Investing for the Future: AI and Semiconductors Offer Strong Potential

Long-term investors can reap substantial rewards by holding shares in robust companies, especially in growth sectors. Buying and holding stocks allows investors to take advantage of market trends and benefit from long-term compounding.

For example, an investment of $1,000 in Amazon and Netflix five years ago has increased by 2.3x and 2.8x, respectively. These companies have capitalized on emerging trends in cloud computing, e-commerce, and video streaming. Looking ahead, investing in top artificial intelligence (AI) stocks over the next five years could prove to be a beneficial strategy, as this technology is rapidly advancing.

Considering where to invest $1,000 today? Our analysts have identified the 10 best stocks to consider right now. Learn More »

Let’s take a closer look at two leading AI companies poised for significant growth in the coming years.

1. Palantir Technologies: A Leader in AI Software

Palantir Technologies (NASDAQ: PLTR) is gaining attention in the AI software market, driven by the success of its Artificial Intelligence Platform (AIP). This platform enables businesses to build and deploy AI applications using large language models in real time.

Palantir reports that customers utilizing AIP have seen meaningful improvements. For instance, one insurance client automated its underwriting process, reducing response time from over two weeks to just three hours. TrinityRail, a rail transportation company, improved its bottom line by $30 million within three months of adopting AIP.

After deploying the platform, many customers expanded their use of Palantir’s offerings. During the November 2024 earnings call, the company discussed new growth:

A large American equipment rental company expanded its work with us less than eight months after converting to an enterprise agreement, increasing the account ARR twelvefold; a bottled water manufacturer, a specialty pharmaceutical company, and an agricultural software provider all signed seven-figure ACV deals less than two months after their initial boot camps.

These developments have boosted Palantir’s transaction sizes, customer base, and revenue potential. This can be seen in Palantir’s latest quarterly results. Following the release of its fourth-quarter 2024 results on February 4, the stock surged 22% in after-hours trading. The company’s revenue rose 36% year-over-year, with earnings growing 75%, aided by strong unit economics and a land-and-expand strategy.

Palantir signed 129 deals worth over $1 million, reflecting a 25% increase from the previous year. Additionally, the number of $10 million deals rose from 21 to 32 in the same timeframe, contributing to an adjusted operating margin that increased by 11 percentage points to 45% last quarter.

Looking ahead, the AI software market is expected to expand almost 5.5 times between 2023 and 2028, presenting an annual growth rate exceeding 40%. Notably, Palantir’s commercial revenue is outpacing overall market growth, indicative of its competitive positioning.

Despite a high valuation—trading at 80 times sales and 175 times forward earnings—investors may find reassurance in Palantir’s strong market presence and promising long-term growth potential.

2. Taiwan Semiconductor Manufacturing: Capitalizing on Chip Demand

Taiwan Semiconductor Manufacturing (NYSE: TSM), known as TSMC, leads the semiconductor foundry sector, producing chips for companies including Nvidia, AMD, and Qualcomm, as well as consumer tech giants like Sony and Apple. TSMC held an impressive 65% share of the global foundry market last year, far exceeding Samsung’s share of just 9.3%.

With such dominance, TSMC is well-positioned to benefit from the semiconductor market’s growth over the next five years. Industry forecasts estimate that the market could generate nearly $1.5 trillion in revenue by 2030, roughly double its 2022 size. AI will significantly drive this growth, with AI chip demand projected to rise at nearly 38% annually through the decade.

TSMC anticipates its revenue will grow at a compound annual growth rate of 20% over the next five years. Based on estimated $90 billion revenue in 2024, TSMC’s revenue could reach $224 billion in five years. This projected growth could result in substantial gains in the stock market, based on its average price-to-sales ratio of 9, suggesting a market cap over $2 billion, nearly double its current valuation.

TSMC’s market leadership enables it to charge premium prices for its advanced chips, a trend already in effect, as Apple’s payments to TSMC for chips have reportedly tripled over the last decade.

TSMC is manufacturing chips with cutting-edge technology, enhancing performance while lowering energy consumption. Analysts predict that TSMC’s earnings growth may outpace revenue growth in the coming years, leading to optimistic projections for its financial outlook.

Currently trading at a forward earnings ratio of 24, TSMC appears attractive, especially when compared to the Nasdaq-100’s forward earnings multiple of 27. Investing in TSMC stock for the long term may be a prudent decision given its strong market position.

Don’t Miss This Second Chance for Potential Investment

Have you ever felt like you missed the opportunity to invest in successful stocks? If so, you might want to consider this chance.

Our team occasionally issues a strong “Double Down” stock recommendation for companies that are poised for significant growth. If you’re anxious about missing an investment opportunity, now may be the time to act. Consider the numbers:

• Nvidia: A $1,000 investment made when we first recommended it in 2009 would now be worth $333,669!*
• Apple: $1,000 invested when we doubled down in 2008 would have grown to $44,168!*
• Netflix: A $1,000 investment from 2004 would now be worth $547,748!*

Currently, we are issuing “Double Down” alerts for three promising companies; another chance like this may not come soon.

Learn more »

*Stock Advisor returns as of February 3, 2025

John Mackey, former CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Harsh Chauhan holds no position in the mentioned stocks. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Netflix, Nvidia, Palantir Technologies, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

The views and opinions expressed herein do not necessarily reflect those of Nasdaq, Inc.