Got $1,000? Here's the Artificial Intelligence (AI) Stock I'd Buy First

Artificial intelligence (AI) stocks have taken a bit of a beating in recent months, as investors question the high valuations after a three-year bull market and the true return that all of the AI investment is actually generating.

For some AI stocks, the cautious reaction is spot on, but for others, it is not.

But what's happening is that some AI stocks that are truly driven by the AI boom and will continue to flourish are being caught up in the sell-off -- and that's actually good news for investors. That means that some great AI stocks can be scooped up at lower and quite reasonable valuations.

Image source: Getty Images.

The one that I would scoop up first is Nvidia (NASDAQ: NVDA). Some would argue that you could never go wrong adding shares of Nvidia, even at its all-time highs. But now, with the stock price down about 5% since late February to $184 per share, it is a particularly great time.

The bull case for Nvidia

Making the bull case for Nvidia is not hard -- it's the valuation case where the rubber meets the road.

Nvidia is the most dominant player by far in making graphics processing units (GPUs) for computers of all types. But its major focus is on making AI chips for high-performance computers and data centers.

Nvidia's AI chips have a massive 90% market share within the data center market. And with the demand for AI computing only increasing and the proliferation of data centers, Nvidia's chips will be in high demand for years to come.

The growth numbers continue to be staggering, as Nvidia grew revenue 73% and earnings 98% year over year last quarter. Data center revenue made up 91% of the $68 billion in revenue for the fiscal fourth quarter, which ended Jan. 25.

In the first quarter, the company expects revenue to grow another 15% over Q4 to $78 billion. And during its fiscal Q3 earnings call, officials said the company had some $500 billion in orders to be executed through the end of calendar year 2026, so it's just a massive amount of revenue that is continuing to pour in.

As I said, its not a question of making the bull case, but the valuation case, and Nvidia wins there, too.

The valuation case for Nvidia

The stock trades at 37 times earnings, but its forward P/E, based on earnings projections for the next 12 months, is just 22 -- very reasonable if not downright cheap. Analysts expect Nvidia to increase revenue by 70% and earnings by 73% this fiscal year.

That valuation truly makes Nvidia a slam dunk buy right now. Some 93% of Wall Street analysts agree. The stock has a median price target of $265 per share, which would suggest a 43% return over the next 12 months.

If you had $1,000 to invest in an AI stock, that could buy you around five shares of Nvidia. There probably aren't too many better places to park your money.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.