The artificial intelligence (AI) market is expected to grow substantially over the next several years as companies take advantage of automation and other productivity improvements that AI technology offers. This will create lucrative opportunities for investors who invest in the right stocks.
With volatility returning to the stock market over the last month, now could be a great time to buy top AI stocks at less expensive valuations. Here are two to buy right now.
1. Nvidia
Nvidia(NASDAQ: NVDA) stock has generated wealth-building returns over the last decade. Its graphics processing units (GPUs) are required to train AI models, but Nvidia has led the GPU market for many years. The AI and data-center market has significantly expanded the addressable market for its hardware, and the company's latest financial update still shows great potential for the stock.
Nvidia reported a 122% year-over-year increase in revenue in the fiscal second quarter. As great as that looks, it didn't keep the stock from tumbling 27% from recent highs. Nvidia is dealing with several headwinds that create uncertainty for its near-term momentum, including a later-than-expected launch for its next-generation AI chips and a potential pause in cloud-infrastructure spending, a key growth driver of Nvidia's data-center revenue.
Bank of America analyst Vivek Arya sees a buying opportunity, even with Nvidia facing more uncertainty in the near term. In a recent research note, the analyst says the stock's valuation is more attractive after the recent dip. Indeed, looking ahead to next year's earnings estimates, the stock is now trading at a forward price-to-earnings (P/E) multiple of 26, which is quite attractive against next year's earnings-growth estimate of 41%.
The analyst also noted supply-chain checks that suggest Nvidia is ready for a near-term launch of its new Blackwell computing platform, which management expects to begin generating "billions" in revenue in fiscal Q4. The Wall Street consensus calls for Nvidia's revenue to grow 41% next year to $177 billion.
Blackwell combines several chips, including GPUs, central processing units (CPUs), and networking chips, to create a powerful computing system for AI workloads. It could unlock tremendous growth for Nvidia next year, as more sophisticated AI models will require more processing power to train.
Analysts expect Nvidia to grow earnings per share (EPS) at an annualized rate of 36% over the next several years. Assuming the stock continues to trade at around the same valuation on a forward P/E basis, the demand for Blackwell could ultimately send the stock sharply higher over the next few years.
2. Microsoft
Microsoft(NASDAQ: MSFT) is another top player in AI that has delivered outstanding returns over the last year. The software giant is gaining share in the cloud-services market as companies migrate data from on-premise servers to the cloud. This will allow enterprises to take advantage of various tools and AI models customers can use in the Microsoft Azure enterprise-cloud service.
Revenue from Microsoft Azure grew 29% year over year last quarter. Microsoft has benefited from its partnership with AI researcher OpenAI, the company behind ChatGPT. The Azure OpenAI service has been used by 65% of Fortune 500 companies.
Microsoft's strong quarter still didn't keep the stock from falling 14% from its recent high. However, most information-technology spending is still on-premise, so Microsoft Azure should see strong growth for several more years and support new highs for the stock.
Wells Fargo analyst Michael Turrin believes growing server supply is a catalyst for accelerating revenue growth in the second half of Microsoft's fiscal 2026 ended in June. This coincides with Nvidia's launch of Blackwell, which could drive more demand for AI servers and in turn, create demand for cloud-service providers like Microsoft Azure.
Over the long term, the AI server market is forecast to increase about tenfold to $430 billion by 2033, according to Statista. More servers will need advanced AI chips and software to operate, which is a good indicator of the long-term demand for Nvidia and Microsoft's products.
Turrin maintained an overweight (buy) rating on the shares. The consensus-analyst estimate forecasts Microsoft's earnings to grow by 13% on an annualized basis in the coming years. Nvidia's faster rate of growth might offer more upside potential, but Microsoft's recurring revenue from the cloud and other services should lead to more consistent revenue performance. This quality makes Microsoft a great stock to anchor anyone's retirement account.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
