Top 3 AI Stocks Now

As the market experiences a rebound, AI stocks continue to present attractive opportunities for long-term investors. Rather than focusing on past performance, investors are increasingly looking at the potential for growth over the next three to five years. Among the standout options are Nvidia, Taiwan Semiconductor, and Alphabet, each offering unique strengths in the AI-driven economy.

Nvidia: Dominating AI Investments

Nvidia has been a leader in AI investments since 2023, with its GPUs playing a critical role in training AI models. Despite growing competition from custom AI accelerators, GPUs remain the preferred choice due to their flexibility and powerful computing capabilities. Nvidia's stock continues to be a strong investment option, particularly when compared to its prices throughout much of 2024. Investors who held Nvidia's stock during 2024 have already seen significant gains, highlighting the company's sustained growth.

Taiwan Semiconductor: Powering AI Chip Demand

Taiwan Semiconductor, also known as TSMC, is a key player in the chip manufacturing industry. As a major supplier of chips for advanced devices, including Nvidia's GPUs, TSMC's orders are often placed years in advance, providing valuable insights into future chip demand. For example, TSMC's Arizona facility has already sold out chip production through 2027, with orders extending into 2028. The company anticipates that AI-related chips will grow at a 45% compound annual growth rate (CAGR) over the next five years, contributing to an expected company-wide CAGR of nearly 20%.

Despite this impressive growth potential, Taiwan Semiconductor's stock is currently trading at 21 times forward earnings, which is considered a market-average multiple. This valuation suggests that the stock may be undervalued relative to its long-term prospects.

Alphabet: Navigating Challenges with AI Innovation

Alphabet faces several challenges, including competition in the AI search engine market and potential economic headwinds. The company has also been found guilty of operating two illegal monopolies, which could lead to a breakup. These issues have resulted in a low valuation for Alphabet's stock, trading at just 17.5 times forward earnings. However, Alphabet is actively managing the transition from traditional Google search to AI search through its AI overviews feature. Google Search's revenue increased by 10% year over year in Q1, indicating that AI has not yet negatively impacted the business.

While Alphabet cannot control economic conditions, historical trends suggest that the company will eventually recover from any downturns. The outcome of the government's investigation remains uncertain, but breakups and spinoffs could potentially unlock more value for shareholders. Despite these uncertainties, Alphabet's core business remains strong, making the stock a solid buy for long-term investors.

For investors who feel they have missed out on purchasing successful stocks, it is worth noting that analysts occasionally issue “Double Down” stock recommendations for companies they believe are about to surge. Examples include Nvidia, Apple, and Netflix. Stock Advisor is currently issuing “Double Down” alerts for three companies, offering investors additional opportunities to capitalize on market trends.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Alphabet, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Taiwan Semiconductor Manufacturing.