The broad surge of interest in artificial intelligence (AI) has been boosting the stock market for more than a year now, stretching back to OpenAI's release of the ChatGPT chatbot in November 2022.
Since then, a handful of early leaders in AI technology have soared into the stratosphere. AI accelerator chips drove Nvidia's stock more than 410% higher in 16 months. High-performance computer systems builder Super Micro Computer rose even faster with a 1,100% gain over the same period.
I understand if you hesitate to buy shares in these skyrocketing AI stocks. What goes up must not necessarily come back down quickly, but the valuation risk is real.
Don't worry, though. There are many ways to tap into the AI boom without relying on the most obvious (and perhaps overvalued) market darlings.
Right now, I see deep value and exciting AI-driven growth in the next few years for Google parent Alphabet (GOOG 9.96%) (GOOGL 10.22%) and chip manufacturer Taiwan Semiconductor Manufacturing (TSM 1.26%).
Taiwan Semiconductor: Delivering AI chips to a hungry world
The demand for AI-driven computing power is skyrocketing. Taiwan Semiconductor, or TSMC for short, is at the heart of this technological shift.
In January's fourth-quarter earnings call, CEO C.C. Wei pointed out that more complex AI software requires more raw computing power, so the demand for faster and more energy-efficient chips should keep rising over time. As an industry-leading provider of advanced manufacturing technologies, Wei's company is poised to benefit from this massive demand surge for years to come.
"The value of TSMC's technology position is increasing, and we are all well positioned to capture the major portion of the market in terms of semiconductor components in AI," Wei said.
Wei's analysis highlights TSMC's strategic position to make the most of the ongoing explosion in AI applications. Although its stock performance has been decent, with a roughly 70% rise since November 2022, TSMC's crucial role in enabling the next wave of AI advancements suggests the stock has room to grow.
Every chip designer worth its silicon wants to tap into the AI frenzy, and TSMC is there to turn its clients' visionary AI dreams into physical chips. For example, Nvidia is one of the company's most important customers. TSMC lets you invest in a company that's powering the future of technology, making it a prudent behind-the-scenes choice amid the AI boom.
Alphabet: Time to cash in on decades of quiet AI leadership
Alphabet's commitment to integrating AI across its suite of advertising products underscores its strategic vision.
The Google parent's senior leadership is clear on AI's transformative potential. In its fourth-quarter call, Chief Business Officer Philipp Schindler emphasized the company's long-standing commitment to AI-driven tools and platforms.
"AI has been at the core of our advertising products for a very, very long time," Schindler said. "And the recent advances are really allowing us to drive more value for advertisers across a large range of different areas: bidding, targeting, creative, as well as our core advertiser and publisher experiences."
Alphabet's measured approach to AI integration should keep the company near the absolute top of consumer-facing online services for years to come. At the same time, the stock's modest gains during the AI surge suggest an underappreciated upside. Trading at a modest 23 times earnings with stock gains barely beating the broader market in the last 16 months, Alphabet's stock isn't getting the AI-based respect it deserves from market makers.
The company's innovations, particularly in making advanced AI tools accessible to a broader range of advertisers, position it to leverage the next wave of AI advancements. For investors, Alphabet is not just keeping pace with AI evolution but is actively leading it. This company's role in the digital economy could become even more indispensable over time.
In other words, Alphabet looks like an undervalued AI titan today. Don't hesitate to give this stock a serious look the next time you have some investable cash in search of a forever home.
