3 Top AI Stocks to Buy in September

Artificial intelligence (AI) has quickly become an investment theme for many people as they have experienced the benefits of using AI firsthand. But with a growing number of tech companies betting on this new frontier, it can be hard to sift through the AI ​​hype and find the companies worth investing in.

Here are three AI stocks making a significant impact in the space and why they’re worth buying right now.

Image source: Getty Images.

1. Broadcom

Broadcomhis (AVGO -0.84%) The semiconductor business has expanded over the years to include wireless, optical, and now AI processing chips. And so far, it’s been a great move for the company.

Sales of the company’s AI-focused optical and networking chips rose 280% in the second quarter to $3.1 billion. This growth in a relatively new segment for the company resulted in Broadcom’s AI chip sales accounting for 25% of total revenue in the most recent quarter.

And Broadcom management estimates that many more AI sales are just around the corner. The company’s management said on its recent earnings call that AI chip sales will top $11 billion in fiscal 2024, with Broadcom CEO Hock Tan saying on the call that “we expect the power of AI to continue.”

Broadcom also has a growing opportunity to tap into the custom AI chip market, which could help grow the company’s addressable AI chip market to $150 billion over the next three to four years, according to estimates from JP Morgan. Broadcom already makes custom AI semiconductors for Alphabet and has recently been in talks with OpenAI about custom chips, though nothing is set in stone yet.

Compared to similar AI companies, Broadcom stock is a pretty good deal right now. The company’s stock has a forward price-to-earnings ratio of 27, much less expensive than another major AI semiconductor player, Nvidiawhich has a forward P/E ratio of 42.

2. Palantir

Palantir Technologies (PLTR -1.41%) has long been known for its artificial intelligence software that has been used by the US government. But the company is now attracting the attention of more investors as it expands into the commercial market.

In the second quarter (which ended June 30), sales from Palantir’s commercial segment grew 33% to $307 million, and now represent 45% of the company’s total sales. And sales among Palantir’s US customers are growing even faster, prompting management to estimate that US commercial sales will rise 47% to $672 million for the full year.

The good news is that while Palantir has expanded into the commercial AI software segment, its government sales are also growing. Revenue from the US Government segment rose 24% in the second quarter to $278 million.

In addition to Palantir’s recent AI growth, the company is also in a strong financial position. Palantir is profitable, with net income of $135.6 million in the second quarter and a profit margin of 20% and only $1.1 billion in debt.

I should point out that Palantir stock isn’t cheap. The company’s stock has a forward P/E ratio of 90 right now, making it the most expensive stock on this list. But I think the company’s expanding commercial AI software sales, stability from its government contracts, and strong financial position make Palantir a worthy AI stock to add to your portfolio right now.

3. Microsoft

i know Microsoft (MSFT -0.12%) doesn’t draw the same enthusiasm from AI investors as smaller companies, but it deserves a spot on this list as one of the biggest investors in OpenAI and as a leading company in cloud computing and software.

Microsoft has so far invested at least $13 billion in ChatGPT creator OpenAI, and may invest more in a future funding round that OpenAI will go through. Microsoft’s ability to see OpenAI as a significant technology disruptor should not be overlooked, as its investment has given it access to some of the best AI software available.

Microsoft has put its investment in OpenAI to good use, quickly integrating some AI into its Office 365 software and its GitHub developer platform. Microsoft management said on its recent earnings call that CoPilot accounted for more than 40 percent of GitHub’s revenue growth this year, and noted that the AI ​​assistant helped push the platform’s annual revenue rate to $2 billion.

In addition to the AI-based software opportunity, Microsoft benefits from the integration of AI into its Azure cloud services. The company says its OpenAI services in Azure provide customers with best-in-class AI capabilities, and Azure now has 60,000 AI customers, up 60 percent from the year-ago quarter.

Providing the best cloud AI services is critical for Microsoft, which is the second largest cloud computing company with 25% of the market.

As an established technology leader and significant investor in OpenAI, Microsoft offers investors a unique AI opportunity. And with a forward P/E ratio of 31, Microsoft stock is cheaper than many small AI start-ups right now. With its early moves into AI and rapid integration of AI capabilities into core software and cloud products, Microsoft looks like a smart long-term bet on AI.