The U.S. stock market demonstrated remarkable resilience in 2024 despite challenges such as lingering inflation, high interest rates, macroeconomic uncertainties, and geopolitical tensions. Technology companies, particularly those connected to the artificial intelligence (AI) trend, provided much of the market’s lift. Not surprisingly, many AI stocks have soared to dizzying heights and now trade at unreasonable valuations.
However, there is still money to be made for astute investors if they know where to look. In my view, opening small positions in these two industry leaders could be a smart move now, despite how much their share prices appreciated in 2024.
Looking at Taiwan Semiconductor Manufacturing (NYSE: TSM) (aka TSMC), there is a lot to be excited about. Although it’s not among the flashy players designing and building fancy models and chatbots, it plays a critical role in the development of AI infrastructure.
As the world’s largest contract chip manufacturer, TSMC works with almost every major AI innovator in the world, including hyperscalers, chip designers such as Nvidia and Advanced Micro Devices, and consumer tech enterprises like Apple. Not surprisingly, management expects its revenue contribution from AI processors (including AI-optimized CPUs, GPUs, and accelerators) to more than triple in 2024, when it will account for a mid-teens percentage of its total revenue.
Management also believes that AI chip demand has much further to grow in the coming years. The analysts at Precedence Research agree, forecasting that the global AI hardware market will grow from $53.7 billion in 2023 to $473.5 billion in 2033.
TSMC has emerged as a dominant player in the advanced semiconductor manufacturing space. Advanced process nodes such as 3-nanometer (nm), 5nm, and 7nm accounted for 20%, 32%, and 17%, respectively, of TSMC’s wafer revenue in the third quarter. Furthermore, management is working on expanding production capacity for its next-generation 2nm chips, which it plans to roll out in late 2025.
Finally, TSMC is working to double its advanced chip packaging capacity to 70,000 wafers monthly in 2025 and 90,000 in 2026 — better positioning the company to capitalize on the surge in demand for AI-optimized chips.
Market research firm IDC expects the global semiconductor industry to grow by 15% and the international foundry market to grow by 20% in 2025. TSMC’s revenue is expected to grow at an even faster 25% in 2025. Despite this, TSMC is trading at just 10.5 times, trailing 12-month sales, a reasonable price considering its growth prospects.
As we enter into the new year of 2025, the world of artificial intelligence continues to advance at a rapid pace. With the increasing demand for AI technology across various industries, investing in AI stocks has become a lucrative opportunity for investors. Here are two monster AI stocks to consider buying in January 2025:
1. Alphabet Inc. (GOOGL):
Alphabet Inc., the parent company of Google, has been a leader in AI technology for years. With a strong focus on machine learning and advanced algorithms, Alphabet has been able to develop cutting-edge AI products and services that have revolutionized the way we interact with technology. From self-driving cars to smart home devices, Alphabet’s AI capabilities are unmatched in the industry. As the demand for AI continues to grow, Alphabet is well-positioned to capitalize on this trend and deliver strong returns for investors.
2. NVIDIA Corporation (NVDA):
NVIDIA Corporation is another top player in the AI industry, known for its powerful GPUs that are widely used for AI applications. NVIDIA’s GPUs are essential for training deep learning models and running complex AI algorithms, making them a crucial component in the AI ecosystem. With a strong track record of innovation and a solid market presence, NVIDIA is poised to benefit from the increasing adoption of AI technology in various sectors such as healthcare, autonomous vehicles, and gaming. Investing in NVIDIA offers a great opportunity to tap into the growing AI market and potentially achieve significant returns.
Overall, both Alphabet Inc. and NVIDIA Corporation are solid choices for investors looking to capitalize on the booming AI industry. As AI continues to reshape the way we live and work, these monster AI stocks are well-positioned to thrive and deliver strong growth in the years to come.
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- January 2025
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