Artificial intelligence (AI) has created huge opportunities for technology companies as they use it to offer new products and services. Goldman Sachs estimates that companies will pour $1 trillion into productive AI investments over the next few years in their efforts to keep up with each other.
All that spending will propel some of the world's leading AI companies forward, accelerating their growth in a surge that could last for many more years. But which would be the best to invest in now as the AI market develops? Here are two AI stocks that should be among your main competitors.
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 that can handle increasingly sophisticated processing. Tech giants included Alphabet a Meta already rely on Broadcom hardware to help provide the processing power their AI software requires.
Broadcom's top and bottom lines are already benefiting from this increased demand for advanced data center chips. Its sales increased 44% in its fiscal 2024 to $51.5 billion, and its non-GAAP net income increased 29% to $23.7 billion. More specifically, the company's AI revenue increased 220% to more than $12 billion.
More growth is likely ahead for Broadcom as companies' needs for AI processors increase. For example, in October, Broadcom reportedly began working to design an AI chip for ChatGPT Open AI creator. And Broadcom management said on the latest earnings call based on the roadmaps that its major clients have already identified, by 2027, it will have a useful and addressable market for its custom AI accelerators and networking hardware in the range of $60 billion to $90 billion.
Broadcom is currently trading at a forward price-to-earnings ratio of 38.1, which is admittedly quite expensive compared to the S&P 500forward 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 on investing in the AI trend is to buy shares of Taiwan Semiconductor Manufacturing (NYSE: TSM)also known as TSCM, which produces an estimated 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 earnings rose 54% to $1.94 per American depositary receipt (ADR). Many of technology's most important companies are using TSMC's advanced manufacturing to make the best possible AI processors, taking advantage of its ability to produce 3-nanometer (nm) process node chips – and its planned commercialization of 2nm process node chips in 2025.