A surge in interest in artificial intelligence (AI) has been buoying the stock market for over a year now, thanks to OpenAI's launch of ChatGPT in November 2022.
Since then, a handful of early leaders in AI technology have risen to the highest levels. Chips drove artificial intelligence acceleration NvidiaThe company's stock has risen more than 410% in 16 months. Builder of high-performance computer systems Super micro computer It rose even faster with gains of 1,100% over the same period.
I understand if you're hesitant to buy shares in these high-flying AI stocks. What goes up doesn't necessarily have to go down quickly, but valuation risks are real.
Don't worry, though. There are many ways to capitalize on the AI boom without relying on the most obvious (and perhaps overvalued) products on the market.
Right now, I see deep value and exciting AI-driven growth in the next few years for parent company Google the alphabet (Gog 0.78%) (Google 0.77%) And the chip manufacturer Taiwan Semiconductor Manufacturing Co., Ltd (TSM -1.90%).
Taiwan Semiconductor: Delivering AI chips to a hungry world
The demand for AI-based computing power is growing dramatically. Taiwan Semiconductor Corporation, or TSMC for short, is at the heart of this technological transformation.
On a January Q4 earnings call, CEO CC Wei noted that more complex AI programs require more raw computing power, so demand for faster, more power-efficient chips should continue to rise over time. As a leading provider of advanced manufacturing technologies, Wei is poised to benefit from this tremendous increase in demand for years to come.
“TSMC's technology position value is growing, and we are all well-positioned to capture the bulk of the market in terms of AI semiconductor components,” Wei said.
Wei's analysis highlights TSMC's strategic position to make the most of the ongoing explosion in AI applications. Although its stock has performed decently, with a roughly 70% rise since November 2022, TSMC's critical role in enabling the next wave of AI developments suggests the stock has room to grow.
Every chip designer worth their salt wants to capitalize on the AI craze, and TSMC is here to turn its customers' visionary AI dreams into physical chips. For example, Nvidia is one of the company's most important clients. TSMC lets you invest in a company that is powering the future of technology, making it a wise behind-the-scenes choice amid the AI boom.
Alphabet: It's time to build on decades of AI's quiet leadership
Alphabet's commitment to integrating AI across its suite of advertising products underscores its strategic vision.
The senior leadership of parent company Google is clear about the transformative potential of artificial intelligence. On the Q4 call, Chief Business Officer Philipp Schindler emphasized the company's long-term commitment to AI-driven tools and platforms.
“AI has been at the heart of our advertising products for a very long time,” Schindler said. “The latest developments really allow us to deliver more value to advertisers across a wide range of different areas: bidding, targeting, creative, as well as core advertiser and publisher experiences.”
Alphabet's measured approach to AI integration should keep the company near the absolute top of consumer-facing online services for years to come. At the same time, the stock's modest gains during the AI boom suggest an underappreciated upside. Trading at a modest 23 times earnings with stock gains barely beating the broader market in the past 16 months, Alphabet shares aren't getting the AI-driven respect they deserve from market makers.
The company's innovations, particularly in making advanced AI tools accessible to a wide range of advertisers, position it to capitalize on the next wave of AI developments. For investors, Alphabet is not only keeping pace with the development of artificial intelligence, but actively leading it. The role of this company in the digital economy may become more important over time.
In other words, Alphabet today looks like an undervalued AI giant. Don't hesitate to take a serious look at this stock next time you have some investable money looking for a forever home.
Susan Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund has positions at Alphabet and Nvidia. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the Super Micro Computer. The Motley Fool has a disclosure policy.
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