What Is the Best AI Stock to Invest In? 9 Options to Consider (2024)

Vault’s Viewpoint

• Artificial intelligence (AI) is enhancing productivity and enabling companies to provide better services.
• Nvidia’s significant growth has highlighted the AI industry, with many AI-related companies outperforming the S&P 500 and Nasdaq.
• The best AI stocks include companies that produce AI technology and those that integrate AI tools into their business models, such as Nvidia, MicroStrategy and Microsoft.
• Investing in AI has proven to be profitable, with companies like Nvidia and Microsoft showing substantial growth and strong business fundamentals.

What Are AI Stocks?

Artificial intelligence (AI) stocks are publicly traded corporations that offer exposure to artificial intelligence. Some AI stocks produce the chips that power AI technology. Nvidia is the leading AI chipmaker, but other AI companies are also benefiting from the tailwinds. AI stocks also consist of corporations that have deployed AI tools into their business models. Microsoft is a notable example due to Microsoft Cloud and its recently released Copilot.

Is AI a Good Investment?

AI has proven to be a strong investment over the past several years, continuing to gain momentum as the technology evolves and integrates into various industries. Many leading tech companies at the forefront of the AI race have consistently outperformed the stock market, demonstrating the substantial growth potential of AI-related investments.

For example, Nvidia gained global attention for its AI chips in 2023, marking a significant milestone in the AI industry. But its stock had been outperforming the S&P 500 well before the AI boom, showcasing its strong business fundamentals and strategic placement within the tech industry.

Several companies are heavily investing in artificial intelligence, recognizing its transformative potential. These investments are not merely a passing trend but reflect a long-term commitment to innovation. AI technology has led to considerable revenue and net income growth for numerous corporations, as it drives efficiency, enhances product offerings, and opens new business opportunities.

AI continues to advance and find new applications, helping to expand its role in driving corporate growth and market performance and making it a compelling area for investment.

9 AI Stocks to Invest In for 2024

Investors can choose from many artificial intelligence stocks, but some are better than others. These are some of the best AI stocks to buy.

Nvidia: The AI Chip Leader

Nvidia is the AI chip leader that continues to lead the artificial intelligence boom while posting incredible financial growth. The technology company reported second quarter revenue of $30 billion, which is a 122% year-over-year increase.

The Nvidia Blackwell platform is poised to power a new era of computing and has received commitments from numerous major tech corporations, underscoring its potential to power a new era of computing.

MicroStrategy: Leading AI Innovation With Strategic Bitcoin Growth

MicroStrategy stands out as one of the best artificial intelligence stocks to invest in due to its comprehensive suite of AI-powered enterprise analytics software and services. The company’s offerings, including the MicroStrategy ONE platform, empower non-technical users with actionable insights for informed decision-making. Plus its commitment to innovation is evident in its recent release of a new AI bot as part of the MicroStrategy AI platform, further solidifying its position in the AI sector.

With a focus on government and financial institutions, MicroStrategy’s always-on threat monitoring and responsive support services cater to rigorous technical and regulatory needs to these industries. The company’s strategic investment in Bitcoin and its 10-for-1 stock split to boost accessibility demonstrate a forward-thinking approach, making MSTR a compelling choice for investors looking to capitalize on the growth of artificial intelligence.

Microsoft: The Top AI Investor

Microsoft captured AI headlines early with its $13 billion OpenAI investment. The tech giant is now a leading player in the AI race. Copilot integrates with many Microsoft products and allows the company to expand into additional verticals. Copilot for Security should help Microsoft gain more market share in the cybersecurity industry.

Microsoft Cloud has also benefited from the AI boom and grew by 24% year-over-year. Cloud computing makes up more than half of Microsoft’s total revenue.

Alphabet: The Underrated AI Stock

Alphabet has been using AI for several years to enhance its search engine but has lagged behind other AI stocks. Its AI model Gemini had a few mishaps to start the year that made investors doubt Alphabet’s AI ambitions and question the company’s entire business model.

Alphabet has since regained momentum and silenced those concerns with a strong first quarter and its first dividend. Shares have gained more than 40% from their March lows.

Amazon: The Cloud Leader

Amazon is the largest cloud computing provider. Amazon Web Services has roughly one-third of the market and continues to post double-digit growth rates. AWS revenue accelerated in the first quarter and was up by 17% year-over-year.

While Amazon’s cloud platform can bring many AI tools to life, the tech conglomerate has other segments. Amazon makes most of its revenue from its online marketplace, but it also profits from groceries, streaming, advertising, and other business ventures.

Broadcom: The Top Dividend Growth Stock

Broadcom offers a respectable 1.20% yield and an impressive dividend growth rate. The semiconductor firm raised its dividend by 14% leading to fiscal 2024. Broadcom’s artificial intelligence products reached a record $3.1 billion in Q2 FY24, prompting the company to raise its guidance.

Broadcom is establishing itself in the AI chip-making industry, and its stock has gained more than 500% over the past five years. A 10-for-1 stock split has generated more excitement for the stock.

Arista Networks: Computing Networking Giant

Arista Networks helps big tech companies scale up their AI tools. The company’s AI networking solutions have attracted customers like Microsoft and Meta Platforms. Arista Networks recently unveiled Etherlink AI Networking Platforms, which should help the company gain market share.

While artificial intelligence has many possibilities, it still requires a lot of computing power. Arista Networks forms the backbone that helps tech giants scale their AI efforts.

CrowdStrike: Resilience Amidst Challenges, Poised for Growth

For investors looking for opportunities to buy the dip, CrowdStrike remains a compelling investment in the artificial intelligence sector. Despite uncertainty over the impact of the recent outage, the cybersecurity technology company reported total revenue of $963.9 million in the second quarter, ended July 31, 2024. This marked a 32% increase over the previous year’s second quarter results.

The company’s robust AI-powered cybersecurity solutions continue to be in demand, as evidenced by solid revenue growth and expanding customer base. CrowdStrike’s quick response to the outage and introduction of new accelerated remediation techniques demonstrate its commitment to maintaining a reliable security platform for its clients. With cybersecurity threats on the rise, CrowdStrike’s innovative AI technology positions it as a key player in the industry, offering investors a promising opportunity for long-term growth

Meta Platforms: Growth at a Reasonable Price

Meta Platforms uses artificial intelligence to display targeted ads to its 3.24 billion daily active users. Net income more than doubled year-over-year in the first quarter, bringing the company’s P/E ratio down to 29. The social media giant is investing heavily in virtual reality and artificial intelligence to diversify its revenue streams. Ever since the company initiated its “Year of Efficiency,” net profit margins have stayed above 30%.

How to Invest in AI Stocks: 7 Steps to Take

Investing in AI stocks has resulted in significant gains for individuals who accumulated shares in 2023. But recent earnings results and momentum suggest that some of those rallies can continue. Here’s what you need to know about buying AI stocks.

1. Open a Brokerage Account: You can choose from many brokerage accounts like Fidelity and Vanguard. These accounts will let you buy any stock, not just AI stocks.
2. Establish Your Risk Tolerance: Some investors want to take more risks and accumulate shares in a pure-play, small-cap AI stock. Others prefer to buy shares of diversified corporations like Microsoft and Alphabet that offer some exposure to AI. If the AI boom fades, well-diversified AI companies have less to lose. But pure-play AI stocks like Nvidia may have the most to gain.
3. Create a List of AI Stocks: List any AI stock you want to watch and do some research to find additional stocks. Knowing the available options can help you construct a diversified portfolio instead of putting all of your capital into one or two AI stocks.
4. Compare AI Stocks: Assess AI stocks based on their financials, growth catalysts, revenue and earnings growth rates, profit margins, and other fundamentals. As you compare stocks, you will get a better understanding of which assets make the most sense for your long-term goals.
5. Decide Which Ones to Prioritize: If you want to buy shares in five AI stocks, you will have to decide how to split the money. Some investors evenly distribute their money across their holdings, while others lean more heavily into a stock they believe is underpriced.
6. Monitor Your Picks: Staying on top of your investments can help you act quicker if a company’s growth thesis dissolves. Investors can also capitalize on buy-the-dip opportunities if some of their AI stocks become undervalued.
7. Consider an Artificial Intelligence ETF: It’s much easier to manage an exchange traded fund (ETF) with artificial intelligence stocks than it is to manage a portfolio with dozens of positions. Some ETFs like iShares Semiconductor ETF (SOXX) offer exposure to several AI stocks while significantly outperforming the S&P 500. Reviewing these ETFs’ individual holdings can help you discover additional AI stock ideas.

6 Alternatives to AI Stocks to Consider

Many top AI stocks have been outperforming the S&P 500 and continue to draw investors. Artificial intelligence tailwinds remain strong as AI-fueled corporations continue to post strong earnings. But investors should diversify their portfolios so they aren’t overexposed to a single stock or industry. These are some of the alternatives to consider.

Value Stocks

Value stocks offer higher margins of safety than AI stocks. These stocks tend to have less volatility and aren’t as vulnerable to sharp downturns during economic contractions.

REITs

Real estate investment trusts (REITs) tend to have higher yields than the S&P 500. Their long-term returns don’t keep up with AI stocks during bullish markets, but REITs aren’t as vulnerable during economic uncertainty.

Non-Cyclical Stocks

Non-cyclical stocks are corporations that offer essential products and services. These corporations will trail AI stocks during bullish markets but do a better job of maintaining their price levels during bearish markets. Non-cyclical stocks tend to have elevated dividend yields.

Cryptocurrency Stocks

Cryptocurrencies and crypto stocks can outperform AI stocks. In fact, Bitcoin has outperformed most AI stocks over the past five years. But this asset is more speculative, and any altcoins and crypto stocks depend on Bitcoin to perform well. If Bitcoin’s price starts to drop, almost every asset in the industry will also experience a sharp price decline. Crypto prices are also extremely volatile.

Index Funds

The S&P 500 and Nasdaq Composite offer more portfolio diversification than picking a bunch of AI stocks. These funds also happen to have AI stocks as many of their top positions. The Magnificent Seven stocks heavily influence both of these indices. AI stocks will drag down these indices, but other holdings can minimize the losses. Index funds stand to gain plenty of value if the AI boom continues.

Commodities

Commodities are more resistant to rising inflation and interest rates than AI stocks. While commodities are likely to underperform AI stocks, these assets can gain value even if the rest of the stock market is declining. Commodities tend to have a negative correlation with the stock market. If stocks go down, commodities go up. It’s a useful asset to strengthen your portfolio’s diversification.