But there may be a lot of growth left when it comes to investing in AI. The AI hardware and software market is expected to grow 40% to 55% annually through 2027, according to analysts at Bain.
While many stocks already have those high expectations built into the price, all three software and hardware makers offer the opportunity to buy into their companies at good value. Best of all, each share trades for around $200, making it accessible to anyone interested in getting started in AI stocks.
The biggest change to research over the past year is a new overview of artificial intelligence. If you’ve typed a question into a Google search box in the past few months, you’ve probably seen AI-generated answers with links to their sources.
The administration says that the new feature increases interaction and satisfaction among users, as they find that Google can answer more of their questions. Meanwhile, advances in AI over the past 18 months have enabled it to reduce the cost of using generative AI to answer those queries by 90%, enabling it to roll out the feature worldwide.
The company is also using its AI capabilities to offer new ways to search the web. One product, Circle to Search, allows users to circle words or images on a web page while browsing on their Android smartphones and start a search. Google Lens makes searching the web as simple as taking a photo. Both types of valuable research have increased, such as product discovery and shopping.
Meanwhile, Google Cloud, Alphabet’s cloud computing division, has seen significant revenue growth as developers leverage its computing for generative AI applications. Not only has revenue grown over the past two years, but it is now also generating significant operating profits for Alphabet. Google Cloud generated operating revenue of $1.9 billion last quarter, up from $270 million last year and a loss of $700 million in the third quarter of 2022.
Alphabet continues to innovate in the field of artificial intelligence. It launched the latest version of its large language model (Gemini 2.0) in December, along with model-based AI agents to help navigate the browser and debug computer code. Alphabet’s marketing and distribution capabilities give it an advantage in developing and deploying its AI-driven software.
With shares trading at $194 as of this writing, the stock looks like a great value. Despite analysts forecasting double-digit earnings growth in the coming years, it trades at just 22 times 2025 earnings forecasts. That’s a bargain compared to other AI stocks.
Qualcomm (NASDAQ:QCOM) It is best known for its wireless patents, which cover 3G, 4G and 5G connectivity. Each smartphone maker pays a license to Qualcomm to use its patents. These extremely high-margin revenues have helped fuel Qualcomm’s innovation in the chip industry, and are unlikely to change anytime soon.
Qualcomm makes chips for smartphones, from simple baseband chips that allow phones to connect to a wireless network to the all-in-one Snapdragon line, which includes an application processor with a baseband or modem array. You can find the Snapdragon chip in most high-end Android phones.
Until now, Qualcomm’s chips have had nothing to do with artificial intelligence. But this is starting to change. In 2024, Qualcomm will introduce a range of Snapdragon processors designed for Windows PCs with the goal of running AI inferences on the device. Keeping AI operations on-device ensures that user data remains private and allows users to take advantage of AI capabilities offline.
While adoption of so-called “AI PCs” powered by Qualcomm chips has been slow, it appears that more customers will likely demand on-device AI from their smartphones in the future. This requires advanced processors, such as Qualcomm’s Snapdragon. As a result, Qualcomm may end up having a larger share of the smartphone market over the next few years.
Meanwhile, Qualcomm also has a thriving automotive chip sector. As automotive computers become more complex and rely on fast on-device AI processing, Qualcomm could prove a valuable resource for automakers over the next few years. At its investor day in November, management said it had achieved a $45 billion design win in its automotive production line. For reference, this sector generated $2.9 billion in revenue during fiscal year 2024.
Qualcomm’s stock price of less than $160 makes it a great way to play out the future of on-device AI across smartphones and PCs, not to mention the huge potential in automotive. Analysts expect earnings to grow about 10% for each of the next two years, while shares trade at just 14 times forward earnings estimates. The potential for Qualcomm to expand its share across multiple devices makes it an attractive stock at this price.
Taiwan Semiconductor Manufacturing Company (NYSE: TSM)TSMC, also known as TSMC, is the world’s largest chip manufacturer. It contracts with the largest chip designers, including… Nvidia, appleand Broadcom To manufacture the most advanced AI chips on the market. It is a dominant force, controlling more than 60% of all spending on semiconductor foundries.
TSMC has a strong market share due to its advanced technological capabilities. Nvidia CEO Jensen Huang praised TSMC In September, he called it the best in the industry “by an incredible margin.” With its huge market share, TSMC should be able to maintain this technological advantage. This gives it much more money than its competitors to invest in developing the next generation of technology, creating a virtuous cycle.
TSMC has been a clear winner as demand for AI chips soars. Revenue rose 39% in the third quarter, and profits rose 54% as its margins expanded due to demand. Demand was mostly driven by AI-related chips, but strong orders for smartphones also helped move the needle. Q4 revenues are on track for 31% growth, as well as strong margins.
Investors should expect profit margins to shrink as TSMC rolls out its next generation of operations in late 2025. However, they should expand over time as the company scales up production, especially if demand for AI chips remains strong. As the need for advanced processing capabilities across devices grows, TSMC should be able to capture a larger share of semiconductor production over the next few years despite already occupying a dominant position. As such, revenues should grow faster than the industry as a whole.
At its current price of about $200, shares trade at about 23 times forward earnings. However, strong margins and rising revenues put analysts’ consensus estimates for 2025 earnings growth at 27%. While TSMC may not maintain this growth rate, it won’t go downhill from there very quickly as it remains a key piece of the puzzle in the continued advancement of artificial intelligence. With such strong growth potential, TSMC is a no-brainer at $200.
Have you ever felt like you’ve missed out on your most successful stock buying journey? Then you’ll want to hear this.
On rare occasions, our team of expert analysts issues a “Double Bottom” stock. Recommendation of companies they think are about to emerge. If you’re worried about missing your opportunity to actually invest, now is the best time to buy before it’s too late. The numbers speak for themselves:
-
Nvidia: If you invested $1,000 when we doubled your money in 2009, You will have $355,269!*
-
apple: If you invested $1,000 when we doubled your money in 2008, You will have $48,404!*
-
Netflix: If you invested $1,000 when we doubled your money in 2004, You will have $489,434!*
We are currently issuing “double” alerts for three amazing companies, and there may not be another opportunity like this anytime soon.
See 3 “double down” stocks »
*Stock Advisor returns as of December 23, 2024
Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Levy He has positions at Alphabet, Apple, Qualcomm, and Taiwan Semiconductor Manufacturing Company. The Motley Fool has positions in and recommends Alphabet, Apple, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has Disclosure policy.
3 Smart Artificial Intelligence (AI) Stocks You Can Buy for 2025 with $200 Now Originally published by The Motley Fool
