Here Are the 2 Best Artificial Intelligence Stocks to Buy in May—and 1 to Avoid

The AI revolution is reshaping the tech landscape, but not all stocks are poised to benefit equally. As of May 2025, market volatility, geopolitical tensions, and regulatory pressures have created winners and losers. Here’s how to navigate the sector:

1. Microsoft (MSFT): A Leader in AI Integration

Microsoft remains a cornerstone of the AI ecosystem, thanks to its deep ties to OpenAI and its relentless push to embed AI across products like Microsoft Copilot. While its Q1 2025 earnings saw a dip due to cloud growth constraints and canceled data center projects in the U.S. and Europe, the company’s long-term bets are paying off.

Why Buy Now?
- Copilot Growth: The AI-powered productivity tool is expanding into industries like healthcare and finance, with enterprise adoption accelerating.
- OpenAI Investment: The $14 billion partnership has positioned Microsoft as the primary cloud provider for cutting-edge models like OpenAI’s o1.
- Dividend Resilience: A consistent payout and share buybacks offer stability amid market swings.

2. Alphabet (GOOGL): Dominance in AI-Driven Growth

Alphabet’s Q1 results were a masterclass in AI-driven profitability. Revenue rose 12% year-over-year, fueled by Gemini 2.5’s integration into Google Search and YouTube, which boosted ad revenue. The company also announced a $70 billion share repurchase and a 5% dividend hike, signaling confidence in its AI roadmap.

Why Buy Now?
- AI-Enhanced Search: Users are spending more time on Google’s AI-powered search and ads, driving margins higher.
- Diversified Earnings: Cloud growth (19% revenue rise) and hardware sales (e.g., Pixel phones with Gemini AI) add stability.
- Global Reach: Alphabet’s scale allows it to invest in AI infrastructure without overextending, unlike smaller rivals.

1 to Avoid: NVIDIA (NVDA)

While NVIDIA is the king of AI chips today, its stock is facing headwinds. The company’s market cap plummeted by $100 billion in a single day after China’s DeepSeek-R-1 model slashed training costs for large AI models.

Why Avoid?
- Cost Competition: DeepSeek’s $5.6 million training cost for a model like o1—versus NVIDIA’s $500 million—threatens its premium pricing.
- Overcapacity Risks: Despite a $100 billion partnership with TSMC to boost U.S. chip production, demand volatility could leave factories underutilized.
- Regulatory Uncertainty: Geopolitical tensions over AI chip exports may limit growth in key markets like China.

Key Risks to Monitor

• Regulatory Scrutiny: AI ethics and data privacy laws (e.g., the EU’s AI Act) could slow adoption.
• Infrastructure Bottlenecks: While projects like the $500 billion Stargate data center initiative are bullish long-term, short-term overcapacity could hurt margins.
• Geopolitical Tensions: U.S.-China competition in AI and chipmaking may disrupt supply chains and pricing.

Conclusion: Focus on Resilience and Earnings Power

The AI sector is bifurcating: leaders with strong earnings growth and diversified AI applications (Microsoft, Alphabet) are outperforming those reliant on hardware alone (NVIDIA).

• Microsoft’s $14 billion OpenAI bet and Copilot’s enterprise traction justify its stock price of $435.28 (as of May 2).
• Alphabet’s 49% surge in adjusted EPS and its $170.5 billion revenue in 2024 underscore its dominance.
• NVIDIA, meanwhile, faces a reckoning as cost-efficient alternatives erode its moat.

For investors, prioritize companies with cash flows, diversified AI use cases, and regulatory agility. Smaller players like SoundHound AI (SOUN) (83% YoY revenue growth) or Innodata (INOD) (562% 12-month returns) offer high-risk, high-reward opportunities, but the safest bets remain the giants that can weather storms.

In a sector as volatile as AI, sticking with the companies that turn innovation into profits—not just headlines—is the way to win.