Artificial intelligence (AI) stocks have been some of the biggest winners in the current bull market. Surging demand for AI infrastructure, software, and development tools has reaped huge profits for some companies and their investors over the past two years. AI has seen strong growth, with even more to come.
According to a report from market research firm IDC, businesses will spend a whopping $235 billion on AI this year, but the same analysts predict that spending will rise to $631 billion by 2028. By 2032, spending on generative AI alone could rise to $1.3 trillion, according to a Bloomberg Intelligence analysis.
With the stock prices of many of the companies involved in the AI boom skyrocketing, it may seem impossible to find AI stocks you can buy for just $200. While many brokerages allow fractional share trading, there’s something great about owning a whole share of a company. Here are three AI stocks you can buy for under $200 a share that we think are no-brainer investments right now.
1. Broadcom ($163 per share)
Broadcom (NASDAQ: AVGO) The company’s stock recently fell below $200 per share for the first time since 2020, but that wasn’t because investors were selling off shares or because the business is struggling, but because the company implemented a 10-for-1 stock split in July. The company’s market cap has increased nearly 10x from its 2020 lows, but there may still be room to go.
The chipmaker specializes in a few types of semiconductors that are extremely valuable amid the AI boom. It makes networking chips that help route workloads across available computing power in data centers. For example, its Jericho3-AI Fabric can connect up to 32,000 chips in a data center. That helps big tech companies that are spending tens of billions of dollars on GPUs and other chips get a good return on their investments.
The company also makes AI accelerator chips specialized for training and using large language models, and works closely with major tech companies like Alphabet. (Nasdaq: GOOG) (Nasdaq: GOOGL) and Meta Platforms design these application-specific integrated circuits (ASICs), which are cheaper and require less energy to run than GPUs to perform the same tasks, which is why they make up an increasing proportion of hardware in the world’s largest data centers.
Broadcom also makes chips for other applications, including smartphones, which has proven to be a stable and growing business. Additionally, it boasts a portfolio of enterprise software for mainframe and virtualization, building on assets gained in its acquisition of VMware last year. Combining its broad portfolio with its chip business means its products work well together, and it can focus on locking in customers by insuring itself against the competition.
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Despite the company’s strong performance over the past few years, its shares currently trade at just 27.7 times forward earnings, a bit higher than the average valuation in the S&P 500 but well below other AI chipmakers. Given that the company has multiple potential sources of growth, Broadcom stock should be a solid investment at current prices.
2. Qualcomm ($175 a share)
Qualcomm (NASDAQ: QCOM) The company is best known for making wireless communication chips that enable smartphones to connect to carriers’ 5G networks, and while its business is facing major headwinds as its biggest customer, Apple, starts developing its own next-generation modems, it is doing more business with Android smartphone makers.
Qualcomm not only dominates most of the connectivity chips in smartphones, it also makes the core processors found in many Android phones. Its Snapdragon application processing units are among the most premium chips for smartphones, and manufacturers can easily integrate them with its modems. It also makes chips for automobiles and the Internet of Things, both growing markets where computing and connectivity are increasingly needed.
Qualcomm made a foray into the PC market earlier this year with AI-focused CPUs, and while its efforts in this area likely won’t have a significant impact on revenue in the short term, they could ultimately lead to greater diversification.
Importantly, Qualcomm stands to benefit from the move to start offering generative AI computing power on-device, rather than doing all of that processing in the cloud. Apple’s upcoming new AI features announced in June are primarily focused on this on-device processing. Many other companies will try to imitate Apple in this regard. Qualcomm has highlighted the idea that its PC chips can handle AI applications on devices without an internet connection. And AI applications in cars and IoT networks will also need to be able to run fast and locally. These trends bode well for Qualcomm’s sales of its high-end chips.
Qualcomm trades at a price-to-earnings ratio of just 15.5. This is well below the multiple of the S&P 500, even though strong demand from smartphone makers should boost the company’s revenue and profits in the short to medium term, and AI PC chips could be the company’s long-term growth story. At this valuation, Qualcomm stock looks like a great buy.
3. Alphabet ($165 per share)
Alphabet owns the world’s most popular search engine (Google) and video-sharing website (YouTube). These assets are part of the Internet Services group that supports the company’s core advertising business.
Despite the backlash from regulators, Google’s dominance in the internet search market is unlikely to continue. Moreover, AI assistants such as ChatGPT have not been able to make a significant dent in the company’s business. In fact, Google has integrated AI into search with its latest feature, AI Overviews, and users are seeing high engagement and satisfaction with the results.
While AI is transforming Google’s core business, it is also fueling the growth of Google’s cloud computing division. Google Cloud is the third largest public cloud platform and is growing rapidly. The company is investing heavily in AI capabilities with custom chip designs (backed by Broadcom) to expand its computing power. This has helped it land major contracts with big developers, including Apple, which trained large language models on Google Cloud’s TPUs.
Executives say the company’s generative AI services will generate billions of dollars in revenue in the first six months of 2024 and have attracted more than 2 million developers. But there’s still a lot of room to grow. Google benefits from being able to maximize its capital investments by investing in its own AI development while also renting out its cloud computing power to other developers.
The company’s stock is currently trading at a forward P/E of 21.8, which is in line with the S&P 500, but Alphabet deserves a premium valuation because it benefits from secular growth in digital advertising and rapid growth in AI cloud spending. Meanwhile, the company is using its massive cash flow to buy back shares, boosting earnings per share, so earnings growth should remain strong. As long as the stock remains below $200, Alphabet looks like a great AI stock to buy.
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Suzanne Frey, an Alphabet executive, serves on The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and public relations at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, also serves on The Motley Fool’s board of directors. Adam Levy owns shares in Alphabet, Apple, Meta Platforms and Qualcomm. The Motley Fool owns shares of and recommends Alphabet, Apple, Meta Platforms and Qualcomm. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The article 3 Artificial Intelligence (AI) Stocks to Buy Right Now for $200 was originally published by The Motley Fool.
