The stock market has taken excitement about artificial intelligence (AI) to new heights. It’s not all hype; According to McKinsey, AI could add as much as $13 trillion to the global economy by 2030. Sure, some stocks have risen faster than others, so perhaps some stocks have become too expensive.
However, there are still top AI stocks worth buying today.
Here’s the investment talk for each.
AMD CEO Lisa Su predicted during her company’s Q3 earnings call that demand for AI chips will grow 60% annually to $500 billion by 2028. more than the size of the entire semiconductor industry in 2023. It seems safe to say that end markets worldwide, AI and otherwise, will need more and more chips.
As of this writing, Taiwan Semiconductor shares are trading at a price-to-earnings ratio of just under 28. At the same time, analysts estimate that the company’s profits will grow at an average annual rate of 31% over the next three to five years. That’s a PEG ratio of 0.9, indicating the stock is a buy for expected future growth.
So why are the shares so cheap? Taiwan is close to China, which claims it is part of its territory and has threatened to invade the country. This is a legitimate risk that investors should consider before purchasing the stock. That said, it’s impossible to know what will happen. A forceful invasion could trigger retaliation from the US and other countries due to Taiwan’s importance to the global chip supply chain. The U.S. and Taiwan Semiconductor have taken steps to reduce risks from China, including scaling back shipments of advanced AI chips to China and investing about $65 billion to build new foundries in Arizona.
Ultimately, Taiwan Semiconductor is too good a company to ignore at this valuation, even with the geopolitical noise surrounding it.
Jake Lerch (Tesla): My choice is Tesla.
Granted, most investors know Tesla as an electric vehicle company, but there’s more under the hood for those willing to look.
In its most recent quarter (the three months ending September 30), Tesla reported total revenue of $25.2 billion. About $20 billion, or 80% of the total, came from auto revenues. The remaining $5.2 billion was split almost equally between energy generation and storage ($2.4 billion) and services ($2.8 billion). These segments also grew significantly faster than Tesla’s automotive division:
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Business segment
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YOY sales growth rate
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Automotive
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2%
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Energy generation and storage
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52%
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|
Services and others
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29%
|
Data source: Tesla Quarterly Update Q3 2024. YOY = year over year.
Furthermore, as Tesla’s AI investments begin to pay off, AI will likely fuel the company’s growth.
Consider this: You could think of Tesla’s vehicles as more than just products; they can also be platforms. Teslas are equipped with multiple sensors designed to capture video and data and then transmit it to Tesla’s Dojo or Cortex supercomputers. Those systems can then analyze the data to continually improve what could become the company’s crown jewel: the Full Self-Driving (FSD) system.
If Tesla can develop truly autonomous FSD, the company’s market cap could increase by an order of magnitude – which is astonishing considering that Tesla is (at the time of writing) valued at over $1 trillion.
That’s to say nothing of Tesla’s other bets that rely on AI advances: the humanoid Optimus robot, robotaxis, and perhaps unimagined (or at least unrevealed) applications for its massive supercomputer clusters.
In other words: yes, Tesla is an AI company. What’s more, Ultimately, Tesla’s AI assets are so impressive that they could propel the company to unforeseen heights around the world. next decades. AI-oriented investors should take note.
Will Healy (Qualcomm): Of the major AI chip stocks, few appear to be better positioned for buyers than Qualcomm. It had become an afterthought for investors as the 5G upgrade cycle came to a close.
However, that changed thanks to AI, as smartphones equipped with the Snapdragon 8 Gen 3 or the Elite Mobile Platform chipsets delivered on-device AI to smartphone users. Moreover, Qualcomm has anticipated the day when smartphone usage would decline. So the company expanded into Internet of Things/industrial, automotive and PC chips.
In fact, the automotive segment was the fastest growing segment in fiscal 2024 (ending September 29), increasing revenue by 55%. Yet it only makes up just over 7% of the company’s revenue. For now, handsets represent 64% of the company’s revenue, and that segment’s revenue grew 10% annually amid an AI upgrade cycle.
It is true that Qualcomm’s mobile phone business is facing notable challenges and is in legal dispute with it Arm positionswhich Qualcomm depends on for some chip designs. The dispute dates back to 2019, though Qualcomm has continued to thrive despite that legal battle.
Furthermore, Apple has spent years trying to improve Qualcomm’s designs just to extend the supply agreement.
For the time being, Qualcomm is benefiting from an upcycle. In fiscal 2024, the company’s $39 billion in revenue rose 9%. However, in the fourth quarter, sales rose 18%, indicating that an upward movement in the cycle is beneficial for the company. Moreover, costs and expenses rose just 3%, allowing Qualcomm’s $10 billion net income for fiscal 2024 to be 40% higher than year-ago levels.
Amid this growth, Qualcomm is trading with a price-to-earnings ratio of around 18, well below other chip industry competitors. While the dispute with Arm poses some risk, Qualcomm’s diversification into other areas will make it difficult for such challenges to hinder long-term success.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
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Amazon: If you had invested $1,000 when we doubled in 2010, you would have $22,819!*
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Apple: If you had invested $1,000 when we doubled in 2008, you would have $42,611!*
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Netflix: If you had invested $1,000 when we doubled in 2004, you would have $444,355!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns November 11, 2024
Jake Lerch has positions in Nvidia and Tesla. Justin Pope has no position in any of the stocks mentioned. Will Healy has positions in Advanced Micro Devices and Qualcomm. The Motley Fool holds positions in and recommends Advanced Micro Devices, Apple, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has a disclosure policy.
The rise of artificial intelligence (AI) is not over yet. 3 AI Stocks to Buy Right Now. was originally published by The Motley Fool
