Artificial intelligence is booming, and many AI stocks are getting ahead of themselves. Some investors are overestimating the opportunities from certain AI stocks while others have reached astronomical valuations. This has led to this list of AI stocks to survive boom and bust cycles.
Many AI stocks are priced as if hyper-growth will continue for multiple years. However, any slowdowns or rising competition can put pressure on these stocks’ valuations.
It’s better to pick low-hanging fruit that isn’t up in the clouds. These are some of the top AI stocks to survive boom and bust cycles.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) is the AI chip leader. The company has a vast market share and continues to post the best financial results among the mega-caps. Revenue increased by 265% year-over-year while net income surged by 769% year-over-year in Q4 FY24.
The company’s sequential growth has been decelerating lately, but it’s still impressive. The corporation’s Q4 revenue was 22% higher than its Q3 revenue. Nvidia’s profit margin expansion helps to compensate for a slowdown. The stock also trades at a 38 forward P/E ratio, so it can fit into its valuation.
A key distinction among Nvidia compared to other AI stocks is that its financial growth has outpaced its stock gains. A 243% stock gain over the past year is lower than the company’s Q4 FY24 revenue and net income growth rates. The stock has also gained more than 1,900% over the past five years which demonstrates the strong momentum behind this stock.
Microsoft (MSFT)
The largest publicly traded corporation has made big investments in artificial intelligence and has been gaining market share with Copilot. Microsoft (NASDAQ:MSFT) has been applying AI at scale to strengthen its product offerings and attract new customers.
The tech giant has expanded its profit margins despite making big investments in artificial intelligence. Microsoft’s net profit margin exceeded 25% in the second quarter of fiscal 2024. Revenue increased by 18% year-over-year while net income jumped by 33% year-over-year. Microsoft can accelerate its net income growth due to AI tech cutting costs and top-line growth. It’s one of those AI stocks to survive boom and bust cycles.
Microsoft’s cloud segment continued to perform well and was up by 24% year-over-year. Microsoft Cloud revenue reached $33.7 billion which was more than 50% of the company’s Q2 FY24 revenue. The corporation also returned $8.4 billion to shareholders via dividends and stock buybacks. Shares are up by 257% over the past five years and offer a 0.71% dividend yield.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is one of the top artificial intelligence stocks. The company’s data accumulation and resources are hard to match. Gemini went off to a bad start, but Alphabet is now in talks with Apple (NASDAQ:AAPL) to use Gemini for the latest iPhone model.
This development can open up new opportunities for Alphabet and lead to significant revenue growth. However, the tech conglomerate already performs well. Revenue increased by 13% year-over-year in Q4 2023 while net income jumped by more than 50% year-over-year. Alphabet’s cost cutting measures and efforts to generate more business have been beneficial.
While advertising is Alphabet’s main segment, the company’s cloud platform is also gaining market share. Revenue from Google Cloud reached $9.19 billion in the quarter which represented more than 10% of total revenue. The cloud segment also reported a profit and can lead to higher profit margins in future quarters. Higher profits will make the company’s attractive 22 forward P/E ratio even more compelling.
On this date of publication, Marc Guberti held long positions in NVDA, MSFT, and GOOG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.