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 invest $1 trillion in generative AI investments in the next few years in an effort 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 years. But which would be the best to invest in now as the AI market takes shape? Here are two AI shares which should be among your top candidates.
Broadcom (NASDAQ: AVGO) is a major player in the artificial intelligence market for its application-specific integrated circuits (ASICs), many of which are now used in artificial intelligence data center infrastructure. As companies expand artificial intelligence models, they need data centers that can handle increasingly sophisticated processing. Tech giants including Alphabet and Target they already rely on Broadcom’s hardware to provide the processing power required by their AI software.
Broadcom’s top and bottom lines are already benefiting from this increased demand for advanced data center chips. Its sales rose 44% in fiscal 2024 to $51.5 billion, and GAAP net income rose 29% to $23.7 billion. Specifically, the company’s AI revenue grew 220% to more than $12 billion.
Broadcom likely expects more growth as companies’ needs for AI processors increase. For example, in October Broadcom reportedly began working on an AI chip design for Open AI creator ChatGPT. And Broadcom management said the latest earnings call that based on plans already in place by its large customers, it will have a serviceable addressable market for its custom AI accelerators and networking hardware in the $60-90 billion range by 2027.
Broadcom is currently trading at a forward price-to-earnings ratio of 38.1, which is admittedly quite expensive compared to S&P 500forward P/E ratio of 23.8. But with Broadcom already benefiting from AI demand and higher spending on the way, it likely still has room to run.
Another angle from which you can start investing in the AI trend is to buy stocks Taiwanese semiconductor manufacturing (NYSE: TSM)also called TSCM, which produces about 90% of the world’s most advanced chips.
This dominance has recently led to significant growth for the company. In the third quarter, its sales rose 39% to $23.5 billion, and earnings rose 54% to $1.94 per American depositary receipt (ADR). Many of the most important technology companies use TSMC’s advanced manufacturing to make the best possible AI processors, using its ability to produce 3-nanometer (nm) process node chips — and its planned commercialization of 2nm process node chips in 2025.
