AI stocks are at the forefront of many investors’ minds going into 2025. With ever increasing interest in the sector, this year looks set to be one where the top AI stock valuations realise even more of their full potential.
The surge of interest in the AI sector means that technological advancements are now backed up by strong market confidence. That groundswell of improved investor sentiment is based on the potential for AI to improve its efficiency of operations across an ever increasing number of industries.
Both tech behemoths and niche AI players are supplying the corporate world with products and services that can enhance their earnings. Choosing between them comes down to understanding the pros and cons of each and the growth potential they have.
NVIDIA (NVDA)
Past performance is not an indication of future results.
- NVIDIA Corporation (NVDA) has taken on the role of the flagship of the AI sector. It is best known for its graphics processing units (GPUs) with which it has a 98% market share of data centre GPUs in terms of revenue and shipments.
- GPU chips play a major role in the key features of AI — managing complex workloads, processing images, and training large language models.
- NVDA has complemented its significant advantage in GPUs by developing an extended ecosystem of AI products and services. It has the capacity to build entire AI-focused data centres using the latest CPUs, interconnects, and networking gear.
- The “vertical integration” NVIDIA provides puts the company in a good position to capitalise on whichever features of the AI revolution become most significant in the coming years.
- In its Q3 earnings for the 2025 fiscal year, NVIDIA reported earnings of $35.1bn, up 17% from the previous quarter and up 94% on a year-on-year basis.
- Wall Street analysts predict Nvidia’s earnings will continue to grow at 38% annually over the next three years.
- The Q1 2025 investor update provided by NVIDIA revealed that 13% of its total sales came from only one customer, which is believed to be Microsoft. There are risks associated with sales being driven by a small group of large companies rather than a more diversified customer base.
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Broadcom (AVGO)
Past performance is not an indication of future results.
- The doubling in value of Broadcom (AVGO) stock in 2024 was based on increased appreciation of the importance of the company’s application-specific integrated circuits (ASICs).
- ASIC semi-conductors play an integral part in supporting the wider AI industry, particularly data centres, and investing in AVGO offers a way to gain exposure to the wider build-out of AI capacity.
- Broadcom’s blue-chip client base includes some of the biggest names in the tech industry, including Amazon, Alphabet, Microsoft, Oracle and IBM.
- Investors will have to form their own opinion on whether such close tie-ins with tech giants offers security, or poses a form of risk, but with the continued shift towards cloud computing, AVGO is a top AI stock to consider.
- Q4 results for the 2024 fiscal year highlight how the market position that Broadcom has established is paying off. Revenue was $14,054m, up 51% from the previous year.
- Broadcom stock offers a way to benefit from growth in a niche area of the AI sector and from Goldman Sachs’ prediction that companies will spend $1trn over the next few years building out their AI capabilities.
- Operating margins on Broadcom’s semiconductor business are currently 56%. That figure, while impressive, does highlight the risk of basing valuations of AVGO stock on future earnings which could be squeezed by competitors.
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CrowdStrike (CRWD)
Past performance is not an indication of future results.
- CrowdStrike Holdings (CRWD) offers a way for investors to gain exposure to the AI sector by buying a stock which has so far failed to track the 2024 performance of its peers.
- Investor confidence and the CRWD share price were shaken in July 2024 when an update of the firm’s Falcon Sensor security software was derailed by a high profile glitch.
- Recent earnings reports suggest that the blip in the stock price does not reflect the firm’s fundamental growth prospects.
- The company’s Q3 results for the 2025 fiscal year beat analyst expectations and were accompanied by an upgrade in the guidance of the firm’s future prospects.
- Revenue of $1.01bn was a 29% year-on-year improvement and the company’s crucial annual recurring revenue (ARR) rose to $4.02 billion, up 27% from the same time in 2023.
- Guidance on 2025 revenue now states the firm expects to bank $3.92bn–$3.93bn compared to the earlier forecast of $3.89bn–$3.90bn.
- The 2024 crash and recovery in CRWD stock prices could just be a blip, but there are risks involved in getting that call right, partly thanks to the stocks’ relatively short trading history. CRWD was first listed in 2019, compared to NVIDIA which came to the market in 1999, and that lack of a track record makes analysis of future prices harder.
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AristaNetworks (ANET)
Past performance is not an indication of future results.
- Increases in actual and projected revenues make AristaNetworks (ANET) an AI growth stock which could complement any portfolio.
- The company provides Gigabit Ethernet switches and routers which are used in the next generation data centres that tech giants are rolling out on a global scale.
- Analysts have been busy upgrading their view on ANET stock thanks to the company’s annualised cash flow growth rate holding steady at 27.1% over the past 3–5 years versus the industry average of -1%.
- With few reasons to believe that growth potential is due to subside, the company’s Earnings Per Share (EPS) ratio is expected to grow 26.6% in 2024 which outstrips the industry average EPS reading of 14.7%.
- The booming data centre sector will at some point become saturated, but currently represents a prime opportunity for those following trend strategies.
- The significant cash reserves that AristaNetworks holds — put it in a good position to adjust and take advantage of whatever the next AI trends might be.
- AristaNetworks has done well to resolve supply side issues, but that has come at a cost, and there is a risk that future earnings will be impacted as a result. Guidance from the firm for 2025 predicts non-GAAP operating margins of 43.5%, a number which is below the consensus of analyst forecasts.
Your capital is at risk. Not investment advice.
Amphenol (APH)
Past performance is not an indication of future results.
- Amphenol Corporation (APH) saw its share price increase by more than 40% in 2024 as the stock shook off the label of being one of the more “boring” stocks in the AI sector.
- The company designs, makes and markets a diverse range of components which are key elements of the AI boom.
- APH’s products and services extend across electrical, electronic and fibre optic connectors, high-speed cable, antennae and sensors. Which helps it to fit in with the adage “in a gold rush, sell shovels.”
- The company is cash rich and currently offers a dividend yield of 0.94% which when factored in with the potential for share price growth, highlights why the stock is appealing to investors.
- Amphenol’s cash pile is also being used to diversify its operations. The buyout of Carlisle Interconnect Technologies (CIT) in May 2024 was a sensible move which gives APH exposure to the defence and commercial airline sectors.
- Earnings are forecast to trend higher. The company predicts that the Q4 2024 financial report will show earnings growth between 17%-22% on a year-on-year basis.
- Amphenol deserves its place in the list of top AI stocks but the sub-sector it operates in is highly competitive. There is a risk that earnings relating to the sale of cables and connectors might not grow as quickly as those of AI stocks which have stronger intellectual property rights across their product range.
Your capital is at risk. Not investment advice.
Final thoughts
Each of these companies, with their unique application of AI, represents a promising investment opportunity in the rapidly evolving AI sector. The word “evolving” is important as it highlights why investors should be cautious when buying AI stocks. AI stocks are particularly exposed to the risk that anticipated technological advances might not materialise, and even if they do, those advances might not necessarily be able to be monetised effectively.
Given the intense interest in the potential of AI to transform the wider economy, many will feel a need to gain some kind of exposure to the sector. As AI stocks are relatively high risk it would be prudent to bear in mind the five golden rules of investing which include building a diversified portfolio and being cautious about what percentage of your total capital you invest in any one stock or sector.
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