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Thanks to the emergence of Chinese artificial intelligence (AI) upstart DeepSeek, tech sector darlings have had a sedated start to the year.
However, the recent correction has presented investors with an opportunity to scoop up some strong names from the burgeoning AI sector at reasonable valuations. To that end, here are two names from the sector - a chipmaker and a hyperscaler - that analysts believe have favorable risk-reward ratios for investors at the current juncture.
AI Stock #1: Nvidia
Founded in 1993, Jensen Huang-led Nvidia (NVDA) defined the AI revolution for the better part of the last three years. The company designs and supplies graphics processing units (GPUs), application programming interfaces (APIs) for data science and high-performance computing, and system-on-a-chip units (SoCs) for mobile computing and the automotive market.
Valued at a staggering market capitalization of $3.2 trillion, NVDA stock has been under pressure this year and has corrected by less than 1%. The stock offers a modest dividend yield of 0.03%.
Nvidia continues to demonstrate remarkable financial strength, with its latest quarterly earnings reinforcing its trajectory of record-breaking performance. In the third quarter of its fiscal 2025, the company posted revenues of $35.1 billion, surpassing analyst expectations of $33.2 billion. Earnings per share stood at $0.81, exceeding the projected $0.75. This quarter marked the eighth consecutive time the company outperformed Wall Street’s earnings forecasts.
Operational cash flow surged to $17.6 billion, more than doubling from $7.3 billion in the same period last year. With a robust cash position of $38.5 billion and no short-term debt on its books, Nvidia remains in an enviable financial position. Looking ahead, analysts expect the company to maintain its aggressive growth pace, with revenue and earnings forecast to expand at 93.66% and 189.63%, respectively — far outpacing the broader industry averages of 6.02% and 9.93%.
A key driver of Nvidia’s success is its overwhelming dominance in the AI chip sector, where it commands a 90% market share. The rising demand for generative AI and accelerated computing further solidifies its leadership. Large-scale cloud providers, including Amazon (AMZN), Microsoft (MSFT), Google (GOOGL), and Meta (META), are expected to ramp up their data center investments by 50% year-over-year — from $200 billion to $300 billion, according to Morgan Stanley — placing Nvidia at the center of this capital influx.
Adding to its technological edge, the company’s latest Blackwell GPU architecture represents a significant leap forward in AI and high-performance computing. Offering up to 2.5 times faster AI training and 15 times higher inference speeds compared to its predecessor, Hopper, Blackwell is designed for maximum efficiency. Its compatibility with both x86 and ARM architectures ensures wider adoption. Meanwhile, Nvidia’s upcoming Rubin platform, anticipated for release in 2025 or 2026, is set to push innovation even further.
Beyond AI chips, Nvidia exerts a near-monopoly in cloud computing. An astonishing 93% of GPU-powered cloud instances run on its hardware, thanks to deep integration with leading cloud service providers like Microsoft Azure and Google Cloud. The company’s Hopper and forthcoming Blackwell architectures are tailor-made to scale AI capabilities in the cloud, further entrenching its dominance.
Nvidia’s ecosystem extends beyond hardware, with an expanding portfolio of AI acceleration tools such as the Triton Inference Server, which optimizes AI model deployment, reportedly improving efficiency by up to three times. With this comprehensive suite of solutions, Nvidia is positioning itself as the cornerstone of next-generation AI development, cementing its place as an indispensable force in the industry.
Overall, analysts have attributed a rating of “Strong Buy” for the stock with a mean target price of $178.09. This denotes upside potential of about 37.2% from current levels. Out of 43 analysts covering the stock, 37 have a “Strong Buy” rating, two have a “Moderate Buy” rating and four have a “Hold” rating.
AI Stock #2: Amazon
The second AI stock on our radar that is poised for upside is e-commerce giant Amazon (AMZN). Founded in 1994, Amazon operates across various sectors including e-commerce, cloud computing, digital streaming, and AI. Its subsidiaries encompass Amazon Web Services (AWS) for cloud solutions, Whole Foods Market in the grocery sector, and entertainment platforms like Twitch and Prime Video. The company’s market cap currently stands at a hefty $2.4 trillion.
AMZN stock is up 5.7% on a YTD basis.
Notably, Amazon has seen its revenues and earnings compound at impressive CAGRs of 17.86% and 38.59%, respectively.
In the most recent quarter, Amazon beat on both the revenue and earnings front. Net sales for the fourth quarter came in at $187.8 billion which marked a yearly growth of 10%. The uptick was driven by an increase in both net product sales ($82.2 billion, +7.2% YOY) and net service sales ($105.6 billion, +13.2% YOY).
EPS for the quarter surged by a whopping 86% from the prior year to $1.86 as it comfortably outpaced the consensus estimate of $1.52. This marked the eight consecutive quarter of earnings beats from the company.
Net cash from operating activities for the quarter was at $45.6 billion, up 7.5% from the previous year as the company upped its cash balance to end the year at $78.8 billion. This was much above the company’s long-term debt levels of $52.6 billion.
Amazon continues to strengthen its Amazon Web Services (AWS) segment, significantly enhancing profitability. The division’s operating margin climbed from 27.1% in FY23 to 37% in FY24, fueled by a surge in revenue, which reached $28.8 billion compared to $24.2 billion in the prior year. A major driver behind this growth is the increasing integration of artificial intelligence technologies, including advanced GPUs and software, into AWS offerings. With AI workloads expanding at an unprecedented pace, cloud infrastructure has become indispensable, positioning AWS as a primary beneficiary of this trend.
In a strategic move to solidify its standing in AI, Amazon recently introduced Amazon Nova, a model designed to provide enterprise clients with access to advanced image and video generation capabilities. The platform offers flexible tiers, catering to varying computational needs and financial constraints. Nova is accessible through Amazon Bedrock, the company’s dedicated platform for businesses exploring generative AI applications, further embedding AI solutions into Amazon’s cloud ecosystem.
Beyond AWS, Amazon has been leveraging artificial intelligence to enhance its core e-commerce operations. A prime example is Rufus, the company’s AI-driven shopping assistant. Designed to offer a highly personalized shopping experience, Rufus expands customer awareness of available products, provides tailored responses to inquiries, and delivers an interactive and intuitive approach to product discovery.
Analysts have given AMZN stock an overall rating of “Strong Buy” with a mean target price of $258.57, which indicates upside potential of about 12.8% from current levels. Out of 49 analysts covering the stock, 45 have a “Strong Buy” rating, three have a “Moderate Buy” rating and one has a “Hold” rating.
