The Best Artificial Intelligence (AI) Growth Stocks to Buy on the Nasdaq as the Rally Heats Up

The rally in the Nasdaq is in full swing, with the tech-heavy index recently reaching a new all-time high after falling into correction territory earlier this year. While the war with Iran adds some near-term uncertainty, artificial intelligence (AI) stocks are still one of the best long-term opportunities in the market today.

The biggest risk to the tech rally is the closure of the Strait of Hormuz, as more than 30% of the world's helium supply passes through the waterway. Helium is essential in the manufacturing of advanced chips that are powering the AI boom. However, leading foundry Taiwan Semiconductor Manufacturing does have reserves, and there are other alternative helium sources, with the chip industry likely one of the first in line to get their hands on it. Sorry, party stores that sell helium balloons.

Against that backdrop, let's look at two AI stocks to buy as tech rallies.

AMD: Ready to ride the next AI wave

Advanced Micro Devices (NASDAQ: AMD) is at the intersection of two important AI trends: inference and agentic AI. While it hasn't been a big player in AI training, the combination of the company's improved ROCm software and its chiplet design, which packs more memory into its chips, makes it a strong alternative in the inference market. Meanwhile, it has entered into partnerships with both Meta Platforms and OpenAI to provide both of them with 6 gigawatts of power from its next-generation graphics processing units (GPUs). The deals come with warrants in AMD's stock, but they get the company into two of the largest AI infrastructure spenders.

Equally exciting is AMD's opportunity with agentic AI. While GPUs are great at providing the muscle for AI workloads, they aren't good for helping with AI agent orchestration, which on the hardware side is handled by central processing units (CPUs). With the rise of agentic AI, server racks dedicated to AI agents are going to need a much higher GPU-to-CPU ratio.

AMD, meanwhile, has been able to establish itself as a leader in the data center CPU market. This is a booming market, and it's now in the process of developing CPUs specifically for agentic AI. Data center CPUs look like the next big AI bottleneck, and AMD is going to be one of the stocks set to benefit the most from this.

Image source: Getty Images.

Alphabet: A chip advantage

While best known for its Google search engine, what really sets Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) apart in the AI race is its custom AI chips called tensor processing units (TPUs). The company was very early in developing these custom application-specific integrated circuit (ASICs), introducing them more than a decade ago. In the interim, it has designed its entire software and hardware ecosystem around them.

However, it has also smartly evolved these chips over time. One of its biggest moves was opening them up to frameworks outside of TensorFlow, which is why customers like Anthropic are starting to adopt them en masse. Meanwhile, the company is set for its next chip evolution with the introduction of separate TPUs for training and inference with the upcoming eighth generation of its chips. It is also reportedly working on other TPU versions, including a memory processing unit to work alongside its main TPUs to optimize running its AI models, and it also has its own CPUs, as well.

Alphabet's custom chip business provides the company with both a big cost advantage and a new revenue stream. It can train and run inference on its leading Gemini model at a significantly lower cost than competitors using Nvidia's GPUs. Meanwhile, its fast-growing cloud computing business also benefits from its cheaper chips, and it has even begun letting co-development partner Broadcom sell its TPUs directly to some of its customers, giving it another high-margin revenue business.

With a nice chip advantage and the most complete AI stack of any company, Alphabet is a stock you want to own in this rally.

Geoffrey Seiler has positions in Advanced Micro Devices, Alphabet, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Broadcom, and Meta Platforms. The Motley Fool has a disclosure policy.