Artificial intelligence (AI) has created enormous opportunities for technology companies as they use it to offer new products and services. Goldman Sachs estimates that companies will invest $1 trillion in generative AI investments over the next few years in their efforts to keep up with each other.
All that spending will boost some of the world’s leading AI companies, accelerating their growth in a boom that could last for many years to come. But which ones would be better to invest in now that the AI market is taking shape? Here are two AI stocks that should be among your top contenders.
Broadcom (NASDAQ:AVGO) is a major player in the AI market due to its application-specific integrated circuits (ASICs), many of which are now used in AI data center infrastructure. As companies expand AI models, they need data centers capable of handling increasingly sophisticated processing. Technology giants included Alphabet and Goal They already rely on Broadcom hardware to help provide the processing power their AI software demands.
Broadcom’s revenue and results are already benefiting from this increased demand for advanced data center chips. Its sales rose 44% in its fiscal 2024 year to $51.5 billion, and its non-GAAP net income rose 29% to $23.7 billion. More specifically, the company’s AI revenue increased 220% to more than $12 billion.
Broadcom likely has more growth ahead as companies’ needs for AI processors increase. For example, in October, Broadcom reportedly began work to design an artificial intelligence chip for ChatGPT creator Open AI. And Broadcom management said on the most recent earnings conference call that, based on the roadmaps its big customers have already laid out, by 2027, it will have a useful market for its custom AI accelerators and networking hardware in the range of $60 billion to $90 billion. .
Broadcom is currently trading with a Forward P/E ratio of 38.1, which is certainly quite expensive compared to the S&P 500The forward P/E ratio of 23.8. But with Broadcom already benefiting from AI demand and with more spending on the way, it likely still has more room to run.
Another angle you can take when investing in the AI trend is to buy shares of Semiconductor manufacturing in Taiwan (NYSE: TSM)also called TSCM, which manufactures approximately 90% of the world’s most advanced chips.
That dominance has led to significant growth for the company recently. In the third quarter, its sales increased 39% to $23.5 billion and its profits increased 54% to $1.94 per American Depository Receipt (ADR). Many of the largest technology companies are using TSMC’s advanced manufacturing to make the best possible AI processors, leveraging its ability to produce 3 nanometer (nm) process node chips and its planned commercialization of process node chips 2nm in 2025.