Two Must-Buy AI Stocks for April and One to Steer Clear Of
The Rise of Artificial Intelligence on Wall Street
Overview of AI’s Impact on Investing
For over thirty years, Wall Street has always had intriguing trends and innovations that grab investors’ attention. Recently, artificial intelligence (AI) has taken center stage, evolving at a rapid pace and capturing significant interest from stakeholders. Analysts at PwC predict that the AI market could reach an astonishing $15.7 trillion by the end of the decade, highlighting the technology’s vast potential across various sectors worldwide.
Understanding Artificial Intelligence
AI refers to machines and software that can think, learn, and make decisions independently. This self-evolving capability allows AI technology to be useful in many industries, ranging from healthcare to finance and beyond. However, as with past trends, not every investment related to these technology uprisings guarantees success. Current evaluations suggest that while many AI stocks are in the spotlight, some stand out as excellent buys, while others may not be worthwhile investments.
Top AI Stocks to Consider
Alphabet Inc. (Google)
One of the most promising stocks entering the second quarter of 2025 is Alphabet Inc., the parent company of Google. Despite concerns regarding economic growth and regulatory pressures on big tech, Alphabet’s strengths—such as its advertising prowess—are hard to overlook. Google continues to dominate online searches, capturing an impressive 89% to 93% market share globally for years, making it a prime target for advertisers.
Economic Resilience: Historically, recessions tend to be brief, averaging about ten months while economic expansions last for years, allowing ad-driven businesses like Alphabet to thrive during recovery periods.
Innovative Use of AI: Alphabet is incorporating generative AI technologies into its Google Cloud services—currently the third-largest cloud provider. This integration is expected to enhance profitability substantially. In 2023, Google Cloud also reached a significant milestone by becoming consistently profitable.
- Strong Financial Position: With about $95.7 billion in cash and marketable securities at the end of 2024, Alphabet is well-positioned to reinvest in growth initiatives, buy back shares, and pursue acquisitions.
A current valuation of 15 times forward earnings offers a 33% discount compared to its historical average, making Alphabet an attractive buy.
Meta Platforms (Facebook)
Another compelling investment opportunity is Meta Platforms, the parent company of Facebook. Like Alphabet, Meta has a strong reliance on advertising, which has become the backbone of its revenue model.
Widespread User Base: Meta’s various platforms, including Facebook, Instagram, and WhatsApp, attract around 3.35 billion users daily. This massive reach allows the company to charge premium prices for advertising.
Potential for AI Integration: The application of AI can significantly enhance Meta’s advertising strategies, providing tailored content to users. The incorporation of AI has already contributed to improved operational outcomes.
- Metaverse Development: Meta is also actively pursuing the development of the metaverse, a virtual reality space where users can interact. CEO Mark Zuckerberg has historically been cautious about monetizing new platforms too early, positioning Meta favorably for any future commercialization opportunities.
With a forward P/E ratio of 20, slightly below its five-year average, Meta’s stock represents good value, particularly with expectations of earnings growth resuming.
AI Stock to Avoid
Nvidia Corporation
Not all AI stocks are wise investments at this juncture. Nvidia, a leading name in semiconductors, surged dramatically since the start of 2023. While the company has performed admirably, expectations should be cautiously tempered.
Market Saturation and Competition: Nvidia has held a near-monopoly on AI-accelerated data center GPU market share, thanks to high demand for its products. However, competitors like AMD are gearing up to increase their market presence, impacting Nvidia’s pricing power.
- Valuation Concerns: Nvidia’s valuation has reached concerning levels. At one point last summer, its price-to-sales ratio soared to 42, a level typically seen before market downturns. Even as this ratio has lowered to 21, it remains high compared to peers, suggesting potential overvaluation.
Historically, innovations often overinflate expectations, especially during their initial market phase. If the anticipated AI “bubble” were to burst, Nvidia could face significant setbacks given its heavy reliance on the AI market.
By focusing on companies like Alphabet and Meta while exercising caution with stocks like Nvidia, investors can navigate the evolving landscape of artificial intelligence on Wall Street with greater confidence.
