The race in artificial intelligence (AI) is still ongoing, and there’s a considerable need for expanded cloud computing resources to support it. AI hasn’t quite reached full saturation, and it’s tricky to envision the vast computing power required for an AI-centric economy.
This situation seems promising for a select group of firms. Right now, those involved in developing new data centers rank high on my investment list. I believe investors might find it worthwhile to consider upping their stakes in companies like Nvidia, Micron Technology, and Alphabet, as each stands to gain from a notable surge in AI expenditures.
Remember Nvidia in 2009? That same unusual signal is appearing again. Back in 2009, a “double down” signal was seen for a lesser-known chipmaker called Nvidia. Now, for the first time in years, a company that’s 100 times smaller than Nvidia is sending the same “full conviction” signal.
Nvidia
Nvidia has become a significant player in AI investing with the surge in infrastructure development seen this year. Their products are essential to nearly every new data center. Their GPUs are leading the AI computing market, chosen by many businesses for their reliability and versatility.
The dominance of chip manufacturers seems poised to continue. Nvidia reported an 85% revenue increase last quarter, and analysts predict nearly 100% growth for the next quarter. Notably, this is happening without sales to China, but there’s potential for Nvidia to re-enter that market soon.
Furthermore, the management has indicated that the four major AI hyperscalers are projected to spend $1 trillion on data center capital expenditures next year, a rise from this year’s $650 billion. This suggests that the trend in data center construction remains robust and could benefit the other companies mentioned here as well. Alphabet has also hinted at a significant increase in capital spending by 2027.
Despite its remarkable performance lately, NVIDIA’s forward earnings ratio stands at just 23.7, which is only a slight premium compared to the S&P 500’s ratio of 21.7.
This mild premium serves as an opportunity to acquire one of the top stocks available, and with long-term growth factors at play, now seems like a sensible time to invest.
Micron
Micron is in the spotlight thanks to the intense demand for memory chips in AI data centers. The company produces NAND and DRAM memory, each serving distinct roles in servers. However, there currently isn’t enough production capacity to meet this rising demand, and establishing new manufacturing facilities takes time. This shortage has resulted in a significant increase in memory prices, positively impacting Micron’s sales and profits.
This trend of tight supply in the memory chip market is likely to persist for a while. Micron executives have indicated the shortage might extend into 2027 and beyond, which bodes well for Micron investors with the potential for considerable growth in earnings and revenues.
Even though its forward P/E ratio stands at just 12.3, this might suggest a solid buying opportunity for a top AI stock.
Alphabet
While Micron and Nvidia are benefiting from an uptick in AI infrastructure spending, Alphabet stands out as a significant spender in this space. Its inclusion in this discussion might raise eyebrows, but understanding the broader context is crucial.
Alphabet’s investments in data centers aren’t random; they aim to build a robust cloud computing empire that handles both traditional and AI workloads. Their Google Cloud division saw a 63% year-over-year revenue growth last quarter. As more computing power is brought online, this rapid growth trend is expected to continue.
Considering that Google Cloud is outpacing growth in other sectors, this could influence Alphabet’s stock prices and reshape its business mix over time. If Alphabet maintains this growth trajectory while keeping profit margins stable, its substantial investment in AI computing capabilities is likely to prove beneficial, offering investors substantial returns. For these reasons, Alphabet appears to be a strong buy right now.
Should you buy Nvidia stock now?
If you’re contemplating purchasing Nvidia stock, here are a few things to think about:
The analyst team from Motley Fool Stock Advisor has pinpointed what they believe to be the best stocks on the market right now, and Nvidia isn’t included. These selections are believed to hold the potential for notable returns over the next few years.
And here’s a noteworthy example: if you had invested $1,000 in their recommendation for Netflix back in December 2004, you would now have around $371,842. Similarly, investing in Nvidia from their April 2005 recommendation would have yielded over $1,244,783.
The key takeaway here is that the Stock Advisor program has delivered an impressive average return of 900%, which significantly outperforms the S&P 500’s return of just 207%. It might be worth checking out their latest Top 10 list.
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Keesen Drury has held roles at both Alphabet and Nvidia. The Motley Fool recommends Alphabet, Micron Technology, and Nvidia, and the organization has a disclosure policy.
For additional insights on top AI stocks to invest in, check out recommendations originally published by The Motley Fool.
