3 Essential AI Stocks You Need to Buy Now!

Stocks in artificial intelligence (AI) have been major contributors to market performance this year. With the AI movement still seemingly in its early stages, it’s likely that these stocks will continue to propel market growth into the next year as well.

Here are three AI stocks that stand out, all of which are currently trading at appealing valuations and represent intelligent investment choices at this moment.

1. Nvidia

Nvidia (NASDAQ: NVDA) has emerged as the top beneficiary in the construction of AI infrastructure, thanks to its graphics processing units (GPUs). These GPUs are essential for data centers that need to process vast amounts of computing power to train expansive language models (LLMs) and manage AI inference tasks. As AI technologies grow, the demand for computing power increases significantly. For instance, both xAI and Meta Platforms have reported using ten times the amount of GPUs for their latest LLMs compared to previous models.

This ongoing surge in computing needs, combined with the strong market position Nvidia has established through its CUDA software platform, makes it an attractive purchase. Originally developed to simplify programming its GPUs for tasks beyond video game graphics, CUDA has become the foundational platform for GPU programming, enhancing Nvidia’s competitive edge.

With AI infrastructure investment expected to rise beyond 2025, Nvidia is poised for continued growth. The stock’s current forward price-to-earnings (P/E) ratio is around 31.5 according to 2025 analysts’ predictions, with a price/earnings-to-growth (PEG) ratio near 0.98. Generally, a PEG ratio below 1 suggests a stock may be undervalued, particularly in growth sectors where PEG ratios are typically higher.

2. Taiwan Semiconductor Manufacturing

Many chipmakers now operate on a fabless basis, designing chips but outsourcing production. This strategy is cost-effective as building and maintaining chip manufacturing plants requires significant capital and high utilization to turn a profit. Moreover, manufacturing chips involves sophisticated technology, often needing updates to accommodate shrinking chip sizes and larger wafer dimensions.

As the demand for advanced AI chips continues to climb, the need for foundry services also increases. Taiwan Semiconductor Manufacturing (NYSE: TSM), or TSMC, has capitalized on this demand more than any other company. It has outpaced its main competitors, Intel and Samsung, who also run their own third-party foundry businesses. TSMC’s dominance in contract semiconductor manufacturing, driven by its scale and technological prowess, has been a significant growth factor.

Top global chipmakers like Apple, Broadcom, and Nvidia are among TSMC’s clientele. The struggles faced by its competitors have also enhanced TSMC’s ability to command higher prices, which is expected to continue boosting its gross margins next year.

TSMC is well-positioned to maintain its lead in the AI sector, with the stock currently trading at a forward P/E ratio of 23 and a PEG of 1.19.

3. Alphabet

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) has greatly benefited as a major player in cloud computing infrastructure, driven by the AI trend. Google Cloud’s revenue surged by 35% last quarter, reaching $11.4 billion, outpacing the growth of Amazon’s AWS and Microsoft’s Azure. This segment, which has high fixed costs, has reached a profitability milestone, with operating income jumping significantly from the previous year.

Alphabet’s custom AI chip, developed in collaboration with Broadcom, has been a key advantage, reducing AI inference processing times and costs. The company has also been showcasing new AI innovations like Veo 2, a next-generation video AI generator, and Whisk, an AI image generator, which have received favorable reviews.

Moreover, Alphabet’s latest AI model, Gemini 2, is being integrated across its product offerings, including Google Search. While there are concerns about AI impacting Google’s search dominance, the company sees this as an opportunity to monetize more searches by adding new ad formats to AI-generated responses.

With a forward P/E ratio of under 22, Alphabet’s stock is attractively priced, presenting a good buying opportunity given the substantial potential ahead.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Intel, Meta Platforms, Microsoft, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

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Occasionally, our team of expert analysts identifies “Double Down” stock picks, predicting significant growth. If you’re concerned about missing out, now is the perfect time to invest before these opportunities pass. The historical performance of these recommendations speaks volumes:

• Nvidia: Investing $1,000 in 2009 would now be worth $363,593!
• Apple: Investing $1,000 in 2008 would now be worth $48,899!
• Netflix: Investing $1,000 in 2004 would now be worth $502,684!

We are currently issuing “Double Down” alerts for three incredible stocks, and there may not be a better time to invest again soon.

See 3 “Double Down” stocks »