Today, almost every technology company touts its AI credentials. I don’t blame them, considering that AI is a valuable addition to many software and services.
But just because tons of companies are rapidly integrating AI into their offerings 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 of the top AI stocks leading the pack and worth buying right now.
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PalantirTechnologies(NYSE: PLTR) was in the business of helping organizations classify data before AI became commonplace. For years, it focused on using artificial intelligence to help the government analyze large amounts of data, but has since expanded into the commercial market.
Their early leadership in this space is paying off. The company just reported its third quarter results (ended September 30), in which revenue increased 30% from the prior-year quarter to $726 million and adjusted earnings per share increased 43% at $0.10.
U.S. commercial revenue, a part of Palantir’s fast-growing business, increased sales by 54% to $179 million and accounted for about a quarter of the company’s total revenue in the quarter. Part of that growth comes from Palantir’s impressive customer growth, which increased 39% in the quarter amid 104 customer deals worth $1 million or more.
If I have a doubt with Palantir, it is the very high valuation of the company. Palantir stock has a forward price-to-earnings ratio of 101 right now. That’s expensive by any standards.
However, the company is clearly making the right steps in the AI race and is also profitable, not to mention it has $4.6 billion in cash and cash equivalents. With its customers knocking down its doors for its technology and sales and profits growing at a healthy pace, Palantir probably 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 primarily used for gaming, but now its GPUs are by far the top choice for powering AI data centers as well.
The most recent estimates give Nvidia chips between 70% and 95% of the AI chip market, and its latest product line, including its popular H200 processor, will likely keep the company ahead of the competition for some time. time.
You might be wondering if demand for AI chips could be high enough to fuel Nvidia’s sustained growth, and to that I would say that both Nvidia CEO Jensen Huang and Goldman Sachs I believe $1 trillion will be spent on AI in the next few years, most of which will be funneled into data centers.
Even with the astonishing 380% increase in Nvidia’s stock price over the past three years, its Forward P/E of 35.8 is still relatively low compared to other AI stocks. It’s still not cheap, but Nvidia is the undisputed leader in the AI processor market, and spending on AI is just getting started.
The company’s early leadership and advanced processors should help it stay ahead of the competition, and the intense AI race that has now begun among all technology companies will be the fuel that keeps Nvidia’s fire burning for quite some time.
There is another critical angle that investors can play in the artificial intelligence space and it comes in the form of chip manufacturing. There are the chip designers, like Nvidia, and then there are the companies that actually do processors, such as Semiconductor manufacturing in Taiwan(NYSE: TSM).
TSM makes about 90% of the world’s most advanced processors and the rise of AI is driving the company’s growth. TSM reported impressive third-quarter financial results a few weeks ago (for the period ending September 30), with sales increasing 39% to $23.5 billion and diluted EPS soaring 54% to $1.94 by American Depository Receipt (ADR).
TSM management said the third-quarter growth came from “strong smartphone and artificial intelligence-related demand” and that more are on the way. The company estimates fourth-quarter sales will increase 35% at the midpoint of guidance.
TSM has the lowest Forward P/E on this list, at just 21.2, making it a relative bargain compared to its IA peers. With TSM being the definitive leader in manufacturing advanced chip processors, the company is poised to continue benefiting as more companies increase their spending on AI data centers.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool holds and recommends Goldman Sachs Group, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
The Top 3 AI Stocks to Buy in November was originally published by The Motley Fool
