The launch of OpenAI's ChatGPT in late 2022 sparked a surge in artificial intelligence stocks. Many companies linked to AI saw their share prices rise rapidly in the following years. That period is now ending.
Forecasts show the AI industry's value climbing from $255 billion in 2025 to $1.7 trillion by 2031. This growth suggests investing in AI stocks remains a sound strategy. Yet, opportunities vary sharply across different sectors of the market.
Investors must therefore choose AI stocks carefully. Analyzing the industry can help build a portfolio with potential for solid long-term returns.
Tech infrastructure is currently a leading AI area. Nvidia CEO Jensen Huang predicted this trend for 2024. He stated that companies and countries are working with Nvidia to convert traditional data centers into accelerated computing facilities, creating new 'AI factories' to produce artificial intelligence.
AI systems rely on data centers, but older facilities are not built for this technology, especially as it advances with developments like agentic AI. New, AI-optimized data centers are under construction. Some will be city-sized to meet immense computational demands.
These large, complex centers need high-speed, reliable components. Companies like Credo Technology Group and Astera Labs supply such products. Investing in businesses supporting the AI factory buildout is a way to benefit from this expansion.
Nvidia, a semiconductor chip designer, is among them. Its graphics processing units are in high demand to power AI systems. The company reported record revenue of $57 billion for its fiscal third quarter ending October 26, a 62% increase from the previous year.
Fortune Business Insights projects the AI infrastructure market will grow from $46 billion in 2024 to $356 billion by 2032. This growth offers a multiyear advantage for sector businesses, including energy companies powering massive AI data centers.
Exchange-traded funds provide one method to capitalize on these trends. The First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund holds companies involved in the electrical grid, energy storage, and management.
Diversification through ETFs is a key risk safeguard, especially for software companies. Not all will achieve sustained business growth from AI. For long-term success, a software company's technology must be superior to competitors and provide an economic moat.
Palantir Technologies and BigBear.ai both supply AI software to the U.S. government. Palantir's third-quarter government sales jumped 52% year-over-year to $486 million. BigBear.ai's Q3 revenue, however, fell 20% to $33.1 million, largely due to spending cuts from the Trump administration.
Palantir's performance benefited from its proprietary ontology, which allows its AI software to deliver practical results. The contrast with BigBear.ai shows why not all AI software companies will succeed, particularly as technology progresses toward artificial general intelligence.
AGI is a theoretical level where AI systems could reason as effectively as humans. According to OpenAI CFO Sarah Friar, AGI represents the point where AI can handle most value-added human work globally. She noted we are getting close to that reality.
Reaching AGI will require more computing power. This need may make quantum computing companies the next frontier for AI. Quantum computers use quantum mechanics to process data fundamentally differently from classical computers. They could solve certain extraordinarily complex calculations in minutes that would take today's supercomputers centuries.
This technology could provide the computational foundation for AGI, but the industry remains young with significant challenges. Qubits, the core of quantum computers, are delicate, making the machines far more error-prone than traditional computers. Reducing errors and correcting them effectively are major hurdles for all players.
IBM, a leading contender, expects to deliver a fault-tolerant quantum computer by 2029. Such a machine would have a low enough error rate and robust enough error-correction to be truly useful, potentially enabling widespread adoption.
IBM's overall sales grew 9% year-over-year to $16.3 billion in the third quarter. The company has increased its dividend annually for 30 consecutive years, making the stock a reliable source of passive income.
Nvidia is also involved in this area. Its NVQLink platform connects quantum computers and classical supercomputers, helping address challenges like error correction. With involvement across many AI areas, Nvidia is positioned as a key AI stock for 2026 and beyond.
The Motley Fool Stock Advisor analyst team recently identified what they believe are the 10 best stocks for investors to buy now. Nvidia was not on that list. The 10 selected stocks could produce significant returns in coming years.
The team highlighted past recommendations. Netflix was listed on December 17, 2004; a $1,000 investment then would now be worth $474,578. Nvidia was listed on April 15, 2005; a $1,000 investment then would now be worth $1,141,628.
Stock Advisor's total average return is 955%, outperforming the S&P 500's 196% return. The service offers its latest top 10 list and an investing community built by individual investors.