The Future of AI Investment: Two Stocks to Consider Now
Artificial intelligence (AI) is opening doors for technology companies as they innovate new products and services. Goldman Sachs projects that $1 trillion will be invested in generative AI over the next few years as companies strive to remain competitive.
This influx of funding will boost some of the top AI firms, driving growth that is expected to continue for many years. As investors look to capitalize on this evolving market, here are two AI stocks that deserve your attention.
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1. Broadcom: A Key Player in AI Hardware
Broadcom (NASDAQ: AVGO) stands out in the AI industry, particularly for its Application-Specific Integrated Circuits (ASICs), which are essential for AI data centers. As companies enhance their AI capacities, the demand for advanced data centers is on the rise. Major tech companies like Alphabet and Meta depend on Broadcom’s technology to support their powerful AI systems.
Broadcom is already reaping the rewards from the growing need for data center chips. In fiscal 2024, the company’s sales surged by 44% to $51.5 billion, while its non-GAAP net income rose by 29% to $23.7 billion. Notably, revenue from AI products skyrocketed by an impressive 220%, exceeding $12 billion.
Looking ahead, Broadcom anticipates further growth as the demand for AI processors continues to rise. Recently, the company began developing an AI chip for OpenAI, the creator of ChatGPT. Additionally, management forecasts that by 2027, the market for its custom AI accelerators and networking products could reach between $60 billion and $90 billion.
Broadcom’s forward price-to-earnings ratio sits at 38.1, a premium compared to the S&P 500‘s forward P/E ratio of 23.8. However, given its current benefits from AI investments and anticipated spending, it appears to have further growth potential.
2. Taiwan Semiconductor Manufacturing: The Chip Leader
Another viable option for tapping into the AI market is investing in Taiwan Semiconductor Manufacturing (NYSE: TSM), which produces about 90% of the world’s advanced chips.
This dominant position has fueled impressive growth for the company. In its latest quarter, sales increased by 39% to $23.5 billion, and earnings soared by 54% to $1.94 per American depositary receipt (ADR). Major tech firms are leveraging TSMC’s advanced manufacturing capabilities to create cutting-edge AI processors, including 3-nanometer chips, with plans for 2-nanometer chips by 2025.
If you’re hesitant about investing in a chip manufacturer rather than software directly, it’s noteworthy that Nvidia CEO Jensen Huang predicts tech companies will invest $2 trillion over the next five years in building AI data centers. Even a fraction of that projection indicates significant opportunities for TSMC.
Taiwan Semiconductor’s forward P/E ratio stands at 22.8, making it more affordable compared to many of its AI counterparts, as well as the S&P 500’s average ratio. This combined with its leadership in AI chip production suggests that acquiring its stock now may be a sound long-term strategy.
Is Broadcom a Smart Investment for $1,000?
Before deciding to purchase shares in Broadcom, consider the following:
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Randi Zuckerberg, a former Facebook executive and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board. Suzanne Frey, an executive at Alphabet, also serves on the board. Chris Neiger holds no positions in any stocks mentioned. The Motley Fool recommends Alphabet, Goldman Sachs Group, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing, as well as Broadcom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
