As the world becomes increasingly reliant on artificial intelligence (AI), investors are constantly on the lookout for the best AI stocks to add to their portfolios.
The AI revolution is changing industries and creating new opportunities for growth, so savvy investors need to stay on top of what's going on. Today, I'll highlight three top AI stocks you should consider buying in May. These companies continue to innovate, transform markets, and position themselves at the forefront of this technological wave.
IBM: AI is elementary, my dear Watson
The ultimate tech veteran IBM (IBM 0.16%) has long been a pioneer in the field of artificial intelligence. Its Deep Blue supercomputer was the first machine to beat a human world champion in a serious chess match, and that was 26 years ago -- ancient history in the fast-moving tech industry. The company is not resting on its laurels, providing a rich array of AI tools and services under the Watson umbrella.
Watson is like the Swiss Army knife of AI, catering to a wide range of industries and use cases. Its natural language processing capabilities make it the perfect companion for businesses looking to streamline operations, boost productivity, and simplify processes.
So, while IBM might be a seasoned veteran in the tech industry, it's clear that the company still knows how to jam in the fast-paced world of AI. With Watson leading the charge, IBM is proving that you don't have to be a newcomer to make waves in the artificial intelligence arena.
The stock has been trading down recently, underperforming the S&P 500 index over the last month, year-to-date, and in the past 52 weeks. But hey, one person's frown is another's buying opportunity, right? With a forward PE ratio of 12.3 and a trailing P/S of 1.9, Big Blue is looking more like a "bargain bin bonanza" than an "overpriced overachiever."
Alphabet: uniting Google Brain and DeepMind to boost AI powers
Alphabet (GOOG 1.25%) (GOOGL 1.27%), the parent company of Google, recently announced plans to simplify its AI research units, Google Brain and DeepMind. The two groups are being combined into a single division. This new division will be led by DeepMind CEO Demis Hassabis, and Alphabet CEO Sundar Pichai stated that the merge aims to ensure "bold and responsible development of general AI".
By joining forces, the teams that have previously delivered high-profile projects, such as the transformer technology which formed the foundation of some of OpenAI's work, are now focused on "multimodal" AI in the style of OpenAI's latest and greatest model, GPT-4.
This move comes as Alphabet faces increasing pressure from Wall Street to maintain its lead in the fast-moving AI race, with concerns that the company might fall behind other tech titans in AI technology. The simpler and more unified operating structure for Google's AI development teams could bring out synergies that weren't obvious when DeepMind and Google Brain operate in separate silos. And I believe we'll hear much more about Alphabet's existing in-house AI tools as they're transformed into consumer-friendly user experiences.
This is not a deep-discount value investment, but a suggestion to grab this hot growth stock before it takes off again. Alphabet's stock has traded essentially sideways in the past 30 days but has gained 20% year-to-date, reflecting the market's optimism for the company's ongoing AI initiatives.
Taiwan Semiconductor: orchestrating the AI evolution
Microchip manufacturer Taiwan Semiconductor Manufacturing (TSM 2.84%) is diligently fine-tuning its semiconductor expertise to serve the burgeoning demand for AI technology. As the AI landscape evolves, TSMC is ready to support the market's shift from focusing primarily on training AI models today to eventually providing better and faster AI models in the field.
Either way, AI service providers will need lots of high-performance processors in order to deliver on the evolving AI trend's promises.
CEO CC Wei acknowledges the potential growth AI brings to TSMC's business, but it's more of a cautious optimism than an all-out AI bonanza so far. In last month's earnings call, Wei said, "It's too early to say. It still continues to be developed. And [AI] right now reinforces the already strong conviction that we have in high-performance computing and AI as a structural megatrend for TSMC's business growth in the future."
With AI applications like ChatGPT gaining traction, TSMC's ability to provide high-speed, energy-efficient semiconductor components is more important than ever. It's too early to nail down the exact impact AI will have on TSMC's business, but it's obviously an important driver of future business growth.
It seems to me that Wei wants to err on the side of caution, and that TSMC's AI-based business probably supports stronger order flows than the company's modest guidance might suggest. In other words, analysts and investors are most likely basing their long-term value projections on overly modest guidance targets right now. Therefore, Taiwan Semi strikes me as an undervalued AI stock right now.
