Now that the year is almost halfway over, it’s clear that artificial intelligence (AI) stocks, particularly of the generative variety, are the story of the year. But that doesn’t mean it’s too late to jump onto the AI bandwagon, especially if you are looking to add to your portfolio sooner rather than later. As if there wasn’t enough hype already, chipmaker Nvidia (Nasdaq: NVDA) has a stock split planned for June, which is likely to drum up even more excitement around these stocks.
The S&P 500 and Nasdaq Composite index are both up by double-digit percentages so far this year, at roughly 11% each, while the Dow Jones Industrial Average has gained a more modest 3%. Technology stocks have been the catalyst for much of the bullish sentiment, giving investors something to be excited about once again in the face of economic headwinds.
We have identified a trio of top artificial intelligence stocks, including one way to play this sector peripherally, that present potential upside before the year is over.
White Hot AI Stock: Nvidia
Chipmaker Nvidia is the leader of the AI pack. Many other companies rely on Nvidia’s chips for their own AI innovations, placing a huge amount of demand on its technologies. As a result, Nvidia’s stock has skyrocketed by over 500% since early 2023, fueled by earnings growth, according to Goldman Sachs, as the company’s PE ratio has kept up.
While it might seem like it’s late to the Nvidia party, the company in many ways is just getting started. Most recently, Nvidia introduced its Blackwell Architecture for generative AI, the technology that powers chatbots. These processors have steep price tags in the tens of thousands of dollars per superchip. Nvidia is much further ahead in the AI race compared with many of its peers thanks to CEO Jensen Huang’s foresight to be an early mover in this space.
In its fiscal Q1, Nvidia reported record revenue of $26 billion and a profit of $14.8 billion, while increasing its quarterly dividend payment by 150% to $0.10 per share. In response, the stock surpassed the $1,000 level just as the company announced a 10-for-one stock split, effective in June. The bullish sentiment around Nvidia stock is only likely to strengthen after the split as more investors will be likely to afford it.
But investors won’t want to wait around too long before adding this white-hot AI stock to their portfolios. Otherwise, they could wind up like Cathy Wood’s Ark Invest, which reportedly missed out on over $1 billion in profits after unloading shares in 2022.
Searching for AI
Alphabet (Nasdaq: GOOGL) stock has ballooned by 25% year-to-date, but there is reason to believe that there is more runway for gains. Wall Street firm Wedbush believes Google is a “clear winner” in the AI race, and that it’s poised to surpass its peers. As a result, the analyst firm added Alphabet’s name to its “best ideas list” along with a price target of $175, which is around where the stock has been flirting of late. Wedbush says the perceived risks for Google Search are overblown, instead describing the company as a “net beneficiary” of the generative AI segment.
Something Google has going for it is its access to massive amounts of data, which are used to teach AI models how to respond across its suite of products, including Android smartphones. With over 3 billion Androids in use, Android smartphones represented over half (56%) of global smartphone sales in Q4 2023. Additionally, reports suggest that Alphabet is among the Big Tech names in discussions with Hollywood over harnessing AI technology for video production, which would lead to greater licensing revenue, etc.
Alphabet recently introduced an upgraded Gemini chatbot, as well as shiny new search capabilities around AI-powered content. Wall Street is largely bullish on Alphabet stock, with nearly three-dozen “buy” ratings and an average price target of nearly $200 per share, suggesting there’s plenty of potential for near-term gains in this tech stock.
American Electric Power: A Play on Data Center Demand
One outside-the-box way to play the AI craze is through the utility companies that are powering the data centers where the AI magic takes place. And one such stock is American Electric Power (Nasdaq: AEP), a Columbus, Ohio-based utility that delivers power to millions of customers across nearly a dozen U.S. states.
With a market cap of $47.5 billion, AEP stock is within a stone’s throw of it’s all-time high of $98 per share reached in 2022. The stock, which pays an $0.88 quarterly dividend, is among the utility plays poised to benefit from AI data center demand.
According to Goldman Sachs, utilities will experience 8% earnings growth in 2026 compared with an average closer to 5%. Institutional investors have taken notice, with mutual funds and hedge funds raising their exposure to utility stocks to levels not seen in a decade. As a result, investors might want to consider adding leading utility names like AEP before the secret gets out.
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