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Investing in artificial intelligence (AI) is still a top theme in the market, and plenty of incredible AI stocks are worth buying at these levels. We're still in the early innings of the technology's deployment, so there is plenty of upside left for players in all sectors.
When I think about investing in AI, I divide it into two groups: facilitators and deployers. Facilitators make the base products that allow the deployers to train and run AI models, while the deployers bring the AI products to clients.
I have five facilitators and five deployers here that look like excellent buys right now, and investors should consider adding these to their portfolio, if they haven't already.
Image source: Getty Images.
The facilitators are the companies that make the hardware used to create AI. The biggest name in this group is Nvidia (NASDAQ: NVDA), whose graphics processing units (GPUs) have been widely used to build AI as we experience it now. Advanced Micro Devices (NASDAQ: AMD) is also a competitor in this space, and while it doesn't have nearly the market dominance that Nvidia has, it's still delivering phenomenal growth for shareholders.
Broadcom is also playing in this space with its custom AI accelerators, which it calls XPUs. These are alternatives to GPUs, designed in collaboration with end users, which tailored them to specific workloads.
This allows XPUs to outperform GPUs in specific tasks and allows the end user to cut Nvidia and AMD out of the picture. The future will be a combination of both GPUs and XPUs, and all three of these are worthy investments.
None of these three companies can manufacture their own chips, so they outsource most of that work to Taiwan Semiconductor Manufacturing (NYSE: TSM), the world's leading contract chipmaker. TSMC, as it is known for short, makes a boatload of AI chips, and its management sees huge growth in the future. It projects that AI-related revenue will have a 45% compound annual growth rate over the next five years, which means huge growth for TSMC.
It's also a great sign for ASML Holding, which makes extreme ultraviolet (EUV) lithography machines that lay the microscopic electrical traces on chips. ASML is the only company in the world with the technology necessary to make these machines, giving it a monopoly. With greater chip demand comes more ASML machines, causing the company to grow.
These five are excellent stocks, and they are reaping the benefits of massive AI spending now. Because of that, their results look far more impressive than those of the deployers, which expect to reap the benefits of AI a few years down the road.
These are companies bringing AI to the masses, which are spending heavily to build up their AI resources.
Three of the biggest AI hyperscalers are Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Meta Platforms. All three companies are spending billions of dollars to build their AI capacity to make their products the best available.
Alphabet and Amazon also have large cloud computing businesses, which provide the computing capacity necessary for many AI companies to build their products.
This trio is heavily investing in AI, but they are only incrementally seeing improvements in their financials from it, although that could change soon. All three are excited about the potential of AI to make their workforce more efficient, allowing them to reduce overhead. This could be a huge growth catalyst for all three stocks, making them excellent buys now.
Two other companies that aren't hyperscalers but have integrated AI into their base products are SentinelOne and Adobe. You're probably familiar with Adobe's vast graphics design suite, but you're likely less familiar with SentinelOne, which provides AI-first cybersecurity software.
Investors have been worried about Adobe being disrupted by generative AI. Still, they have embraced the trend, and it continued to grow earnings at a healthy pace as its Firefly AI products become more popular. SentinelOne is executing at a high level in the cybersecurity world. Its revenue increased 23% in the first quarter, demonstrating the impressive increase in its cybersecurity platform.
AI will be a huge boost to this group of stocks over the next few years. The facilitators may be making a boatload of money right now, but the deployers could see massive growth in a few years from their investments.
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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. 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. Keithen Drury has positions in ASML, Adobe, Alphabet, Amazon, Broadcom, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Adobe, Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
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