Technology stocks have scored a major win in 2024, recording top performances in the S&P 500 and Dow Jones Industrial Average. The biggest gainers in each were Palantir Technologies and Nvidia (NVDA -2.09%), respectively, thanks to the artificial intelligence (AI) boom. Investors are excited about the technology's potential to make companies more efficient and even produce game-changing products.
And the good news is AI growth may be far from over. Today's $200 billion market may reach $1 trillion by the end of the decade, according to analysts' forecasts. This means AI stocks should continue to deliver growth down the road, making now a great time to buy. I usually favor stocks that not only are present in AI but also have a proven track record of growth that extends into other areas so that they don't depend on just one industry or specialty.
If you have $50,000 to spread across several stocks, the four stocks I talk about below look like fantastic buys now. And if you don't have $50,000, no reason to worry. You could also pick up these stocks with a much smaller amount. If you haven't diversified your portfolio across industries, you'll want to limit the investment in tech to part of the $50,000 and use the rest to buy quality stocks in other sectors.
Diversification is important because it may reduce risk; if one industry or stock disappoints, others could compensate. OK, it's time to discover these top stocks to pick up now.
Image source: Getty Images.
1. Meta Platforms
Meta Platforms (META -0.59%) is investing heavily in AI, even making it the biggest investment area of 2024. But you probably know this company better for something else: social media apps.
As the owner of Facebook, Messenger, WhatsApp, and Instagram, Meta has generated billions of dollars in revenue and profit over time thanks to its dominance in the industry. This has been done through advertising, with advertisers flocking to Meta to reach us, the target audience, as they know they'll find us on these popular apps.
So, Meta established itself as a social media giant before focusing on AI. Now, though, AI might offer the company an opportunity to supercharge growth. Meta aims to develop AI assistants to suit all its users, potentially prompting us to spend more time on the apps and advertisers to spend more to reach us.
Today, Meta shares are particularly interesting because, at only 27 times forward earnings estimates, they're pretty reasonably priced for a company with a solid earnings track record and the potential to enter a big new era of growth thanks to AI.
2. Alphabet
Alphabet (GOOG -1.55%) (GOOGL -1.45%) is similar to Meta when it comes to its revenue model and low valuation today. The company, owner of search leader Google, makes the lion's share of its revenue through advertising. Advertisers know we spend a lot of time on Google, so they look to reach us there. Alphabet is using AI to improve search and help its advertisers create better targeted campaigns.
Alphabet also operates another business that's showing strong growth: Google Cloud. This year, Google Cloud reached milestones of $10 billion in quarterly revenue and more than $1 billion in quarterly operating profit, thanks to its wide variety of AI products and services for cloud customers.
So, for these solid businesses, Alphabet looks like a bargain right now, trading for only 24 times forward earnings estimates. (It's important to note that the company is going through an antitrust trial, but I wouldn't let that stop me from buying this market leader as it will clearly put up a strong fight to maintain its position.)
3. Amazon
Amazon (AMZN -1.45%) is a user and a seller of AI, something that could set it up for a huge win over time. The company uses AI to improve efficiency in its e-commerce business, everything from managing inventory and package delivery to offering customers shopping assistance. Through its Amazon Web Services (AWS) cloud computing business, it sells a broad range of AI products and services. In fact, thanks to this focus on AI, AWS recently reached an annualized revenue run rate of $110 billion.
Prior to the AI boom, Amazon had already built leading businesses in e-commerce and cloud computing, which have helped the company generate earnings growth into billions of dollars over time. In recent years, Amazon revamped its cost structure, a move that, along with AI, could boost growth in the years to come.
Today, Amazon shares trade for 44 times forward earnings estimates. This isn't dirt cheap, but it's a reasonable price, considering the company's track record and bright future prospects.
4. Nvidia
Nvidia is often thought of as an AI company, but this chip designer actually relied on its sales to the video games market well before the AI boom. And it is still a solid player in that market, with gaming revenue climbing 15% to more than $3 billion in the recent quarter.
That said, data center revenue of $30 billion in the quarter shows us that today, the AI customer is driving revenue at Nvidia. Considering Nvidia's commitment to innovation to stay ahead and the general AI market forecast I mentioned above, I don't mind that this particular company relies so much on AI. Nvidia will likely continue to generate impressive growth for quite some time.
Right now, Nvidia is ramping up production of its new Blackwell architecture, a platform in high demand that could drive revenue growth next year and share performance, too. Nvidia is also highly profitable in sales, with gross margin surpassing 70%. This strength means that even trading for 46 times forward earnings estimates, Nvidia looks like a top AI stock to buy now.
