Artificial intelligence (AI) has created huge opportunities for technology companies as they use it to deliver new products and services. Goldman Sachs It is estimated that companies will pour $1 trillion into generative AI investments over the next few years as they effort to keep up with each other.
All this spending will propel some of the world’s leading AI companies forward, accelerating their growth in a boom that could continue for many more years. But what are the best companies to invest in now that the AI market is taking shape? Here are two AI shares He should be among your top contenders.
Broadcom (NASDAQ:AFGO) It is a major player in the AI market due to its application-specific integrated circuits (ASICs), many of which are now used in AI data center infrastructure. As companies expand their AI models, they need data centers capable of handling more complex processing. Tech giants including alphabet and dead They already rely on Broadcom hardware to help provide the processing power their AI programs require.
Broadcom’s top and bottom lines are already benefiting from this increased demand for advanced data center chips. Its sales increased 44% in fiscal 2024 to $51.5 billion, and its non-GAAP net income increased 29% to $23.7 billion. More specifically, the company’s AI revenue rose 220% to more than $12 billion.
There is likely to be more growth ahead for Broadcom as companies’ needs for AI processors increase. For example, in October, Broadcom reportedly began work on an AI chip design for the ChatGPT Open AI builder. Broadcom management said recently Earnings call Based on the roadmaps its large customers have already laid out, by 2027, it will have a serviceable and addressable market for custom AI accelerators and networking hardware in the range of $60 billion to $90 billion.
Broadcom is currently trading at a forward price-to-earnings ratio of 38.1, which is expensive compared to Standard & Poor’s 500Forward P/E ratio is 23.8. But with Broadcom already benefiting from demand for AI and with increased spending on the way, it likely still has more room to run.
Another angle you can take to invest in the AI trend is to buy stocks Taiwan Semiconductor Manufacturing Co., Ltd (NYSE: TSM)also called TSCM, makes an estimated 90% of the world’s most advanced chips.
This dominance has led to significant growth for the company in recent times. In the third quarter, its sales rose 39% to $23.5 billion and profits increased 54% to $1.94 per American depositary receipt (ADR). Many of the most important technology companies are using TSMC’s advanced manufacturing to make the best possible AI processors, leveraging its ability to produce 3nm process node chips – and its planned commercialization of 2nm process node chips in 2025.
If you’re skeptical about investing in an AI chip manufacturer rather than an AI software maker, consider this Nvidia CEO Jensen Huang, who has a lot of skin in the AI game as well, estimates that tech companies will spend $2 trillion over the next five years building AI data centers. Even if they come relatively close to this estimate, AI represents a huge opportunity for TSCM in the coming years.
Taiwan Semiconductor is currently trading at a forward P/E ratio of just 22.8, which is significantly cheaper than many of the company’s AI peers and also lower than the S&P 500 average. Between TSMC’s relatively cheap stock price and its leading position in chip manufacturing AI, adding its stocks to your portfolio now and holding them for the long term could be a smart move.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Chris Snow He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Goldman Sachs Group, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has Disclosure policy.
2 Best AI Stocks to Buy in January Originally published by The Motley Fool