Artificial intelligence (AI) is already a huge growth driver for many technology companies and will likely be a catalyst for years to come. IDC research estimates that AI spending will be close to contributing $20 trillion for the global economy in 2030.
But which companies will benefit from the rise of AI in the next decade? This is why Nvidia (NASDAQ: NVDA) And Taiwanese semiconductor manufacturing (NYSE: TSM) should be on your shortlist of AI stocks.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
While many companies are currently benefiting from artificial intelligence, Nvidia has the potential to capitalize on this huge trend for many years to come. Nvidia’s GPUs have long been a top choice among tech companies needing the best chips for their data centers, with the company estimated to hold 70% to 95% of the AI processor market.
That lead gives Nvidia a healthy lead in the AI chip race, and the company continues to release new semiconductors to ensure it doesn’t become flat-footed. The latest version is the company’s Blackwell GPU for AI, which Nvidia CEO Jensen Huang said during the third-quarter earnings call was already in the hands of top customers and is 2.2x faster than its Hopper GPUs.
Huang is preparing his company for an unprecedented wave of investment in AI data centers, which he estimates will increase $2 trillion in the next five years.
The good news for investors is that it won’t be years before Nvidia can benefit from AI. In the company’s third quarter (ended October 27), revenue rose 94% to $35.1 billion, and non-GAAP (generally accepted accounting principles) profits rose 118% to $0.81 per share. Much of the company’s growth is already being driven by Nvidia’s data center segment, which saw a 112% increase in revenue to $30.8 billion in the quarter.
The one thing to note about Nvidia stock is that it isn’t cheap. The company’s shares currently have a price-to-earnings ratio of 54.5, higher than the S&P500‘S (SNPINDEX: ^GSPC) 30.6. But with AI spending on the rise and Nvidia leading the way with its GPUs, there’s likely more room for this tech giant.
Taiwan Semiconductor is a unique AI investor because the company does not develop advanced software or powerful processes. Instead, it produces the semiconductors used in the world’s most advanced data centers.
The company produces about 90% of the world’s most advanced processors, and business is booming. In the third quarter (ended September 30), the company reported revenues of $23.5 billion, up 36% from the same quarter last year, and a 54% increase in profit to $1.94 per American certificate (ADR) .
As with Nvidia, huge demand for AI chips will likely continue to drive Taiwan Semiconductor’s growth in the coming years. During the last earnings call, CEO CC Wei said, “Almost every AI innovator is working with us,” adding that his company is “…probably experiencing the deepest and broadest growth of anyone in this industry.” In short, as the $2 trillion in data center spending increases, Taiwan Semiconductor will become the leading supplier of all processors.
Although Taiwan Semiconductor’s shares are up about 97% in the last year (at the time of writing), they are not outrageously expensive, with a price-to-earnings ratio of just 29.5. Now is a good time to pick up shares of the chip maker as demand for AI semiconductors increases.
Consider the following before buying shares in Nvidia:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $889,433!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns December 2, 2024
Chris Neiger has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
2 Artificial Intelligence (AI) Stocks to Buy and Hold for the Next Decade was originally published by The Motley Fool
