If You Can Only Buy One AI Stock This Summer, It Better Be One of These 3 Names (2024)

AI stocks to buy continue to command Wall-Street’s imagination. It’s been more than a year since AI stocks propelled the market to record highs, but investors are still hungry for more. Though the market’s a start-stop story of late, the massive upside in AI stocks is tough to deny. Moreover, with interest rate cuts coming up later this year, expect another robust rally in AI stocks.

Nevertheless, the concerns over the market being overbought are real following last year’s bombastic rally. In this scenario, it’s important to back the AI stocks to buy, offering sustained upside potential. We’ve seen investors adopt a more discerning ‘show-me’ stance, expecting tangible performance and clear strategies from AI companies. Hence, with this backdrop, it becomes doubly important to separate the wheat from the chaff and invest in the right AI stocks. With that said, here are three AI stocks to buy, offering a ton of upside ahead for investors.

Nvidia (NVDA)

Chip-maker Nvidia (NASDAQ:NVDA) is arguably the face of the AI revolution. It was always among the giants in the tech world, and generative AI has catapulted it to even loftier heights. It’s easy to gauge why, considering its marked cap blew past the $3 trillion mark during Wednesday’s intraday trading. NVDA stock has skyrocketed over 597% in the past three years and is up more than 147% on a year-to-date (YTD) basis.

It recently wrapped up another solid quarter, continuing its enviable streak of earnings surprises. The company’s Q1 report showed it shattering expectations with a revenue bump to $26 billion, up 262% year-over-year (YOY) while surpassing forecasts by $1.45 billion. The standout performer was its data center segment, where revenues were up a mind-boggling 427% YOY, fueled by the relentless demand for AI applications.

With Nvidia’s stronghold in the AI chip market, it’s tough to imagine a scenario where it doesn’t keep surprising everyone. Its data center segment, in particular, is poised to exceed $100 billion in sales in the coming years, with Nvidia’s trajectory in the AI landscape looking as promising as ever.

Microsoft (MSFT)

Microsoft (NASDAQ:MSFT)is another big beneficiary of the generative AI trend, driven by its superb market share and exceptional growth over the past year. Its monstrous success of late is linked to its strategic investments in generative AI bellwether ChatGPT. This evolving partnership allows the Redmond giant to efficiently integrate ChatGPT’s advanced AI capabilities into its timeless software suite. Moreover, its hardware stack continues to shine with the release of AI-optimized processing units.

However, as mentioned earlier, investors are looking for tangible growth due to AI, and MSFT is delivering. Its Q3 report saw it posting $61.86 billion in sales, a 17% increase on a YOY basis, along with a 20% increase in net income. Additionally, it beat earnings estimates for the fifth successive time, with a $2.94 EPS, beating estimates by 10 cents per share.

Microsoft Cloud, in particular has benefitted immensely from AI integration, growing north of 23% YOY, accounting for over 50% of the company’s total sales. Moreover, its cloud computing market share rose to 25% in Q1 2024, up 2% from the prior-year period, signaling robust growth.

Arista (ANET)

Arista(NYSE:ANET) is another leading AI player, offering cutting-edge network solutions critical for powering AI applications. Its robust Ethernet switches and routers can effectively manage the massive data flows and processing demands needed for AI workloads. Additionally, with the growing demand for AI technology, Arista will continue benefiting from the heightened requirements for reliable network infrastructure.

Moreover, my fellow InvestorPlace colleague Larry Ramer recently wrote about Arista’s edge in the $45 billion Ethernet switches market due to its superior chip interface. He also noted that its network equipment, which supports AI PCs, furthers its market dominance.

Furthermore, the company is doing remarkably well financially, delivering Q1 results that comfortably beat analyst estimates. Its earnings of $1.99 per share blew past estimates of $1.74, while its sales of $1.57 billion beat estimates by $23.6 million. As we advance, Arista projects Q2 net revenues between $1.62 billion and $1.65 billion, surpassing consensus estimates and reinforcing its powerful growth trajectory.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.