The Rise of AI: Three Stocks Worth Considering

Artificial intelligence (AI) has had a colossal impact on the stock market over recent years. Many companies involved in AI have seen their stock prices soar due to substantial investments in AI infrastructure and an increase in interest from investors looking to capitalize on this technological wave. However, not all stocks have become prohibitively expensive. This article highlights three companies with stock prices around $200 that still represent good value for investors aiming to participate in the AI boom.

AI Market Growth Forecast

In the next few years, analysts predict explosive growth for the AI sector. According to insights from Bain & Company, the AI hardware and software market is expected to expand between 40% and 55% annually through 2027. With the potential for significant growth, savvy investors are keeping a close watch on companies that are leveraging AI technology without trading at excessive valuations.

Alphabet: A Leader in AI Integration

Innovative Core Products

Alphabet Inc. (GOOG), the parent company of Google, has effectively harnessed AI to enhance its existing products. Contrary to expectations that competition might undermine its business, Alphabet has integrated AI into the very core of its services. The latest feature, an AI-generated overview for search queries, has heightened engagement and user satisfaction significantly.

Users now encounter answers generated by AI that come with links to sources, showcasing the technology’s effectiveness. Remarkably, Alphabet has managed to reduce the costs associated with generative AI queries by 90%, allowing for a worldwide rollout of these services.

Expanding Cloud Services

Alphabet’s cloud computing division, Google Cloud, is playing a pivotal role in their revenue growth. Over the past two years, Google Cloud’s revenue has surged, generating $1.9 billion in operating income in the last quarter, a substantial increase from previous years. This growth has been primarily driven by developers tapping into Google’s infrastructure for AI applications, further promising a bright future for Alphabet’s AI-related endeavors.

Stock Valuation

Trading at approximately $194, Alphabet’s stock seems undervalued compared to the expected double-digit earnings growth in the coming years. With a price-to-earnings (P/E) ratio of just 22 based on 2025 earnings expectations, investors might find a solid opportunity with Alphabet as the company continues to innovate and expand within the AI space.

Qualcomm: Capitalizing on Connectivity

Foundation in Wireless Technology

Qualcomm (QCOM) is renowned for its pivotal role in mobile connectivity, holding patents essential for 3G, 4G, and 5G technologies. As smartphones increasingly integrate AI, Qualcomm’s foundation in wireless communications positions it well for future growth.

Advancements in On-Device AI

While traditionally more focused on telecommunications, Qualcomm has begun introducing Snapdragon processors designed to support on-device AI processing. This innovation allows smartphones to perform AI tasks without the need for a constant internet connection, ensuring user privacy and improving functionality.

Moreover, its emerging automotive chip segment shows significant promise. Qualcomm reported an impressive $45 billion in design wins for automotive technology, anticipating that more vehicles will require advanced processing capabilities to support AI functions in the coming years.

Attractive Pricing

With shares priced under $160, Qualcomm appears set to benefit from the growing demand for on-device AI in smartphones and the automotive industry. Analysts project earnings growth of about 10% annually for the next two years while trading at a P/E ratio of just 14 times forward earnings estimates, making it an appealing option for investors.

Taiwan Semiconductor Manufacturing: The Chip Powerhouse

Industry Dominance

Taiwan Semiconductor Manufacturing Company (TSMC), known as TSMC, holds a dominant position in the semiconductor market. As the largest chip manufacturer globally, TSMC provides chips for significant tech companies, including Nvidia and Apple. It captures over 60% of the semiconductor foundry market, thanks to its advanced technological capabilities.

Growth Driven by AI Demand

Recent financial results from TSMC showcase its ability to thrive amid soaring demand for AI chips, with a 39% increase in revenue and a 54% jump in earnings last quarter. Demand from both AI applications and strong orders for smartphones have fueled this growth, positioning TSMC favorably for the future.

Investment Potential

At around $200 per share, TSMC is trading at about 23 times forward earnings. Analysts anticipate a 27% growth rate in earnings for 2025, underscoring TSMC’s potential as a crucial player in the ongoing advancement of AI technology.

Key Takeaways

The intersection of increasing AI capabilities and market demand presents unique investment opportunities. Alphabet, Qualcomm, and TSMC represent three compelling options for investors looking to participate in the proliferation of AI technologies at fair valuations. Each company is uniquely positioned to benefit from the anticipated growth in the AI sector while offering accessible stock prices around $200.

In conclusion, the AI market is primed for expansion, and strategic investments in these companies might yield significant returns in the coming years. As technology continues to evolve, monitoring these key players may provide valuable insights for future investment opportunities.