Thematic investing in artificial intelligence (AI) has become a focal point for many investors as we approach the end of 2025. Those who entered the market a few years ago have seen significant gains, while those who hesitated may feel a familiar pang of fear of missing out, or FOMO. As interest in AI stocks remains high, a pressing question arises: is it still possible to invest in AI stocks today, or has the opportunity passed? The answer is not straightforward and requires a careful examination of individual stocks rather than a blanket approach.
Investors are advised to steer clear of companies that capitalize on AI hype without a solid business foundation. One notable example is BigBear.AI, a company that ostensibly offers AI-powered decision-making software but has reported a 20% decline in year-over-year revenue, with earnings standing at only $33.1 million. This raises questions about how a business in the thriving AI sector can struggle financially. BigBear.AI’s minimal sales, poor margins, and negative cash flow suggest an unattractive investment, reinforcing the importance of scrutinizing valuation.
As the market continues to evolve, attention must shift to companies that exhibit viable business models but may currently be overvalued. For instance, Palantir Technologies, known for its enterprise analytics software, has demonstrated impressive growth with a 63% year-over-year revenue increase and a 33% operating margin. However, its current market capitalization of $433 billion may not reflect its future potential accurately, even if it maintains strong revenue growth. Investors should keep Palantir on their radar but consider waiting for a more favorable entry point.
Beyond speculative companies and overvalued stocks, a more prudent strategy involves identifying high-quality firms at reasonable prices. One stock that stands out is Amazon (AMZN), which has shown resilience even as its stock price remains relatively flat this year. The company is experiencing robust growth in its cloud computing division, Amazon Web Services (AWS), which has reported a 20% year-over-year revenue increase. Meanwhile, Amazon’s e-commerce segment is generating $100 billion in quarterly revenue in North America and continues to grow in double digits.
Amazon currently has a forward price-to-earnings ratio of 32, all the while investing in ambitious projects such as its Kuiper satellite internet initiative and the Amazon Alexa platform. Although its operating margin is a modest 11.5%, there are expectations for improvement in the coming years as the company potentially expands its operations in high-margin sectors like advertising and subscription services. With a trailing revenue of $691 billion and a market cap of $2.4 trillion, Amazon presents a compelling opportunity as a beneficiary of the ongoing AI revolution, positioning itself for strong returns over the next decade.
In summary, while thematic investing in AI stocks has shown substantial potential, it is crucial for investors to take a nuanced approach. Rather than broadly categorizing all AI-related stocks, focusing on specific companies with solid business models and reasonable valuations is essential. As the landscape continues to shift, those who exercise caution and diligence may find rewarding opportunities within the sector.
See also
University of Hawaiʻi AI Breakthrough Enhances 3D Mapping of Sun’s Magnetic Field
AI Platforms Set to Surpass Social Media as Major Advertising Destinations by 2026, Analyst Predicts
Nvidia Poised for Surge: Projected $20 EPS by 2030 Amid AI Infrastructure Boom
Amazon Pulls AI Recap from Fallout After Major Errors in Key Flashback Details
