Investing in AI stocks has brought opportunity in a rapidly changing environment. The sudden appearance of DeepSeek’s models, which it created with older and less advanced processors, has lowered the cost of creating powerful artificial intelligence (AI) systems. While that may democratize the field, it likely also changed the value propositions of some AI stocks.
However, this does not mean that AI opportunities have disappeared. Instead, they have merely evolved, and amid this availability of lower-cost AI, investors should probably look to these three stocks in February.
The increased utility of lower-cost processors should play into the hands of Advanced Micro Devices (NASDAQ: AMD). Nvidia has led the way with AI accelerators since the beginning, and DeepSeek also built its models with Nvidia processors, albeit less advanced ones.
Nonetheless, Nvidia has competitors in that part of the market, and the leading peer is arguably AMD. Microsoft was already using AMD’s MI300X processors to power AI deployments despite Nvidia’s dominance. Now, with DeepSeek’s breakthrough likely to fuel demand for lower-cost chips, AMD’s processors are likely to attract more interest.
Another draw to AMD stock may be its valuation. It has lost half its value over the last year, probably due to underperformance in the gaming and embedded segments. Moreover, its 96 price-to-earnings ratio (P/E) is less attractive as many business segments recover from an industry slump.
Still, a forward P/E of 22 is an unusually low valuation for an AI chip stock, and with AI use set to increase, it may not stay that low for long.
Another semiconductor stock that could benefit from democratized AI is Qualcomm (NASDAQ: QCOM). Like all chip companies not named Nvidia, it scrambled to get AI-enabled chips to market, launching the Snapdragon 8 Gen 3 platform in the fall of 2023.
Qualcomm probably needed this catalyst. As the 5G upgrade cycle slowed down, Qualcomm’s revenue fell and the company focused more on its internet-of-things (IoT), automotive, and PC chips. Its new segments came about to prepare for a world less dependent on smartphones, and now, AI could enhance the functionality of these products as well.
However, the smartphone-centered handset segment remains Qualcomm’s largest revenue source. With the new AI-enabled chips, it could foster the next major upgrade cycle. In fact, that cycle may have begun to materialize as revenue growth has returned to single-digit levels.
Now, with DeepSeek’s efforts to democratize AI, that could finally be the catalyst needed for more customers to upgrade their phones. Furthermore, Qualcomm stock is selling for around 18 times earnings, and that low valuation could serve as the catalyst that boosts its stock price growth.
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