Key Takeaways
- Investors are underestimating the growth potential of leading tech companies, particularly in the AI sector
- Nvidia and Meta Platforms are two top AI stocks that are trading at reasonable valuations and can outperform the S&P 500 in 2026
- Nvidia’s dominant position in AI chips and Meta’s massive user base and AI capabilities position them for long-term growth
- Both companies are investing heavily in AI technology and have strong profit margins, making them attractive investment opportunities
- Analysts forecast significant earnings growth for both companies, with Nvidia’s earnings expected to increase by 57% and Meta’s revenue expected to grow by 21%
Introduction to AI Stocks
The AI sector has been a sweet spot for investors in recent years, with the S&P 500 returning 18% last year and the "Magnificent Seven" tech companies making up 34% of the index. This marks three consecutive years of double-digit gains, driven by the growing adoption of AI technology. As noted in the article, "Demand for AI chips remains incredibly high as we enter the new year. Larger AI models are requiring increasing amounts of computing power, and this demand is expected to grow as agentic AI and other advanced computing systems gain adoption." This trend is expected to continue, with leading tech companies like Nvidia and Meta Platforms well-positioned to benefit.
Nvidia’s Growth Potential
Nvidia is a dominant supplier of AI chips, and its prospects are looking strong. The company’s revenue increased 22% over the previous quarter, reaching $57 billion, with sales to data centers being the predominant driver. As the article states, "Nvidia’s lead in graphics processing units (GPUs) is also evident by its stellar profitability. The company’s adjusted operating profit grew 25% over the previous quarter, reaching nearly $38 billion, representing a lucrative margin on its revenue." Nvidia’s strong growth and profitability make its stock look like a steal, trading at just 25 times this year’s earnings forecasts. The company’s Vera Rubin AI platform, which is powered by seven chips, is expected to drive demand for advanced chips and position Nvidia for more growth.
Meta Platforms’ Competitive Advantage
Meta Platforms is another top AI stock that is trading at a reasonable valuation. The company boasts more than 3.5 billion daily active users across its social media platforms, including Instagram and Facebook. This massive user base provides a significant competitive advantage, positioning Meta for profitable growth. As the article notes, "Meta spent $62 billion on capital expenditures over the last year, which is being allocated toward data centers and other technologies to support its services. It monetizes its AI capabilities by delivering more relevant recommendations to users, driving growth in advertising revenue." Meta’s Meta AI feature has more than 1 billion monthly active users, and the company is investing aggressively in AI technology while returning cash to shareholders in dividends and share repurchases.
Growth Prospects and Valuation
Both Nvidia and Meta Platforms have strong growth prospects, with analysts forecasting significant earnings growth for both companies. Nvidia’s earnings are expected to increase by 57% this year, while Meta’s revenue is expected to grow by 21%. Despite this, both companies are trading at reasonable valuations, with Nvidia’s stock trading at 25 times this year’s earnings forecasts and Meta’s stock trading at 21 times 2026 earnings estimates. As the article states, "If Meta trades at a valuation comparable to Alphabet, the stock could rise 38% in 2026 — enough to potentially outperform the S&P 500." This makes both companies attractive investment opportunities for investors looking to capitalize on the growth potential of the AI sector.
Conclusion
In conclusion, Nvidia and Meta Platforms are two top AI stocks that are trading at reasonable valuations and can outperform the S&P 500 in 2026. Their dominant positions in the AI sector, strong profit margins, and significant growth prospects make them attractive investment opportunities. As the article notes, "Profitable growth makes Nvidia’s stock look like a steal, trading at just 25 times this year’s earnings forecasts on Wall Street." With the AI sector expected to continue growing in the coming years, investors would be wise to consider adding these companies to their portfolios.
https://www.fool.com/investing/2026/01/17/2-artificial-intelligence-ai-stocks-that-can-beat/