AI could become an $826 billion market in the next five years. Nvidia is an obvious choice, but don’t overlook these other AI power players.
The considerable interest in artificial intelligence (AI) stocks has highlighted Nvidiathe leader in AI chips.
Nvidia has been an incredible stock for investors, but AI extends far beyond a single company. You can be sure there are plenty of winners in a global AI industry that experts say could reach more than $826 billion by 2030. And despite a broader market trading close historic highs and remarkable performance of technology stocks over the past. two years, there are still cases in progress.
Here are three top AI stocks (not named Nvidia) that investors can buy today. Their respective growth prospects and valuations offer attractive value that should translate into exceptional investment returns as AI technology advances.
1. Lam Research
Many people may not realize the full importance of AI chip manufacturing; this goes beyond designers like Nvidia. Search Lam (LRCX 1.36%) designs and builds equipment used in chip manufacturing (fabrication). To summarize Lam Research’s value to the chip industry, its equipment helps companies build smaller, more efficient chip designs.
Nvidia’s H100 AI chip has 80 billion transistors. Its successor, built on the Blackwell architecture, has 208 billion. Remember that you can hold these tokens in your hand. State-of-the-art equipment is necessary to make such small circuits.
As AI technology improves and requires smaller, more powerful chips, Lam Research will be among the companies making these advancements possible. The company’s reputation, intellectual property and long-standing relationships with chipmakers make its equipment difficult to replace.
The stock is currently trading at a price-to-earnings ratio of around 24. At the same time, analysts estimate that the company will grow earnings by an average of 16% per year over the long term. The resulting PEG ratio of 1.5 makes Lam Research a smart buy at these prices.
2. Semiconductor Manufacturing in Taiwan
Let’s explore the AI chip space a little longer. Semiconductor manufacturing in Taiwan (TSM -1.53%) is the leading chip manufacturer. As you might guess, this makes the company a pillar of the AI industry, as chips are the building blocks on which AI models train and operate.
How dominant is Taiwan Semiconductor? In the third quarter of 2024, the company manufactured approximately 64% of the world’s chips. This includes Nvidia’s AI chips, which Taiwan Semiconductor manufactures using a custom manufacturing process. The company could see years of breakneck growth as Nvidia and other companies design increasingly complex chips and seek Taiwan Semiconductor’s expertise and capacity to build them.
Analysts estimate that Taiwan Semiconductor will grow its profits by an average of 31% per year over the long term. This makes the stock an attractive value at just 32 times earnings, with a PEG ratio of just 1.
Part of the reason the stock isn’t more expensive is the geopolitical conflict between Taiwan and China. The latter has long claimed that Taiwan (where Taiwan Semiconductor operates) is under its control, even threatening to use force to make this happen. The dispute adds some uncertainty to owning the shares, even if the value becomes too attractive to pass up at some point. Taiwan Semiconductor has started expanding into the United States, Japan and Germany to mitigate its geopolitical risks, so this may become less of an issue.
3. Alphabet
Finally, let’s move on from AI chips to almost everything else in AI. Alphabet (GOOG 1.62%) (GOOGL 1.60%)Google’s parent company, might be the closest thing to a do-it-all AI company. Alphabet still relies on its search engine for a large portion of its profits, but it has expanded into various other industries, including a strong focus on AI. Alphabet owns the third largest cloud computing platform, Google Cloud. It developed and deployed an AI model (Gemini) to improve its existing products and services. It is also among the leaders in autonomous vehicle technology and is making breakthroughs in quantum computing. I mean, what doesn’t Alphabet do?
Today, when people think of AI, most think of generative AI, which is software that creates content. However, over the next few decades, AI is expected to become much more important, including self-driving cars and robotics – whatever technology is made possible.
Alphabet’s financial resources, experience in innovation, and leadership in existing areas give it an excellent chance to compete in almost any market created by AI in the future. Analysts expect the company to grow earnings by 16% annually. With a P/E of just 25 today, Alphabet is one of the smartest AI stock buys you can make.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Alphabet, Lam Research, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
