3 AI Stocks to Buy Now That Midterms Are Over

Investors feared the worst after Democrats made big gains in midterm elections. Texas was a particular hot spot, since it's at the center of the AI boom. However, incoming Gov. Gina Hinojosa said that approved data centers can finish construction. In other words, the entire pipeline for 2027 and most of 2028 is safe.

She also proposed new requirements for future data centers, including paying more taxes and pledging not to raise consumer electricity rates. The conditions don't suggest a complete blockade, and that certainly bodes well for the AI trade.

These three AI stocks look poised to benefit the most as the clouds of midterm confusion vanish, and the bullish future becomes clearer.

Image source: Getty Images.

Penguin Solutions

Penguin Solutions (NASDAQ: PENG) specializes in memory products that are gaining traction in data centers. Hyperscalers are adopting CXL's memory products, which can help AI chips access memory more efficiently.

The company is already experiencing meaningful growth, and the recent correction has resulted in an appealing 19 P/E ratio. The stock is down by more than 50% from its all-time high but has still doubled year to date.

Recent revenue growth suggests it may not be long before Penguin Solutions reaches new highs. Sales surged by 68% year over year in the company's fiscal fourth quarter, with the integrated memory segment doing most of the heavy lifting.

The company won six new AI infrastructure data center customers in the fourth quarter, including four neocloud providers. The AI industry is growing rapidly, and Penguin Solutions appears to be working with some of the key players. As budgets expand for hyperscalers and neoclouds, Penguin Solutions should see its memory product sales soar.

Sandisk

Sandisk (NASDAQ: SNDK) captivated investors after surging by more than 4,000% in a single year, but the prolonged AI correction has taken a big bite out of those gains. It's still up by over 250% this year, and recent fundamental growth actually outpaced its year-to-date returns.

Sandisk's revenue jumped by 378% year over year in its fiscal 2027 first quarter. That 23% sequential boost in sales also came with a 73% net profit margin. Sandisk has tremendous pricing power for its NAND memory chips, which are essential for data centers.

The company told investors to expect higher revenue in its fiscal 2027 second quarter and also announced an 8-for-1 stock split. This stock split will not increase Sandisk's fundamental value, but it will make the stock more accessible to options traders, which can lead to higher volume and volatility. Sandisk also bought back $5 billion worth of stock in the quarter, increasing shareholder value in the process.

Alphabet

While Penguin Solutions and Sandisk operate on the hardware side of the trade, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) turns AI into tangible revenue. Gemini reached 1 billion users faster than any of Google's products, and Waymo continues to gain ground in the self-driving robotaxi race.

Revenue was 25% higher compared to the same period last year, with Google Cloud revenue continuing to accelerate. That part of the business more than doubled year over year and represents almost 20% of total sales.

The only thing that spooked investors was the company's $9.1 billion in negative net free cash flow during the third quarter. It's the second consecutive month of negative net free cash flow, but over the trailing 12 months, Alphabet has still generated $19.7 billion in positive free cash flow.

The company is going through some growing pains as the AI build-out proves expensive. However, this was the same approach that turned Google Cloud into a highly profitable growth engine. Alphabet only trades at a 15 P/E ratio thanks to the recent pullback.

Marc Guberti has positions in Penguin Solutions. The Motley Fool has positions in and recommends Alphabet and Penguin Solutions. The Motley Fool has a disclosure policy.