The artificial intelligence revolution is in full swing, as evidence by the strong results reported by several big tech giants last week. There is perhaps no stronger medium-term tailwind than AI spending and investment; however, for investors putting money to work today, many AI-related stocks have soared this year, pricing in a very strong future.
So which are the best AI stocks to buy now? Perhaps those companies likely to benefit from the AI revolution, but which have either pulled back or trailed higher-profile peers based on near-term concerns.
That makes these three storied tech stocks prime pickups this week for your new AI investment dollars.
Meta Platforms
Facebook and Instagram parent Meta Platforms(NASDAQ: META) plunged following its recent earnings report, but let's keep things in perspective. The stock had rallied some 50% at one point earlier this year, so it needed an absolutely perfect report to go higher.
Instead, there were some legitimate concerns. Though Meta beat Q1 estimates, management guided somewhat conservatively, for "only" 18% growth in the coming quarter, a deceleration from last quarter's booming 27% growth. While revenue guidance came in a tad light, CEO Mark Zuckerberg actually increased his forecast for capital investments in artificial intelligence (AI) this year.
Lighter-than-expected revenue and increased spending is certainly a recipe for a sell-off. But that's probably shortsighted. After all, there's a good reason the company is ramping up AI investments this year. Not only are current AI investments benefiting Meta's core social media platform recommendation engines today, but Meta also has the potential to be an AI leader outside of its current core businesses. After all, its Llama 3 large language model has become a best-in-class LLM, especially in the open source community.
Mark Zuckerberg said on the conference call with analysts:
So with the latest models, we're not just building good AI models that are going to be capable of building some new good social and commerce products. I actually think we're in a place where we've shown that we can build leading models and be the leading AI company in the world. And that opens up a lot of additional opportunities beyond just ones that are the most obvious ones for us. So that's -- this is what I was trying to refer to in my opening remarks where I just view the success that we've seen with the way that Llama 3 and Meta AI have come together as a real validation technically that we have the talent, the data, and the ability to scale infrastructure to do leading work here. And with Meta AI, I think that we are on our path to having Meta AI be the most used and best AI assistant in the world, which I think is going to be enormously valuable. So all of that basically encourages me to make sure that we're investing to stay at the leading edge of this.
If AI is really going to transform the world, Meta is one of only a handful of companies with the financial resources and talent to lead it. And it looks as though Zuckerberg isn't shying away from the opportunity.
He also has credibility here. Meta was doubted in being able to transition to mobile, then Stories, then Reels. But each time, Meta's investments paid off and the company was able to adapt to monetize the new opportunity.
Meanwhile, Meta trades at only 22 times this year's estimates and about 19 times 2025 earnings estimates. Not only is that not a demanding valuation, but it also incorporates tens of billions in losses in the company's Reality Labs segment, which are running at a $15 billion loss rate. Meanwhile, investors don't seem to be counting on any payoff for that investment at all.
Basically, the post-earnings dip is a great long-term opportunity for what could be the leading consumer AI company in the future.
Amazon
While Amazon.com(NASDAQ: AMZN) should benefit handsomely from the AI revolution, its stock only just getting back to its highs from 2021.
But could a breakout be in the cards? Amazon has been thought of as a laggard in the AI races, and its cloud infrastructure platform, Amazon Web Services (AWS), is currently growing at the slowest pace its competitors.
But those concerns may be overblown. After all, AWS is the largest cloud platform, so it's more difficult for it to grow at high rates compared with its smaller competitors. Moreover, Amazon has flexed its scale during the past downturn, in which customers asked to control costs, by lowering prices in exchange for longer-term commitments. And since Amazon is ahead of the game designing its own in-house processors called Graviton and its AI accelerators called Trainium and Inferentia, it's able to direct customer workloads to those lower-cost options when appropriate.
Buy these undervalued AI stocks today. Image source: Getty Images.
Moreover, Amazon offers perhaps the most diverse set of large language models from third parties in its Amazon Bedrock service, along with its own in-house LLM called Titan. And while Amazon missed out on investing in OpenAI, Amazon made a strategic $4 billion investment in AI startup Anthropic back in March. It's very early in the AI races, and it's quite possible OpenAI won't dominate the space even though it's the biggest private AI startup today.
Bedrock also continues to improve. Just last week, Amazon rolled out several new features. These include allowing businesses to create their own custom models and use that model from the same API as popular third-party models, a model evaluation and comparison tool that helps customers select the right model for their specific needs, and two new Titan models, one optimized for image generation and another optimized for question-and answer chatbots.
Finally, generative AI has the potential to greatly advantage any business with lots of proprietary data. As the world's largest e-commerce retailer, Amazon will very likely utilize AI to improve its core e-commerce and advertising businesses, along with new scientific ventures like the Kuiper satellite broadband project. Amazon has a history of inventing new products and services that are difficult to build, so AI is likely to also greatly aid the company's innovation engine.
Intel
For a higher-risk but much higher-reward pick in the AI space, Intel(NASDAQ: INTC) may be an intriguing choice. Unlike other AI chip companies that have boomed, Intel's stock has badly lagged. Having fallen behind Taiwan Semiconductor Manufacturing(NYSE: TSM) several years ago on process technology, which all of Intel's competitors use as their foundry, has really hurt its cause.
But CEO Pat Gelsinger has seemingly righted the ship, as Intel's "five nodes in four years" road map seems to be on track, with Intel hitting its innovation timelines over the past year-plus.
Of course, the ambitious technology investment is taking a toll on Intel's bottom line, as it not only invests heavily in leading process technology for its own processors, but also builds out capabilities for third-party chipmakers to use its foundry.
All of the uncertainty on execution and the multiyear plan has caused investors to flee to the sidelines for now. That's especially true as Intel's core market, the PC market, seems to be recovering slowly from its post-pandemic downturn. But that's why Intel stock today can be bought at just 1.3 times book value.
Yet if Intel executes, there's a chance it could make big inroads into the AI chip market. Management now forecasts over $500 million of revenue from its new Gaudi 3 AI accelerator in the second half of this year, which Intel claims outdoes evenNvidia's (NASDAQ: NVDA) H100 on certain workloads. Even better, Intel believes that 2025 will see it catch up to rivals on process technology in CPUs, when it releases the Xeon processor Clearwater Forest. Gelsinger believes that chip may be able to handle some key AI inferencing tasks that may be more cost-effective for CPUs to do than GPU accelerators. And 2025 should also see Intel's introduction of "Falcon Shores," which actually combines Gaudi and Xeon technology into an AI superchip with the potential to rival Nvidia's Grace-Hopper or Grace-Blackwell superchips.
Will Intel really overtake Nvidia in AI computing anytime soon? Probably not. But at its market cap at a just $135 billion versus Nvidia's market cap of $2.2 trillion, Intel only has to make some mild share inroads in AI for the stock to work.
While an investment in Intel is riskier than other AI players, as it's highly execution-dependent, it also has much higher potential rewards, should the Gelsinger turnaround plan work out.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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. Billy Duberstein has positions in Amazon, Meta Platforms, and Taiwan Semiconductor Manufacturing. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
