Nearly every technology company touts its artificial intelligence credentials these days. I don’t blame them, considering AI is a valuable addition to many software and services.
But just because tons of companies are quickly integrating AI into their offerings, it doesn’t mean they’re top AI stocks. Instead, you should look for leaders who are knee-deep in this segment and setting the pace in the AI race. Here are three top AI stocks leading the pack that are worth buying right now.
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PalantirTechnologies(NYSE: PLTR) was in the business of helping organizations sort data before AI became commonplace. For years, it focused on using artificial intelligence to help the government parse through gobs of data, but it has since expanded into the commercial market.
Its early lead in this space is paying off. The company just reported its third-quarter results (which ended Sept. 30), in which revenue rose 30% from the year-ago quarter to $726 million and adjusted earnings per share spiked 43% to $0.10.
U.S. commercial revenue, a fast-growing part of Palantir’s business, increased sales by 54% to $179 million and accounted for about one-quarter of the company’s total revenue in the quarter. Part of that growth comes from Palantir’s impressive customer growth, which was up 39% in the quarter amid 104 customer deals that were worth $1 million or more.
If I have one hesitation with Palantir, it’s the company’s sky-high valuation. Palantir’s shares have forward price-to-earnings of 101 right now. That’s expensive by any measure.
However, the company is clearly making the right moves in the AI race and is also profitable, not to mention having $4.6 billion in cash and cash equivalents. With its customers knocking down its doors for its tech, and sales and earnings growing at a healthy clip, Palantir likely still has more room to run.
Nvidia(NASDAQ: NVDA) is one of the obvious choices when it comes to top AI stocks. For years, the company has dominated the graphics processing unit (GPU) market when they were mainly used for gaming, but now its GPUs are far and away the leading choice to power AI data centers as well.
The most recent estimates give Nvidia’s chips between 70% to 95% of the AI chip market, and its latest product lineup — including its popular H200 processor — will likely keep the company ahead of the competition for some time.
You might be wondering if demand for AI chips could be high enough to fuel sustained growth for Nvidia, and to that, I’d say that both Nvidia’s CEO Jensen Huang and Goldman Sachs think $1 trillion in AI spending will occur over the next few years, most of which will be funneled into data centers.
Even with Nvidia’s stunning 380% share price increase over the past three years, its forward P/E of 35.8 is still relatively low compared to some other AI stocks. That’s still not cheap, but Nvidia is the clear leader in the AI processor market, and AI spending is still just getting underway.
The company’s early lead and advanced processors should help keep it ahead of the competition, and the intense AI race that’s now begun among all tech companies will be the fuel that keeps Nvidia’s fire burning for quite some time.
There’s another critical angle investors can play in the artificial intelligence space, and it comes in the form of chip manufacturing. There are chip designers, like Nvidia, and then there are the companies that actually make the processors, like Taiwan Semiconductor Manufacturing(NYSE: TSM).
TSM manufactures about 90% of the world’s most advanced processors, and the AI boom is fueling the company’s growth. TSM reported impressive third-quarter financial results a few weeks ago (for the period ending Sept. 30), with sales rising 39% to $23.5 billion and diluted EPS soaring 54% to $1.94 per American depository receipt (ADR).
TSM’s management said third-quarter growth came from “strong smartphone and AI-related demand” and that more is on the way. The company estimates fourth-quarter sales will jump 35% at the midpoint of guidance.
TSM has the lowest forward P/E on this list, at just 21.2, making it a relative deal compared to its AI peers. With TSM the definitive leader in advanced chip processor manufacturing, the company is poised to continue to benefit as more companies ramp up their AI data center spending.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
