The Best AI Stocks of the Year: Insights From Market Experts

By ATGL

Updated November 9, 2024

Table of Contents

As artificial intelligence continues to reshape industries and captivate investors, the stock market has seen a surge of interest in AI-focused companies. The promise of innovation and growth has led to a myriad of opportunities, making it crucial to analyze their potential value. With the current economic climate, understanding the landscape of AI stocks is more important than ever.

Investors are now faced with unprecedented choices, each with its own set of growth prospects and risks. This dynamic environment highlights the significance of expert insights in navigating the complexities of AI investments. From established giants to disruptive startups, the AI sector is a diverse arena filled with potential winners.

In this article, we will explore the best AI stocks of the year, drawing insights from market experts. We will delve into key growth phases, spotlight leading software makers, and assess both established and emerging players in the AI sphere. Read on to discover which stocks could shape the future of your investment portfolio.

The Current Landscape of AI Stocks

The landscape of AI stocks in 2024 is marked by significant investments from tech giants in cloud computing infrastructure, prioritizing AI chips and servers. Companies like Amazon, Microsoft, Google, and Meta Platforms are leading this charge, reflecting a strong commitment to advancing artificial intelligence capabilities. Apple has seen its stock rise by 16%, buoyed by the anticipated release of iPhone 16 models featuring new Apple Intelligence enhancements.

Nvidia continues to be a beacon in the AI stock market with a staggering 182% increase in 2024, following an impressive 239% surge in 2023. This underlines Nvidia’s critical role in the AI ecosystem. Meanwhile, Alphabet is integrating AI into advertising and cloud computing, with Waymo poised as a potential future revenue pillar.

The U.S. government, under the Biden Administration, has placed a strategic emphasis on maintaining leadership in AI through national security initiatives. This governmental backing highlights the deepening ties between AI developments and policy frameworks. As AI technology continues to evolve, these factors collectively shape investment strategies in the current market, presenting both risks and opportunities for stakeholders.

Key Growth Phases: Understanding the ‘Show Me’ Story

The phrase “show me story” marks a pivotal shift in AI investments, emphasizing concrete revenue generation over mere promises. According to a Bank of America report, AI stocks, especially in chipmaking and cloud computing, face greater scrutiny as investors demand observable results.

Meta Platforms, the parent of Facebook, exemplifies significant stock gains, highlighting its status as a key AI stock amid evolving investment strategies. Investors are now urged to consider metrics like revenue growth and earnings per share (EPS) to better gauge the potential of AI growth stocks.

Companies like Nvidia and Arista Networks are prominent in the competitive field of AI Ethernet networking, embodying the “show me” narrative with a focus on performance metrics. As this landscape evolves, a list of noteworthy AI stocks to watch includes:

Meta Platforms (META)
Nvidia (NVDA)
Arista Networks (ANET)

This approach aligns with the increasing demand for evidence-based evaluation in AI investments.

Top Recommendations: Leading Software Makers

Many enterprise software companies are facing challenges in monetizing AI-related products, with significant gains not expected until late 2025. Pricing strategies for generative and conversational AI remain complex, affecting overall market performance. However, data analytics firm Palantir has defied this trend, seeing a 144% increase in stock price this year, bolstered by a robust third-quarter earnings report.

The shift from AI copilots to AI agents aims to improve revenue generation. Yet, transitioning from pilot programs to commercial deployment remains a hurdle for many software companies. Analysts highlight that large application software companies must effectively charge for AI offerings to boost performance in the short term.

In contrast, the semiconductor sector is outperforming software firms in AI, emphasizing the hurdles software makers face in tapping into new revenue streams. Recommendations for investors may include focusing on companies like Palantir, which are demonstrating successful monetization strategies and stock growth in the AI market.

Disruptive Startups: The Next Big Players

OpenAI’s rapid expansion to a $3.4 billion annual revenue run-rate highlights its role as a disruptive force in the AI industry. Valued at $157 billion, up from $86 billion, OpenAI showcases how quickly startups can attract attention and funding within the tech landscape. This success points to a shift in the AI market, emphasizing inferencing over training, paving the way for newer entrants to challenge established tech giants like APPL, MSFT, and NVDA.

The potential for AI startups to surpass industry incumbents is significant. This marks a crucial moment for potential disruption and innovation within the tech sector, aligning with trends in on-device processing capabilities. While innovation from small AI developers is notable, their scalability in the commercial market often hinges on partnerships with large companies like Amazon Web Services or Meta Platforms. A collaborative approach seems essential for these startups, underscoring a symbiotic relationship in this evolving landscape.

Despite the current dominance of tech giants, the agility of AI startups positions them as formidable competitors. As the AI market evolves, these startups could redefine industry standards, influencing investment strategies and stock trade decisions in the age of artificial intelligence.

Performance Review: Established Giants

In the evolving realm of AI stocks, Microsoft Corp. has taken significant strides by investing $13 billion in OpenAI. This move enhances its Bing search engine with AI capabilities like ChatGPT and enriches its Microsoft Copilot suite, offering a comprehensive AI toolset. Meanwhile, Nvidia Corp. stands out with an implied upside of 55%, bolstered by a stock split and its dominance in the AI hardware market.

ASML Holding NV projects notable potential in the AI sector with a substantial implied upside of 50.1%. It positions itself as a strong contender, highlighting its readiness to capitalize on tech advancements. Adobe Inc. also ranks among top AI stocks, boasting an implied upside of 33.1%, driven by the growing demand for AI-powered creative software.

Conversely, IBM lags behind with an implied downside of -0.4%. This indicates a weaker performance outlook compared to its AI-focused peers. These performance insights could guide investment decisions for those evaluating opportunities in the artificial intelligence market.

Nvidia: A Powerhouse in AI Innovation

Nvidia has become a formidable force in the artificial intelligence space, showcasing remarkable financial performance and strategic foresight. In the second quarter of fiscal 2025, Nvidia reported a staggering 122% increase in revenue to $30 billion, with non-GAAP earnings soaring 152% to $0.68 per diluted share. Analysts anticipate the company’s earnings to grow 35% annually over the next three years, supporting its current valuation of 63.5 times earnings.

Fueling its success is Nvidia’s comprehensive product lineup, catering to every aspect of robotics computing. It includes DGX systems for supercomputing, the Isaac platform for robotics development, and Jetson systems for on-board decision-making. The company’s strategic engagement in future technologies aligns with insights from Straits Research, which projects a 34% annual growth rate in the humanoid robot market through 2032.

Nvidia’s stock performance is a testament to its prowess in AI, climbing an astounding 182% in 2024 following a 239% increase the previous year. As a pioneering entity among AI stocks and tech giants, Nvidia remains a critical investment consideration for those capitalizing on the artificial intelligence age.

Microsoft: Expanding Horizons in AI

Microsoft is making significant strides in the field of artificial intelligence, highlighted by its $13 billion investment in OpenAI. This partnership has allowed Microsoft to integrate ChatGPT into its Bing search engine, improving user experience. Additionally, Microsoft has consolidated its AI initiatives into Microsoft Copilot, streamlining AI technology use across its platforms.

The company’s focus is not only on internal innovation but also on investing in external AI startups. According to analyst Joseph Bonner, this strategy caters to the increasing demand for cloud AI services. Microsoft utilizes OpenAI’s advanced software in its Azure cloud services and Microsoft 365, boosting its cloud infrastructure.

A new feature, Recall AI, is poised for testing. Although controversial, it captures screenshots of user activity, demonstrating Microsoft’s pursuit of AI-driven solutions. This move aligns with the company’s broader ambitions to enhance productivity tools and reinforce its position in advanced technologies.

Ultimately, Microsoft’s multifaceted AI approach reflects its commitment to maintaining leadership among tech giants and ensuring sustained revenue growth.

Alphabet: Balancing AI and Core Business

Alphabet is effectively leveraging artificial intelligence to enhance its core advertising business. By integrating generative AI overviews into Google Search, the company aims to improve user experience and satisfaction. The introduction of over 500 updates to its machine learning platform, Vertex AI, last year underscores its commitment to advanced AI capabilities, including the development of applications with its Gemini models.

The launch of Google’s Bard AI chatbot in March 2023, along with the Gemini AI model in December 2023, reflects Alphabet’s ongoing dedication to integrating AI across its services. The public cloud market share gain of 2 percentage points, bringing Google to 13%, highlights its expanding influence in infrastructure and platform services. Recognition by Forrester and Gartner as a leader in AI/ML platforms further cements its position in the tech industry.

AI applications are seamlessly woven into Alphabet’s operations, demonstrating its comprehensive strategy. From ad pricing and content promotion to spam filtering in Gmail, AI supports its core business functions. This strategic integration highlights Alphabet’s focus on maximizing AI’s potential while solidifying its core offerings in an increasingly competitive market.

Fastest-Growing AI Stocks for November 2024

In November 2024, the spotlight is on AI stocks, with Apple and Nvidia leading the charge. Apple has seen a 16% stock gain this year, fueled by the anticipated AI features in the iPhone 16, which are expected to drive a major upgrade cycle. Nvidia’s stock has surged 182% in 2024, following a remarkable 239% increase last year, solidifying its status as a top AI contender.

Nvidia’s continued growth hinges on the production of its next-generation Blackwell AI chips, set for 2025, indicating sustained innovation in the AI sector. The AI market is expanding, with chipmakers like Nvidia, software companies, and cloud computing services playing pivotal roles. Investors are keenly scrutinizing AI stocks for potential high returns.

Key Players in AI Stocks:

Apple (APPL): 16% gain in 2024
Nvidia (NVDA): 182% surge in 2024
Major sectors: Chipmakers, software firms, cloud services

As of October 2024, AI stocks demand careful analysis for value and performance, promising lucrative opportunities for those who stay informed and strategic.

Momentum-Driven Stocks: Who’s on the Rise?

AI stocks continue to generate significant investor interest due to their strong momentum. Nvidia, a leader in AI technologies, has been among the top-performing stocks, benefiting from the AI wave. BuzzFeed also saw substantial gains, with its stock skyrocketing over 85% following positive AI-related news in early 2023. Companies involved in AI infrastructure and solutions, like Nvidia, are positioned well for continued growth.

Palantir has defied the market trend, with its stock rising by 144% this year. This growth has been driven by robust earnings reports, showing that success isn’t confined to semiconductor stocks. However, some experts suggest that many enterprise software developers may not fully capitalize on generative AI until 2025, influencing short-term investment strategies.

Investors keen on momentum-driven stocks should consider companies with strong AI integration. Key players include Nvidia and Palantir, which have both shown recent impressive performance. It’s essential for investors to track AI-related news and its potential impact on stock prices for informed decision-making.

Valuation Metrics: What Investors Should Watch

Value investing focuses on finding stocks that trade below their intrinsic value, often using valuation metrics like the price-to-earnings (P/E) ratio. A lower P/E ratio can indicate an undervalued company. For example, Yiren Digital Ltd. has a trailing P/E ratio of 1.8, positioning it as one of the top value AI stocks available.

Consensus Cloud Solutions, Inc. features a P/E ratio of 4.3, which suggests potential attractiveness in comparison to higher market valuations. Meanwhile, Palantir exhibits a high forward P/E ratio of over 101, indicating possible overvaluation relative to its earnings potential. These examples illustrate the importance of P/E ratios in assessing investment opportunities.

When evaluating stocks, investors should also consider revenue growth and the company’s position within tech giants like APPL and MSFT. Monitoring advancements in artificial intelligence, machine learning, and meta platforms can also provide insight into stock price movements. Understanding these valuation metrics and factors aids in crafting an effective investment strategy tailored to current market conditions.

Monetization Progress: Turning Ideas into Revenue

Major cloud giants like Amazon, Microsoft, Google, and Meta Platforms have significantly increased their capital spending on data center infrastructure focused on AI. This investment strategy has contributed to notable revenue growth for these companies, achieving success for the fourth consecutive quarter. Such progress suggests that AI-related investments are beginning to yield positive financial returns.

Recent market developments highlight the potential impact of AI collaborations on stock valuations. For example, BuzzFeed’s stock price soared by over 85% after announcing a partnership with OpenAI to create an AI-powered article writer. However, analysts warn of the risks associated with overreacting to AI hype, as not all rapid capital inflow aligns with a proven product market fit.

Despite some recent challenges, there remains robust demand for AI capabilities, creating attractive opportunities for long-term monetization. Morningstar analysts note that this environment provides investors with a chance to consider undervalued AI stocks. As AI continues to integrate into business strategies, investors must carefully assess opportunities to ensure sound decisions in their investment strategy.

Potential AI Market Bubbles: Risks to Consider

Many companies are rapidly advancing in AI development, often lacking a clear product-market fit. This has led to speculative investing not necessarily grounded in solid business fundamentals. Sharp increases in company valuations do not always match their actual performance, leading to potential investment pitfalls.

Experts currently do not see the AI sector as a bubble, as technology stock indexes remain below all-time highs. However, investors should still exercise caution. The influx of hot money into AI can cause volatility in AI stock prices if growth expectations fall short.

The future of the AI industry is uncertain, with potential risks linked to both technology and market conditions. These uncertainties can pose significant risks for those investing in AI stocks. Vigilance and strategic planning are essential to navigating potential challenges in this burgeoning sector.

Advantages of Investing in AI Stocks

Investing in AI stocks offers a promising opportunity to capitalize on the expanding influence of artificial intelligence across various industries. Companies such as APPL, MSFT, and NVDA, which are involved in the hardware and software essential for AI, stand to benefit significantly from its increased integration into business operations. This positioning can lead to substantial revenue growth and potentially high returns for investors who thoroughly research individual stocks.

For those seeking a diversified approach, exchange-traded funds (ETFs) focused on AI, like those tracking the Indxx Global Robotics & Artificial Intelligence Thematic Index, provide exposure to a range of companies involved in AI development and application. This strategy helps spread risk, offering a more balanced investment portfolio. Through AI stock indexes, investors can access a wider array of companies, including tech giants and innovative software companies, involved in advancing artificial intelligence technologies.

Conclusion: Navigating the Future of AI Investments

Navigating the future of AI investments requires a strategic approach, balancing both established tech giants and emerging AI-focused companies. Larger companies like Microsoft and Nvidia are often seen as more reliable due to their substantial investments in AI infrastructure. For instance, Microsoft has committed $13 billion to OpenAI, emphasizing its integration of AI technologies, while Nvidia supplies the necessary high-performance computing power.

Investors should be aware of market conditions, especially the increased capital spending by tech giants, which could drive AI-related revenue growth. While smaller AI developers may offer direct exposure to AI advancements, many lack the resources to scale effectively, making them risky ventures.

Given the fast-paced and evolving nature of the AI landscape, staying informed and cautious is key. Investors must weigh the potential for innovation-driven returns against any negative press or setbacks within the industry. This balanced investment strategy can help mitigate risks associated with the volatility of individual stocks and leverage potential gains from AI’s integration across sectors. Join Above the Green Line today and stay informed.