The Best Artificial Intelligence (AI) Growth Stocks to Buy Right Now

Technology stocks have delivered outstanding gains to investors since the beginning of 2023, with a 69% jump in the value of the Nasdaq-100 Technology Sector index over this period. Artificial intelligence (AI) has played a central role in this tremendous rally.

Here are three no-brainer artificial intelligence stocks to buy amid the current market sell-off.

1. Amazon

Amazon (NASDAQ: AMZN) remains the top public cloud provider, crucial for AI training and development. Despite the rise of competitors like Microsoft (NASDAQ: MSFT) in the hyperscale cloud space, Amazon has managed to sustain its dominance. Amazon Web Services saw a 19% revenue increase in the last quarter, reinforcing its leading position.

Amazon's also the third largest digital advertising company in the world. It surpassed a $50 billion run rate in the second quarter, growing 20% year over year. That high-margin revenue has become a significant source of profit for the company as the retail business maintains very slim margins.

Recent efforts have resulted in $53 billion in free cash flow over the past year. Despite its AI investments, Amazon is set to continue growing its cash flow by reducing spending on fulfillment centers. With shares trading close to a 10-year high in free cash flow yield, they are currently appealing at this level.

2. Microsoft

Microsoft is the fastest-growing hyperscale cloud provider, yet its 29% growth in Azure, its cloud platform, last quarter fell short of Wall Street’s lofty expectations. This recent sell-off might present a valuable opportunity for long-term investors. Despite the strong performance in recent years, management anticipates that Azure revenue will accelerate in the latter half of the year.

Microsoft has become a top source for AI-focused developers, and its own consumer and enterprise-facing AI services, which it brands Copilot, have also found good traction. Management says its Copilot customer base increased 60% sequentially last quarter. Considering there are more than 400 million Office 365 customers, there's a long runway for growth, too.

Microsoft stock isn't inexpensive by valuation standards, with its enterprise value exceeding 10 times analysts' sales estimates for the next year. Its forward P/E ratio of nearly 31 is significantly higher than both the S&P 500 average and its own historical valuation over the past 15 years. However, Microsoft’s accelerated growth and substantial growth potential justify this premium valuation.

3. TSMC

TSMC is a leading foundry that produces chips for fabless semiconductor companies like Nvidia and AMD, as well as device manufacturers such as Apple. Even Intel, despite having its own production facilities, relies on TSMC for advanced chip manufacturing. As AI continues to expand across data centers, smartphones, and personal computers, TSMC stands to benefit significantly.

The company's growth has been accelerating due to strong demand for its advanced chips from these key customers. In the second quarter of 2024, TSMC reported a 33% year-over-year revenue increase to $20.8 billion, a notable rise from the 13% growth seen in Q1.

For the third quarter, TSMC is forecasting revenue of $22.8 billion at the midpoint of its guidance range. TSMC is currently trading at 29 times trailing earnings, which is a slight discount to the Nasdaq-100 index's average earnings multiple of 31 (using the index as a proxy for tech stocks).

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.