is a modest 0.95%, the company's growth prospects and dominant market position are the primary drivers of investor interest. Despite its strong position, ASML faces some risks. The cyclical nature of the semiconductor industry can impact demand for its high-priced equipment. Additionally, increasing geopolitical tensions and potential export restrictions, particularly concerning China, could negatively affect ASML's growth trajectory. While both companies are exceptionally well-positioned in the AI revolution, ASML emerges as the more compelling investment at current valuations. Its monopolistic position in EUV technology makes it essential to all major chipmakers, including Nvidia. This unique market position, combined with its robust recurring revenue model and slightly lower valuation multiple, provides a more balanced risk-reward profile. Nvidia remains an outstanding company with tremendous growth potential, but its direct exposure to AI market sentiment and gaming cycles introduces more near-term volatility. ASML's fundamental role in semiconductor manufacturing offers a similar tailwind with greater insulation from market swings, making it the better choice for investors seeking AI exposure with a wider margin of safety.