The AI Revolution: Two Unstoppable Stocks to Buy in 2025 and One to Steer Clear Of
As we enter the new year, the artificial intelligence (AI) boom shows no signs of slowing down. In 2024, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all reached record highs, with AI playing a significant role in driving stock valuations higher. With AI’s limitless potential to transform industries worldwide, it’s essential to identify the winners and losers in this space.
The AI Powerhouse: Alphabet
Among the dozens of AI stocks available, Alphabet stands out as a top pick for 2025. As the parent company of Google, YouTube, and Google Cloud, Alphabet is leveraging AI to drive growth across its diverse portfolio. Google Cloud, the third-largest cloud infrastructure service platform globally, is deploying generative AI solutions and large language model capabilities to customers. This segment is expected to play a key role in cash-flow generation throughout the decade.
Alphabet’s hardware ventures, including tensor processing units and the Trillium chip, will provide a cost-effective alternative to Nvidia’s Hopper and Blackwell chips. Moreover, Alphabet’s dominance in internet search, with a consistent 89% to 93% global market share over the past decade, ensures predictable operating cash flow. The company’s substantial cash reserves, totaling $93.2 billion, will enable aggressive stock repurchases, boosting earnings per share.
The China Connection: Alibaba Group
Despite the risks associated with China-based businesses, Alibaba Group is an attractive AI stock for 2025. Alibaba Cloud, the leading provider of cloud infrastructure services in China, is making generative AI solutions available to corporate clients. This, combined with the company’s dominance in e-commerce, with a 50% market share in online retail sales, will drive growth in operating cash flow and EPS.
Alibaba’s pristine balance sheet, with over $33 billion in net cash, provides ample opportunity for stock repurchases and investments in high-growth initiatives. The company’s forward P/E ratio of 9 is particularly appealing in a historically expensive U.S. stock market.
The AI Highflier to Avoid: Palantir Technologies
While Palantir Technologies has seen its stock skyrocket by 1,080% over the past two years, its valuation has become unsustainable. With a price-to-sales ratio of 68, the company’s growth ceiling is limited, and its reliance on interest earned from cash reserves is not a sustainable source of income.
Palantir’s Gotham platform, although unique, has a limited long-term growth potential, as it is primarily used by the U.S. government and its allies. The company’s decelerating sales growth and nosebleed valuation make it a stock to avoid in 2025.
In the world of AI, it’s essential to separate the winners from the losers. By investing in Alphabet and Alibaba Group, you’ll be positioning yourself for success in 2025. Meanwhile, Palantir Technologies’ unsustainable valuation makes it a stock to steer clear of.
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