2 Unstoppable Artificial Intelligence (AI) Stocks to Buy Hand Over Fist in 2025 and 1 to Avoid

Market Performance and AI Impact - Wall Street's major indices, including the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, gained 13%, 23%, and 29% respectively in 2024, hitting multiple record highs [1] - Artificial intelligence (AI) has been the primary driver behind the surge in stock valuations, with its ability to enable software and systems to make split-second decisions without human intervention [2] - As AI's practical applications become more prominent in 2025, some AI stocks are expected to outperform while others may underperform [3] Top AI Stock to Buy: Alphabet - Alphabet (GOOGL, GOOG) is highlighted as the most attractive AI stock for 2025, with its diverse portfolio including Google, YouTube, and Google Cloud [4] - Google Cloud, the third-largest cloud infrastructure service platform globally, saw a 35% surge in sales to $11.4 billion in the September-ended quarter, driven by generative AI solutions and large language model (LLM) capabilities [5] - Alphabet is also developing tensor processing units and the Trillium chip for LLM training and machine learning, offering cost-effective alternatives to Nvidia's chips [6] - Google maintains a dominant 90$93.2 billion in cash, cash equivalents, and marketable securities, enabling aggressive stock repurchases and boosting earnings per share (EPS) [8] - With a forward price-to-earnings (P/E) ratio of 21 and sustained double-digit annual EPS growth potential, Alphabet's valuation remains compelling [9] Top AI Stock to Buy: Alibaba Group - Alibaba Group (BABA) is another standout AI stock for 2025, despite the risks associated with China's regulatory environment and U.S.-China trade relations [10][11] - Alibaba Cloud, the leading cloud infrastructure service provider in China with a 36% market share, is expected to drive growth through generative AI solutions [12] - Alibaba's e-commerce platforms, Taobao and Tmall, account for over half of China's online retail sales, benefiting from the country's growing middle class [13] - Alibaba's strong balance sheet, with over $33 billion in net cash, supports stock repurchases and investments in high-growth initiatives [14] - With a forward P/E of 9, Alibaba's valuation stands out in the historically expensive U.S. stock market [14] AI Stock to Avoid: Palantir Technologies - Palantir Technologies (PLTR) is identified as an AI stock to avoid in 2025, despite its shares surging 1,080% over the past two years [15] - Palantir's AI-powered Gotham platform, used by federal governments, and its Foundry service for businesses are unique and difficult to replicate at scale [16][17] - The company has achieved recurring profitability, driven by long-term government contracts and steady double-digit sales growth [18] - However, Palantir's valuation is unsustainable, with a price-to-sales (P/S) ratio of 68, decelerating sales growth, and over a third of net income coming from interest on cash [19] - The limited long-term growth potential of the Gotham platform, restricted to the U.S. and its allies, further undermines Palantir's valuation [20]