Palantir Technologies(NASDAQ:PLTR) did not join the S&P500 until September 2024. But with a staggering 340% gain, the stock still managed to finish the year as the best performing stock in the index.
Some investors might be tempted to jump on the bandwagon, even if it’s a little late. However, I don’t think this is the best strategy. Here are three artificial intelligence (AI) stocks to buy in 2025 (listed alphabetically) that might be better picks than Palantir.
Parent Google Alphabet(NASDAQ:GOOG)(NASDAQ:GOOGL) made an impressive gain of nearly 36% last year, although that return pales in comparison to Palantir’s. However, I suspect Alphabet could be a bigger winner in 2025 than Palantir for several reasons.
Probably the biggest blow to Palantir right now is its valuation. Shares of the AI and data analytics software company trade at nearly 159 times forward earnings and nearly 69 times sales. Palantir is growing by leaps and bounds but, in my opinion, not enough to justify its high price. Alphabet, on the other hand, looks like a bargain with a forward earnings multiple of 21.
I expect strong growth from Alphabet this year. The company’s Google Cloud business is expected to have an exceptionally good outlook with continued demand for cloud services fueled by AI. Adoption of AI agents could also take off in 2025, which would be another major tailwind for Alphabet.
Also don’t overlook the potential impact of Waymo, Alphabet’s self-driving car unit, over the next few years. Waymo plans to expand to Atlanta and Austin, Texas in 2025 in partnership with Uber. While this business probably won’t contribute much to Alphabet’s revenue this year, it could be a huge growth engine by the end of the decade.
Nvidia(NASDAQ:NVDA) ranked two spots behind Palantir as the third-largest stock in the S&P 500 in 2024. Shares of the graphics processing unit (GPU) maker have soared 171% in the past year. I think this dynamic will continue in 2025.
Despite last year’s huge gain, Nvidia’s valuation isn’t that scary. The stock trades at 31 times forward earnings. This may seem expensive, but it is not if the business can continue to grow robustly.
The launch of the new Blackwell GPUs should continue Nvidia’s strong growth. In an interview with CNBC in October, CEO Jensen Huang called the demand for Blackwell “crazy.” This is consistent with CFO Colette Kress’ comment during Nvidia’s November earnings call, saying “Blackwell’s demand is staggering.”
But Blackwell could be just the tip of the iceberg for Nvidia. The company now follows an annual cycle of new product launches. Blackwell’s successor is due out in late 2025 and will almost certainly raise the bar in terms of performance.
Advanced microdevices‘ (NASDAQ:AMD) performance in 2024 was very disappointing, particularly compared to the returns delivered by Palantir and Nvidia. The chipmaker’s stock price fell 18% last year. However, I think a rebound is underway.
Even though AMD stock hasn’t made investors happy in recent months, the company’s business is doing quite well. AMD reported record third-quarter revenue and expects to hit a new all-time high in the fourth quarter.
The same tailwinds for Nvidia should also help AMD. Certainly, the company isn’t going to dethrone Nvidia anytime soon, if ever. However, AMD’s chips are expected to continue to enjoy strong demand, mainly driven by AI-powered data center growth.
It’s important to note that AMD stock is very cheap given its growth prospects. Its price-to-earnings-to-growth (PEG) ratio is very low, at 0.31, according to financial data and the infrastructure company. LSEG. I can’t think of any other AI stock that is more attractively valued based on its five-year growth potential.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights holds positions at Alphabet. The Motley Fool holds positions and recommends Advanced Micro Devices, Alphabet, Nvidia, Palantir Technologies and Uber Technologies. The Mad Motley has a disclosure policy.
