3 AI Stocks Billionaires Are Betting Big On: A Smart Play for Investors

Artificial Intelligence (AI) isn't just a buzzword—it's an investment frontier that's catching the eye of billionaires. UBS Global Wealth Management forecasts a whopping $1.2 trillion in AI revenue by 2027. They call it "the most profound innovation" in investment history, breaking it down into three key layers: the enabling layer, the intelligence layer, and the application layer.

Here’s a closer look at three standout AI stocks that billionaires are buying, representing each of these layers.

1. Nvidia (NASDAQ: NVDA): The Enabling Layer

Nvidia stands as a cornerstone in the initial stage of the AI boom, known as the enabling layer. This stage includes semiconductor companies and public clouds providing the critical infrastructure and platform services necessary to develop AI applications. UBS estimates this segment to generate $516 billion in revenue by 2027.

Nvidia's dominance in data center GPUs, holding a 98% market share, positions it as a pivotal player. Its CUDA platform further simplifies GPU-accelerated application development, and the company’s AI-as-a-service product, DGX Cloud, provides a comprehensive suite ranging from supercomputing infrastructure to machine learning models.

Investors are buoyed by Nvidia’s consistent innovation and leadership, with Wall Street projecting its earnings to grow by 37% annually over the next three years. This growth potential makes its current P/E ratio of 57 seem reasonable, especially considering a PEG ratio of 1.5, compared to the three-year average of 3.1.

2. Amazon (NASDAQ: AMZN): The Intelligence Layer

The second AI stage includes companies harnessing data to build large language models (LLMs) and machine learning systems. UBS predicts this layer will hit $255 billion in 2027 revenue.

Amazon is uniquely positioned in both enabling and intelligence layers. Amazon Web Services (AWS), the largest public cloud service, supports AI model and application development with platforms like Amazon Bedrock, which helps businesses fine-tune prebuilt models.

Additionally, Amazon’s retail ecosystem sharpens its AI edge. Its generative AI shopping assistant, Rufus, leverages vast consumer data to provide personalized shopping experiences.

With experts predicting that 50% of applications will run in public clouds in three years, AWS is set to benefit significantly. Wall Street forecasts a 22% annual earnings increase for Amazon over the next three years, with the current valuation of 45 times earnings offering a PEG ratio of 2.1, a discount to its three-year average.

3. Datadog (NASDAQ: DDOG): The Application Layer

The final AI stage consists of companies that deploy data and models developed in the intelligence layer to create AI applications. UBS estimates the application layer will generate $395 billion in revenue by 2027.

Datadog stands out in this domain with its observability software platform that comprises products aiding in monitoring and troubleshooting critical IT infrastructure. Key offerings like Watchdog and Bits AI utilize AI for anomaly detection and root cause analysis, enhancing IT operations. Furthermore, its LLM Observability tool is tailor-made for large language models essential in generative AI applications.

Ranked as a leader in observability by Gartner for four consecutive years, Datadog is well-placed to capitalize on the growing AI market. Wall Street is optimistic about its future, projecting 23% annual revenue growth through 2026. Compared to sales, the current valuation of 17.9 times seems justified for long-term investors.

Final Thoughts: Should You Dive into Nvidia Now?

Before jumping on the Nvidia bandwagon, it’s important to consider how it stacks up against other potential investments. While Nvidia was a strong pick from our Stock Advisor recommendations back in April 2005, generating tremendous returns, today’s landscape offers a diverse array of opportunities.

Always research thoroughly before investing. Stay informed and consider your investment strategy comprehensively to best capitalize on the unfolding AI revolution.

Note: The financial figures and projections mentioned are based on industry data and analysis as of the publication date. Always consult with a financial advisor for personalized advice and conduct your own research before making any investment decisions.