Companies are prioritizing AI investments since this technology will shape the next decade. PwC predicts AI will be a game changer, contributing $15.7 trillion to the global economy. Most of this progress will come from productivity gains due to automation.
There are several ways to invest in AI. One can buy stocks of semiconductor companies supplying the chips required to build and train AI models. Another option is to consider the companies developing large language models. The third route is through the companies providing the compute and storage for LLMs and building AI applications on top of these models.
Each of the following companies is heavily involved in the AI race. They are monetizing their AI products and improving operations using AI. Hence, they are top AI stocks to buy.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is one of the cheapest AI stocks to buy now. That’s because the market has treated Google’s AI efforts with skepticism, which has led to undervaluation. Considering the over $100 billion of cash on its balance sheet and a forward price-to-earnings of 29.8, it’s a bargain.
Recent developments have revealed that Google is one of the leaders in AI and has many routes to profit from the technology. First, a Bloomberg report revealed that Apple (NASDAQ:AAPL) was considering Google’s AI model, Gemini, for some of its iPhone features. Already, Google has partnered with Samsung Electronics (OTCMKTS:SSNLF) to bring AI features to the Galaxy S24 series.
Another positive development was the AI announcements at Google Cloud Next 2024. At the event, it unveiled the in-house Axion chips to reduce its AI costs. This proves that Google is also innovating on the hardware side with its Tensor Processing Unit chips.
Furthermore, the company has a limitless number of clients and partners harnessing the power of generative AI. As such, the adoption of Gemini and generative AI-powered offerings will be an accelerant to Google Cloud’s growth.
Alphabet remains one of the best AI stocks to buy now. It has demonstrated a tight integration between its TPU chips, AI models, platform services and applications.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is up 23% year-to-date as of this writing. One reason for the rally has been the recognition that it’s one of the AI beneficiaries. Indeed, AI will significantly impact its retail operations and its cloud business, Amazon Web Services.
In the recently released shareholder letter, CEO Andy Jassy highlighted AI as a growth pillar. AWS addresses AI in three areas: building foundation models, leveraging foundation models and leveraging the application layers.
Through Amazon Bedrock, the company offers its own AI models and third-party models, such as Claude from Anthropic. The service also allows customers to build GenAI applications. Lastly, Amazon is also building its own AI applications to offer to customers.
In terms of retail, Amazon is using AI to improve operations in various ways. First, it’s applying AI to personalize the shopping experience and improve its recommendation engine. On the back end, it is using AI for inventory management and demand forecasting.
Amazon is Evercore ISI’s number one internet pick, and analyst Mark Mahaney sees upside to $220. Going forward, AI productivity enhancements will improve retail margins. Plus, AI innovation will spur an acceleration in AWS growth.
Taiwan Semiconductor Manufacturing (TSM)
As the undisputed leader in cutting-edge semiconductor manufacturing, Taiwan Semiconductor Manufacturing (NYSE:TSM) is one of the stocks on the this list. It is a pure foundry that doesn’t design chips. Regardless of who wins the AI chip wars, this technology giant will benefit.
Today, Taiwan Semiconductor has an over 60% market share in the foundry market. Notably, top AI leaders such as Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD), who are fabless semiconductor companies, rely on TSM’s manufacturing expertise. The company is seeing soaring demand and is expanding its capacity to meet it.
Revenues have improved significantly this year, boosted by AI orders. The latest March revenue report was another highlight, with revenues increasing by 7.5% month-over-month. On a year-over-year basis, growth was more impressive, up 34.3% from March 2023.
Due to its technology advantage and market share, Taiwan Semiconductor will remain one of the best AI stocks to buy at this moment. Its process technology leadership means no other competitor comes close. Moreover, Intel’s (NASDAQ:INTC) struggles in this area suggest that TSM will remain the main manufacturer of cutting-edge AI chips.
In terms of valuation, Taiwan Semiconductor is a bargain considering the tailwinds in AI. At 27 times forward earnings, TSM stock is one of the cheapest AI stocks to buy now.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.