One of the biggest market drivers in 2024 will be artificial intelligence (AI), and there’s good reason to believe that AI stocks will continue to lead the way in 2025. Despite recent advances, AI is still in its infancy and the technology will only get better over time.
Let’s take a look at three AI stocks that still have attractive value and are solid buys heading into 2025.
1. Nvidia
The market was in a festive mood towards the end of the year, but with Nvidia’s recent decline, (NVDA 3.08%) It’s like a gift. Chipmakers have been the biggest beneficiaries of building AI infrastructure, as their graphics processing units (GPUs) provide computing power for both large-scale language model (LLM) training and AI inference.
Although not the only GPU manufacturer, Nvidia has built a wide moat through its CUDA software program. The company originally created this free software program as a way to expand beyond its core video game market by allowing customers to use their chips in other applications and selling more chips. . This has made CUDA the standard for developers to learn to program GPUs. This gave Nvidia approximately 90% market share in the GPU market.
Nvidia’s dominance in the GPU market led to explosive revenue growth, including 94% last quarter. Meanwhile, many big tech hyperscalers (companies with large data centers) and well-funded AI startups such as OpenAI and Elon Musk-backed xAI are rushing to build out their AI infrastructure, and their powerful Growth is expected to continue. Pursue creating the best AI models. As these models become more sophisticated, the computational power, or GPU, required to train them increases exponentially.
Despite significant growth, NVIDIA still trades at an attractive valuation, with a forward price-to-earnings (P/E) ratio of less than 29x based on analyst estimates for 2025 and a price-to-earnings (PEG) ratio of approximately It’s 0.9. . A PEG ratio below 1 is usually considered undervalued, but growth stocks often have a PEG ratio well above 1.
Image source: Getty Images.
2. Taiwan Semiconductor Manufacturing
Another company that will benefit from building AI infrastructure is Taiwan Semiconductor Manufacturing. (TSM 1.32%)or TSMC. Many companies now outsource chip manufacturing, making TSMC one of the world’s leading contract semiconductor manufacturers.
The company has benefited from a huge increase in demand for its AI chips and continues to work on adding capacity to keep up with demand. Ready to benefit from the smartphone and hardware upgrade cycles required to run AI applications. Last quarter, the company’s revenue increased 36%.
Semiconductor manufacturing is a capital-intensive business that requires both scale and technical expertise to succeed. While TSMC is thriving, rivals like Intel and Samsung are struggling. This has made TSMC the clear leader in advanced chip manufacturing, counting Apple, Nvidia, and Broadcom among its largest customers. The company has recently reached nearly 65% market share, and even higher for advanced chips.
Because of TSMC’s dominant position in the semiconductor manufacturing field, it has had strong pricing power in recent years, contributing to improved gross profit margins. Meanwhile, the company plans to raise prices again next year.
The stock has an attractive trading value, with a forward P/E ratio of just over 22x based on analyst forecasts for 2025 and a PEG ratio of approximately 1.16x.
3. Alphabet
of the alphabet (Google 1.54%) (GOOG 1.72%) Google Cloud, the cloud computing division, has been a big winner in AI so far. Cloud computing is a fixed-cost business that becomes much more profitable as it scales up. That’s exactly what’s happening at Google Cloud, where revenue rose 35% to $11.4 billion last quarter, and the division’s operating profit soared from $266 million to $1.95 billion.
The company attributes its success in the cloud to its use of a combination of GPUs and customized tensor processing units (TPUs) to reduce inference time and cost. The company said that while customers use its platform to customize their own AI models, it also employs Gemini models.
Meanwhile, this month Alphabet is showing off its innovation prowess. This includes breakthroughs in quantum computing, which will put the company at the forefront of this exciting new field, but it will still be a long time before quantum computing impacts revenue. Probably. In addition, the company introduced new cutting-edge updates to its AI image and video generation tools and introduced the latest Gemini AI model. Gemini 2.0 can function as an autonomous AI agent and will be integrated into search next year.
Alphabet has long been a dominant player in the search space and also operates YouTube, one of the world’s largest video services. But the company is finally starting to receive some recognition for its innovation. Despite this, it remains one of the cheapest mega-cap tech stocks, trading at a forward P/E of 22.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Geoffrey Seiler is with Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: February 2025 $27 short calls on Intel. The Motley Fool has a disclosure policy.
