3 Artificial Intelligence (AI) Stocks to Buy in May

Some investors may disagree, but the recent decline in the share prices of some artificial intelligence (AI) stocks may be the beginning of an opportunity, not the end. Many of these stocks have entered bear markets of their own, dropping their lofty valuations to more reasonable levels.

And even as their stock prices decline, these companies continue to create and/or develop advancements that will allow them to better utilize AI. Investors may want to consider taking advantage of the price drop in these stocks instead of running away.

Here are three AI stocks in particular worth taking a closer look at this month.

1. Nvidia

Surely, nvidia (NVDA -3.89%) It’s probably an overvalued investment right now. The stock quickly emerged as the dominant AI chip company, earning massive profits and giving it a valuation that was too expensive to touch. Or maybe it is?

Nvidia is currently trading at a price-to-earnings (P/E) ratio of around 74. That sounds high, until you remember the triple-digit revenue growth for fiscal 2024 (which ends Jan. 31). The result was a 581% increase in net profit! That level is not sustainable, but Nvidia’s price-to-growth (PEG) ratio is just 0.1!

Moreover, the forward P/E of 35 confirms that the chip giant has become cheaper than many expected.

In fact, our chip industry peers have developed their own competing AI chips. Therefore, investors should not expect sustained triple-digit growth. Nonetheless, Nvidia accounts for at least 80% of the AI ​​chip market. And as competitors develop AI chips, Nvidia is likely to retain most of its customers as its recently announced Blackwell platform runs large language models at up to 25 times less cost and energy consumption.

Ultimately, with investors able to purchase this dominance at a lower-than-expected valuation, Nvidia presents an excellent opportunity for investors who may not have previously purchased.

2. Tesla

There is no doubt that Nvidia is overrated. tesla (TSLA -1.80%) Now, it may be too underrated. Declining electric vehicle (EV) sales and uncertainty about Tesla’s low-priced car launch appear to have depressed investors’ stock prices. The stock price has fallen nearly 55% from the all-time high set at the end of 2022.

Moreover, the Q1 2024 earnings report confirmed the difficulties in the EV market with a 9% decline in deliveries. That means quarterly revenue fell 9% year over year to $21 billion. Additionally, operating expenses increased 37% during the period, resulting in quarterly net income of $1.1 billion, down 55% year-over-year.

Still, the stock’s P/E ratio of 43 is near an all-time low. Additionally, Tesla’s plan to launch a low-cost EV in the second half of 2025 has reassured investors that it believes it will be needed to spur demand for its AI-enabled robotaxi platform, which it claims will launch on August 8.

Robotaxi is also the product that Cathie Wood’s Ark Invest believes will emerge as its biggest revenue stream, driving self-driving car stock prices to $2,000 per share by 2027. This is a significant change considering that electric vehicle sales accounted for 82% of sales in the first quarter. But even if the stock price approaches Ark Invest’s $1,400 per share in 2027, investors will be glad they bought in May.

3. Microsoft

Investors widely understand. microsoft (MSFT 1.44%) It is one of the world’s top three cloud companies. Now the company is increasingly recognized as a leader in AI.

Microsoft stock has risen nearly 26% over the past year, thanks to investor enthusiasm for its AI efforts. Additionally, this increase pushed the P/E ratio to 33, which is in the high end of the range for this stock. Nonetheless, the decline in P/E can be attributed to revenue of $62 billion in the third quarter of fiscal 2024 (ending March 31), 17% above year-ago levels. Net income also increased 20% to $22 billion.

AI is also driving much of this growth as we become full-fledged AI companies. Like all major cloud platforms, Azure supports a variety of AI capabilities, including the ability to build your own AI tools.

The Bing search engine leverages a partnership with OpenAI, creator of the ChatGPT platform. Because of that alliance, investors are now questioning Google’s parent company. alphabetThis is your advantage in search.

These competitive advantages will continue to make Microsoft a top-tier AI company. And given the company’s $80 billion liquidity, it must have the technical and financial resources needed to maintain its position as an industry leader.