The hype around artificial intelligence (AI) is justified. AI represents a ground-breaking technology poised to transform existing industries and create new ones over the coming decades. According to an analysis by Bloomberg Intelligence, the market for generative AI is poised to reach $1.3 trillion by 2032.
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That's a 43% annualized growth rate from today. Generative AI involves creating content using computer systems and large language models (LLMs) like ChatGPT. As you might imagine, the investment upside is tremendous for cutting-edge companies with the chips, models, data, and applications to help generative AI realize its potential.
These five generative AI stocks below have already produced stellar returns but still have the appropriate growth prospects and valuations to reward long-term investors. Consider buying and holding them today.
1. Nvidia
AI models require vast computing power. Nvidia(NASDAQ: NVDA) graphics processing unit (GPU) chips are the go-to for training AI models. That's where AI digests vast amounts of data to learn.
The company captured the market with its Hopper architecture (H100 chip) and is starting to roll out Blackwell, its next-generation AI chip line. Nvidia's business performance over the past two years is arguably unprecedented, and it's poised to continue as AI hyperscalers like Microsoft and other big technology companies invest billions of dollars to build the capacity to support generative AI's growth.
Nvidia's stock may seem expensive at a forward price-to-earnings (P/E) ratio of 48, but analysts estimate the business will grow earnings by an average of 38% annually over the long term. That's a price/earnings-to-growth (PEG) ratio of just 1.3, meaning the growth justifies the valuation. The stock might be volatile along the way, especially after such a strong 24-month run, but the long-term upside remains compelling.
2. Broadcom
Broadcom(NASDAQ: AVGO) is a chip and enterprise software company that recently became a major player in generative AI. It has developed a chip roadmap for three hyperscalers, with two more in the early stages. Management declined to name names during its latest earnings call, but industry reports pointed to OpenAI and Apple being among them. These chips are allegedly for AI inference, which is how AI models efficiently apply their intelligence to new data and applications.
The company's total AI-related revenue was $12.2 billion in its fiscal 2024, but management believes it will capture a leading share of a $60 billion to $90 billion opportunity by 2027. These developments have brightened Broadcom's outlook. Analysts now expect the business to grow earnings by 21% annually over the long term, which makes the stock a solid long-term buy at its current PEG ratio of 1.7.
3. Meta Platforms
AI models require enormous amounts of data, so possessing the AI model and data is a significant competitive advantage. Meta Platforms(NASDAQ: META) monitors the 3.29 billion social media users who log onto Facebook, Instagram, WhatsApp, and Threads daily. Meta uses that data to train its AI model (Llama). The company has already used generative AI to enhance its core digital advertising business and began experimenting with AI-powered social media profiles to drive human engagement on its apps.
Meta should remain a leader in the field because it has the capabilities, data, and resources to develop and apply generative AI technology. The stock remains a compelling value for long-term investors. Analysts estimate Meta will grow earnings at a long-term average rate of 17% to 18%, which values the stock at a PEG ratio of 1.3 at its current P/E ratio.
4. Alphabet
Google's parent company, Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG), shares many similarities with Meta that could translate to leadership in generative AI. Alphabet possesses its own AI model (Gemini), first-party data from across its ecosystem (Google Search, YouTube, Google Workspace, Google Home, etc.) to train it on, and even the world's third-leading cloud-computing platform (Google Cloud). Thus, you might think of Alphabet as a one-stop shop for AI.
Alphabet was a remarkable technology conglomerate before AI, but management has begun incorporating generative AI into existing products. Alphabet also seems bound to become a key partner for other companies who want to use AI but lack the tools. Analysts believe the company will grow earnings by an average of 16% to 17% annually over the long term, making the stock a bargain at just 21 times forward earnings.
5. Amazon
E-commerce giant Amazon(NASDAQ: AMZN) may not be an obvious generative AI winner at first glance, but it operates Amazon Web Services (AWS), the world's largest cloud-computing platform, making it a critical partner for any company deploying AI technology in real-world applications. Additionally, Amazon has first-party data on the customers who shop on its site or use any of the services included in its Amazon Prime subscription. It has unleashed a network of over 100 million active smart devices via its Alexa technology, a perfect distribution system for generative AI applications.
Amazon is involved in various industries, such as e-commerce and digital advertising, so it's a bit more diversified than other AI stocks. Analysts estimate Amazon will grow earnings at a brisk 22% annually over the next three to five years, which is plenty of time to make the stock a buy today at its current forward P/E ratio of 36.
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*Stock Advisor returns as of January 6, 2025
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
