Artificial intelligence (AI) has been a hot topic lately, and for good reason. Tremendous breakthroughs are occurring at an incredible pace, and the rise of AI technologies is poised to transform business and everyday life.
If developments continue on their current trajectory, AI will almost certainly go on to be this century's most revolutionary tech trend. With that in mind, read on for a look at two stocks that can help you profit from the rise of AI.
Image source: Getty Images.
1. Taiwan Semiconductor Manufacturing
AI is naturally thought of as a largely software-focused field. But powerful chips are needed for AI applications even in the age of cloud computing. Semiconductors are central to the data-storing and processing needs of the AI and big-data revolutions, and no company plays a more important role in the chip industry than Taiwan Semiconductor Manufacturing (TSM 1.61%).
TSMC is the world's leading provider of semiconductor fabrication services. When leading chip companies including Nvidia and AMD need to have their designs turned into actual hardware, they turn to Taiwan Semiconductor for the manufacturing process.
While the semiconductor industry has historically been impacted by cyclical demand, the rise of AI and increased need for chips to power data centers, automobiles, and other products and services is shortening downturns and moving the chip market closer to secular growth.
Revenue rose 26.7% year over year in the fourth quarter to $19.93 billion, and the company posted an impressive 47.3% net profit margin in the period. Despite macroeconomic headwinds and the waning of some pandemic-driven demand, TSMC has seen revenue increase 13.8% annually across the first two months of 2023.
Growth will likely continue to slow from there as the year progresses, but the company overall looks to be in rock-solid shape, and there are signs demand will be stronger in 2024.
TSM PE ratio (forward) data by YCharts. PE = price to earnings.
With TSMC trading at less than 17 times expected forward earnings and paying a dividend yielding roughly 2.1%, the stock looks like a great pick-and-shovel play for investors on the hunt for AI stocks. The chip fabrication leader will continue playing an essential role in pushing AI technologies forward, and its attractive valuation profile opens the door for big returns on shares purchased at today's prices.
2. CrowdStrike
AI has the potential to improve almost every industry under the sun, but it also has the potential to be abused by bad actors. Artificial intelligence is already being used by cybercriminals to carry out attacks, and the rise of AI-powered cyberthreats will only increase the potential for damaging outcomes as these technologies continue to advance. Thankfully, CrowdStrike Holdings (CRWD -1.12%) is providing tools that can help to stem the rising tide of cyberthreats, and its own AI technologies are capable of evolving to meet new dangers.
CrowdStrike's AI-enhanced Falcon platform provides a suite of modules that help ensure computers, mobile devices, servers, and other hardware can't be used to attack networks. The Falcon software learns and adapts with each new threat it comes into contact with, and the platform's ability to reuse data many times after it's been collected creates a powerful network effect. When one customer is attacked with a novel approach, other customers benefit from the detection of that threat and will be better immunized.
Successfully breaching networks has never been more lucrative for cybercriminals, and CrowdStrike is attracting new customers and building relationships with existing clients amid the growing number of attacks. Last quarter, it posted a dollar-based net revenue retention rate of 125%, which means that customers spent 25% more on the company's services than in the prior-year period.
Powered by its dual growth engines and strong net revenue retention, CrowdStrike grew sales 54% annually last year.
Despite very strong business performance, the stock trades far down from its high due to macroeconomic pressures shaping the broader market. The share price has fallen roughly 53% from the peak that it reached in November 2021, but the pullback presents a worthwhile buying opportunity for investors.
CrowdStrike is at the forefront of AI-powered cybersecurity services, and it's poised to benefit from incredible long-term demand tailwinds.
