Top 3 AI Stocks Now

Even with the market's recent rebound, several AI stocks still appear to be good options for long-term investors. Rather than focusing on previous prices, investors should consider the potential for profit over the next three to five years.

Nvidia

Nvidia has dominated AI investments since 2023, and its GPUs have been crucial for training many AI models. Despite increasing competition from custom AI accelerators, GPUs remain the preferred choice due to their flexibility and computing power. Nvidia's stock is still considered a worthwhile investment, especially compared to its prices during much of 2024. Many investors who bought and held Nvidia's stock throughout 2024 at higher prices have already seen substantial gains.

Taiwan Semiconductor

Taiwan Semiconductor, or TSMC, is a major chip supplier, manufacturing chips for advanced devices like Nvidia's GPUs. TSMC's orders are often placed years in advance, providing insight into chip demand. For instance, TSMC's Arizona facility has already sold out chip production through 2027, suggesting orders extend into 2028. Management anticipates 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 growth potential, Taiwan Semiconductor's stock is trading at 21 times forward earnings, a market-average multiple.

Alphabet

Alphabet may be a more controversial pick due to the challenges it faces. Concerns exist regarding its Google search engine business amid AI competition and potential economic challenges. Additionally, it has been found guilty of operating two illegal monopolies, potentially leading to a breakup. These factors have resulted in a low valuation for Alphabet's stock, trading at just 17.5 times forward earnings. However, Alphabet is 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, suggesting that AI has not yet had a negative impact. While Alphabet cannot control the economy, historical trends suggest it will eventually recover. The outcome of the government's investigation remains uncertain, but breakups and spinoffs could potentially unlock more value for shareholders. Despite these uncertainties, the core business remains strong, making the stock a solid buy.

If you feel you've missed out on purchasing successful stocks, consider that our analysts occasionally issue “Double Down” stock recommendations for companies they believe are about to surge. Examples include Nvidia, Apple and Netflix. Stock Advisor is issuing “Double Down” alerts for three companies.

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.