Palantir Technologies(NASDAQ: PLTR) didn't join the S&P 500 until September 2024. But with a staggering gain of 340%, the stock still managed to end the year as the best-performing stock in the index.
Some investors might be tempted to jump on the bandwagon, even if it's a bit late. I don't think that's the best strategy, though. Here are three artificial intelligence (AI) stocks to buy in 2025 (listed alphabetically) that could be better picks than Palantir.
1. Alphabet
Google parent Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) delivered an impressive gain of nearly 36% last year, although that return paled in comparison to Palantir's. However, I suspect Alphabet could be a bigger winner in 2025 than Palantir for a few reasons.
Probably the biggest knock against Palantir right now is its valuation. Shares of the AI and data analytics software company trade at close to 159 times forward earnings and nearly 69 times sales. Palantir is growing by leaps and bounds but, in my opinion, not enough to justify its premium price. Alphabet, on the other hand, looks like a bargain with a forward earnings multiple of 21.
I look for strong growth from Alphabet this year. The company's Google Cloud business should have exceptionally good prospects with the continued AI-fueled demand for cloud services. The adoption of AI agents could also take off in 2025, providing another major tailwind for Alphabet.
Don't overlook the potential impact of Alphabet's self-driving car unit, Waymo, over the next few years, either. Waymo plans to expand into Atlanta and Austin, Texas, in 2025 in partnership with Uber. Although this business likely won't contribute much revenue to Alphabet this year, it could be a huge growth driver by the end of the decade.
2. Nvidia
Nvidia(NASDAQ: NVDA) ranked two spots behind Palantir as the No. 3 top stock in the S&P 500 in 2024. Shares of the graphics processing unit (GPU) maker soared 171% higher last year. I think this momentum will continue in 2025.
Despite the huge gain last year, Nvidia's valuation isn't all that scary. The stock trades at 31 times forward earnings. That might seem expensive, but it isn't if the company can keep growing robustly.
The launch of the new Blackwell GPUs should extend Nvidia's robust growth. In an October interview with CNBC, CEO Jensen Huang described the demand for Blackwell as "insane." That aligns with CFO Colette Kress' comment in Nvidia's November earnings call, stating that "Blackwell demand is staggering."
But Blackwell could be just the tip of the iceberg for Nvidia. The company is now on an annual cycle of new product rollouts. The successor to Blackwell should come out in late 2025 and will almost certainly up the bar for performance.
3. Advanced Micro Devices
Advanced Micro Devices' (NASDAQ: AMD) performance in 2024 was highly disappointing, especially compared to the returns delivered by Palantir and Nvidia. The chipmaker's share price tumbled 18% lower last year. However, I think a rebound is on the way.
Although AMD stock hasn't made investors happy in recent months, the company's business is humming along pretty well. AMD reported record revenue in Q3 and expects to reach another all-time high in Q4.
The same tailwinds for Nvidia should also help AMD. To be sure, the company isn't going to dethrone Nvidia anytime soon, if ever. However, AMD's chips should continue to enjoy strong demand thanks primarily to AI-fueled data center growth.
Importantly, AMD stock is dirt cheap with its growth prospects factored in. Its price-to-earnings-to-growth (PEG) ratio is a super-low 0.31, according to financial data and infrastructure company LSEG. I can't think of any other AI stock more attractively valued based on its five-year growth potential.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Nvidia, Palantir Technologies, and Uber Technologies. The Motley Fool has a disclosure policy.
