With excitement surrounding powerful applications and explosive growth for a handful of technology stocks, 2023 will likely go down in history as a key flashpoint for the artificial intelligence (AI) revolution. But it's important to keep in mind that the transformative impact of AI is just beginning to unfold.
Artificial intelligence will have a far-reaching impact that unfolds in the decades to come, and investors who back the right players at this early stage in the game will likely score huge wins. If you're looking for AI stocks that still offer big long-term upside, read on for a look at two companies that have market-crushing potential.
1. Taiwan Semiconductor Manufacturing
AI applications and services are largely run and distributed through the cloud, but they still depend on semiconductor hardware that's concentrated in data centers. When it comes to the fabrication of high-performance chips, no company has a stronger position than Taiwan Semiconductor Manufacturing (TSM 1.26%), or TSMC as it's often called.
TSMC currently controls roughly 60% of the global market for contract semiconductor manufacturing. When it comes to manufacturing the kinds of high-end chips that are central to Nvidia's processors and other high-performance chips used for AI and accelerated computing, the fab leader's dominance is even more impressive. It controls more than 90% of the worldwide manufacturing market for the category.
The Taiwan-based company actually pioneered the dedicated-foundry business model, and it retains the forefront position in the space. While second-place fab company Samsung and third-place player Intel also have substantial foundry services, they also have their own design initiatives and ambitions. By contracting through TSMC, customers can rest assured that the company will keep the privacy of their designs under wraps and not attempt to integrate them into its own business ambitions.
What's more, TSMC has also earned a fantastic reputation when it comes to delivering semiconductors to customers on time and with very low defect rates. Given the adverse effects that supply chain disruptions and component failures can have on businesses, this has helped the company continue to be the first choice for most leading semiconductor design companies.
TSMC also pays a dividend and has never lowered its payout since it started returning cash to shareholders in 2004. The company's stock yields roughly 2% as of this writing.
2. Roblox
When most people think of AI stocks, Roblox (RBLX 1.35%) probably isn't a name that comes to mind. The company operates an online virtual world that houses a wide range of games and interactive experiences, and it's much more commonly associated with the metaverse trend.
But while AI has broadly replaced the metaverse as the hot topic on Wall Street, Roblox actually looks poised to benefit from both of these trends.
Roblox's platform allows users to create and monetize their own games and content. In the second quarter, the company paid out roughly $165 million to creators on its platform, up 16% year over year. Over the trailing 12-month period, the top 10 creators on its platform earned an average of $27 million each.
The company has started to roll out new AI content creation tools this year, and new capabilities across the platform could become a major performance driver.
With AI streamlining content creation and coding on Roblox, it's becoming easier and more efficient to make new experiences on the platform. The virtual world's ever-expanding breadth of content has been central to attracting new users and maintaining very high levels of engagement. As the platform continues to offer a wider range of experiences, it should be able to attract a wider user base and see improved monetization through in-game currency purchases and advertising.
But Roblox's AI opportunity isn't limited to the creator side of things. The platform also has the potential to become a hosting ground for generative AI applications that see very high levels of engagement with casual users.
The ability to generate text responses and images has already captivated the imaginations of millions of people around the world, but applying generative AI tech to interactive 3D objects has yet to take off in a similar way. Roblox has an opportunity to play a big role in changing that, and its potential to capitalize on artificial intelligence continues to be underappreciated.
