Artificial intelligence (AI) stocks are on a tear after Nvidia (NASDAQ:NVDA) delivered a blow-out earnings report. This created a halo effect for any stock that even had a tangential relationship to AI. While AI may not be a bubble in the classic sense of the word, investors have to be careful to focus on the best AI stocks to buy.
Some companies are not profitable, and some of the small-cap companies may still be in the proof of concept stage. However, investors looking for promising AI stocks to buy can find long-term value in some familiar names.
Artificial intelligence has a long runway, and the three stocks in this article stand to benefit as the growth in AI stocks accelerates. In many cases, these companies give investors multiple ways to benefit from artificial intelligence. And that makes them some of the best AI stocks to buy as we head into what is typically a slower time in the market.
Snowflake (SNOW)
Snowflake (NASDAQ:SNOW) is a cloud-based data storage company. This is not a pure play on artificial intelligence, but it’s expected to grow due to the essential link between data and the growth of generative AI.
That would be welcome news to investors, including Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), which bought shares of the company when it first went public as s SPAC in 2020. The SNOW stock price dropped by nearly 66% in the 2021-2022 tech wreck. And despite posting sequential and year-over-year gains in revenue, the stock has failed to gain traction.
Even after reporting strong earnings in late May, SNOW stock plunged nearly 20%. One reason for the sour sentiment is the company’s guidance which shows the rate of revenue growth is slowing. And this is coming at a time when the company is still reporting strongly negative earnings per share.
But in the AI-fueled mania that’s overtaking Wall Street, Snowflake stock is up over 20% and is benefiting from positive analyst sentiment. Both Piper Sandler and Wells Fargo (NYSE:WFC) reiterated their overweight positions on the stock.
Amazon.com (AMZN)
Slower-than-expected growth has also bedeviled Amazon.com (NASDAQ:AMZN). The company is seeing growth slowing in its Amazon Web Services (AWS) division. Consumers are becoming increasingly reluctant to make long-term commitments and may scale back their cloud usage.
But since AWS is the largest cloud player, it’s logical to believe that it will benefit from the rising demand for AI. Analysts believe that demand for the added computing power of Amazon Web Services will grow along with the demand for AI. Amazon also has plans to use its own AI chips, Tranium and Inferentia.
Amazon also looks like one of the high-potential AI stocks in June because it didn’t get much of an “AI bump” from Nvidia. AMZN stock only grew about 6% for the week ending June 2. But as investors begin to focus on the long-term outlook for AI, the long-term growth for Amazon may only be in the initial stages.
Amazon is an expensive stock at 62x forward earnings. However, as Marc Guberti pointed out to InvestorPlace readers, much of that is due to the company’s investment in Rivian (NASDAQ:RIVN). AI-fueled growth should create long-term value for investors.
Advanced Micro Devices (AMD)
The last stock on this list of the best AI stocks to buy is Advanced Micro Devices (NYSE:AMD). If you missed out on the Nvidia rally, AMD might provide you with a second chance at a much less frothy valuation.
Advanced Micro Devices is one of the leading suppliers of AI chips. But it also gives investors something else to think about. Specifically, it produces the central processing units (CPUs), graphic processing units (GPUs), and data processing units (DPUs) that are necessary to power the devices and platforms that will run AI software.
This isn’t to disparage NVDA stock. I’ve heard many credible reasons why a $600 price target for the stock may be justified. But at a P/E ratio of just 12x earnings, AMD stock is trading at a discount to the S&P 500, which makes it a compelling target as a long-term investment.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
