Nvidia (NASDAQ: NVDA) is often seen as the poster child of the artificial intelligence (AI) investment movement, and for good reason: It's been a stellar performer in 2023. However, it has a lot of expectations built into the stock and is quite expensive compared to other promising investments.
So, instead of Nvidia, take a look at these other three stocks as potential portfolio-changing AI investments.
1. Alphabet
Alphabet (GOOG 9.96%) (GOOGL 10.22%) is Google's parent company and has several investments within the AI space. However, it will see the most benefit in its Google Cloud division. Cloud computing is a great way for companies to develop AI models, as they can rent the computing resources rather than purchase them themselves. With Google Cloud specialized for many AI models (70% of generative AI companies valued over $1 billion use Google Cloud), it's a logical choice compared to others.
However, cloud computing is just a small part of the Alphabet investing thesis, comprising only 11% of revenue. The main part of investing in Alphabet is its advertising business, which is just starting to turn around now that the economic outlook is improving. It grew 9% in Q3, a significant acceleration from previous quarters.
This helped power Alphabet's earnings per share (EPS) figure to a new all-time high.
GOOGL EPS Basic (Quarterly) data by YCharts. EPS = earnings per share.
Alphabet is just hitting its stride, and with AI and its primary business starting to hit their stride as well, it makes for a much better investment than Nvidia right now.
2. Airbnb
Airbnb (ABNB 0.75%) doesn't seem like an AI stock, but its recent acquisition says otherwise. Airbnb acquired GamePlanner.AI, a company founded by the creators of Siri and Bixby. This adds to Airbnb's other AI tools it already uses on its platform, making it a backdoor AI investment.Before this acquisition, Airbnb was using AI to determine if a house was being rented out for parties, which is against its policies. Additionally, Airbnb's CEO and co-founder Brian Chesky stated earlier this year that "The Holy Grail is becoming more like an AI travel agent that's the ultimate agent that can learn about you, and understand you."
If Airbnb can become the go-to AI travel agent, it will become a huge success.
But even though the stock isn't usually seen in this light, it makes for a fantastic buy right now. It grew revenue by 18% in Q3 and posted an impressive 44% free-cash-flow (FCF) margin. Airbnb is truly one of the top executing companies right now, but it can be had at a bargain-bin price.
ABNB Price to Free Cash Flow data by YCharts.
At 20 times free cash flow, Airbnb stock is cheaply priced compared to many AI stocks. It also marks a diverse way to invest in AI with Airbnb's focus on travel.
3. Taiwan Semiconductor
At the heart of nearly every high-power chip that powers graphics processing units (GPUs), smartphones, or other high-technology devices is a chip from Taiwan Semiconductor (TSM 1.26%). Its best-in-class technology powers products made by Apple, Nvidia, and others, making Taiwan Semiconductor vital in the AI supply chain.
In 2023, Taiwan Semiconductor experienced a downturn in chip demand because of falling demand for consumer electronics. Because inventory for chips that power these devices is almost depleted, management has noted orders have started to pick up, which bodes well for 2024. Throw in increasing AI demand, and Taiwan Semiconductor looks primed for a great 2024.
Despite such a bright outlook, the stock trades at a historically low price-to-earnings (P/E) ratio.
TSM PE Ratio data by YCharts. PE Ratio = price-to-earnings ratio.
Taiwan Semiconductor is a great way to invest in high technology without picking a specific winner. With its new 3-nanometer chip technology finally starting to contribute to revenue (6% of revenue in Q3), 2024's financials should be further bolstered.
While Nvidia as a company may be leading the AI revolution, I'm less bullish on the stock due to its high valuation. I think Alphabet, Airbnb, and Taiwan Semiconductor each make for better ways to invest in AI right now, as all companies will still be successful regardless of how much AI changes the world.
