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Artificial intelligence is booming, and many AI stocks are leading the way. While some investors are overestimating the opportunity from certain AI stocks, others are reaching astronomical valuations. This led to our list of AI stocks to weather boom and bust cycles.
Many AI stocks are priced as if the hypergrowth will continue for multiple years. However, a slowing economy or increased competition could put pressure on the valuations of these stocks.
It is better to choose low-hanging fruits that are not hidden in the clouds. These are some of the top AI stocks to survive boom and bust cycles.
Nvidia (NVDA)
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Nvidia (NASDAQ:NVDA) is the leader in AI chips. The company has a huge market share and continues to record the best financial results among mega-cap stocks. Revenue for the fourth quarter of 2024 increased 265% year-over-year and net income increased 769% year-over-year.
Although the company’s sequential growth has slowed recently, it is still impressive. The company’s fourth quarter revenue was 22% higher than its third quarter revenue. Nvidia’s margin expansion will help offset the economic slowdown. The stock is also trading at a forward P/E ratio of 38 times, so it may fit the valuation.
The key difference for Nvidia compared to other AI stocks is that its financial growth has outpaced its stock price appreciation. His 243% share price increase over the past year is lower than the company’s 2024 fourth quarter sales and net income growth. Additionally, this stock is up over 1,900% over the past five years, indicating strong momentum for this stock.
Microsoft (MSFT)
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The largest publicly traded companies are investing heavily in artificial intelligence and gaining market share with Copilot. Microsoft (NASDAQ:MSFT) has applied AI at scale to enhance its product offering and attract new customers.
Tech giants are expanding their profit margins even as they invest heavily in artificial intelligence. Microsoft’s 2024 fiscal second quarter net profit margin exceeded his 25%. Sales increased 18% year over year, and net income increased 33% year over year. Microsoft could accelerate net profit growth by lowering costs and growing revenue through AI technology. This is one AI stock that survives boom-bust cycles.
Microsoft’s cloud division continues to perform well, increasing 24% year over year. Microsoft Cloud revenue reached $33.7 billion, representing more than 50% of the company’s Q2 2024 revenue. The company also returned $8.4 billion to shareholders through dividends and stock buybacks. The stock is up 257% over the past five years and has a dividend yield of 0.71%.
Alphabet (GOOG, GOOGL)
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alphabet (NASDAQ:googleNasdaq:Google) is one of the top artificial intelligence stocks. The company’s data accumulation and resources are unparalleled. Gemini got off to a bad start, but the alphabet is now apple (NASDAQ:AAPL) Use Gemini for the latest iPhone models.
This development could create new opportunities for Alphabet and lead to significant revenue growth. But the technology conglomerate is already showing strong results. Fourth quarter 2023 revenue increased 13% year-over-year and net income increased more than 50% year-over-year. Alphabet’s cost-cutting measures and efforts to generate more business were beneficial.
Advertising is Alphabet’s main division, but the company’s cloud platform is also gaining market share. Revenue from Google Cloud for the quarter amounted to $9.19 billion, accounting for more than 10% of his total revenue. The cloud division also reported profits, which could lead to higher margins in coming quarters. Higher earnings should make the company’s attractive 22 forward P/E ratio even more attractive.
On the date of publication, Marc Guberti held long positions in NVDA, MSFT, and GOOG. The opinions expressed in this article are those of the author; investorplace.comPublication guidelines.
