Artificial intelligence (AI) is an innovative field that saw significant demand in recent months. Tools like ChatGPT have thrust AI’s capabilities into the spotlight and excited many people about the possibilities.
AI is revolutionizing many industries. It is a focal point of innovation, and that means there’s money to be made. Investing in companies positioning themselves to benefit from artificial intelligence can lead to outsized returns.
Some AI stocks have more than doubled year-to-date and still have enticing valuations. However, some AI stocks are better than others. While some of these stocks are driven by momentum despite poor fundamentals, others combine the promising trend with healthy financials.
Investors may want to consider these three AI stocks when looking for long-term gains.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) is the juggernaut of the artificial intelligence trend. The company’s AI chips are the gold standard, and Nvidia plans to strengthen its products in 2024.
Nvidia’s exceptional revenue and earnings growth rates have made the valuation look far more reasonable. Although a 102 P/E ratio sounds excessive, the company has a 32 forward P/E ratio. Continued success can drive the P/E ratio much lower.
The stock has enjoyed a tremendous rally and is up by over 200% year-to-date. Shares are up by over 660% over the past five years. Nvidia enjoys a comfortable lead over its competitors in the AI race and is poised to expand its market share.
Other stocks offer lower valuations and market caps, but few corporations can match Nvidia’s growth rates in key financial areas. Nvidia releases its next earnings report on November 15th. That report will give investors more insight into the sustainability of Nvidia’s revenue and earnings growth rates.
Axcelis Technologies (ACLS)
Artificial intelligence solutions rely on effective AI chips. While Axcelis Technologies (NASDAQ:ACLS) doesn’t produce AI chips, the company helps with an important component of the chip process.
Axcelis Technologies’ ion implantation technology enables chips to function efficiently and effectively. Many chipmakers have turned to Axcelis Technologies for its services, and the boon of AI has led to higher demand.
The company further proved its financial strength by announcing a stock buyback last month. The buyback allows Axcelis Technologies to repurchase $200 million worth of shares through the company’s share repurchase program. Axcelis Technologies will use funds in available working capital to make purchases from time-to-time.
Axcelis Technologies stock currently has a 26 P/E ratio and has more than doubled year-to-date. Shares have gained roughly 800% over the past five years.
Axcelis Technologies enjoys double-digit profit margins and good growth rates for revenue and earnings. The company reports earnings on November 1st.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) has a large investment in OpenAI. While the $13 billion investment is a high-risk, high-reward setup, OpenAI isn’t Microsoft’s only path to AI.
Microsoft incorporates the technology in many of its products. AI allows the company to improve its products and give people more reasons to stick around. Its cloud infrastructure as a service, Azure, has been a significant driver of revenue and earnings growth.
Microsoft shares have gained 39% year-to-date and have more than tripled over the past five years. The company has a steady record of rewarding long-term investors, and the financials remain strong.
In the last quarter of Microsoft’s Fiscal Year 2023, revenue jumped 8% year-over-year (YoY). Net income grew by a more impressive 20% YoY.
Higher profit margins can support the company’s investments in other projects, share buybacks and dividend growth. Microsoft’s healthy cash flow and the vast array of business opportunities make it a stand-out pick to consider.
As AI gains momentum, expect Microsoft to be a top player. The tech conglomerate reports earnings on October 24th.
On this date of publication, Marc Guberti held long positions in NVDA and ACLS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.