To say that artificial intelligence (AI) has taken the tech world by storm would be an understatement. Although AI technology has been around for decades, the popularity of OpenAI's ChatGPT and other generative AI tools has catapulted the technology into the mainstream.
With AI's newfound popularity, companies are rushing to capitalize and spending billions to ensure they're not left behind in what some think will be the biggest technological development since the introduction of the internet. For investors who are interested in getting exposure to this exploding trend, the following three companies are great options.
1. Microsoft
Microsoft (MSFT -0.82%) is one of a handful of companies that have seen their valuation explode along with the AI hype. With a market capitalization of over $3.1 trillion, Microsoft is the world's most valuable public company.
The tech giant has invested billions in OpenAI and formed a strategic partnership that benefits both parties. Azure, Microsoft's cloud platform, is OpenAI's computing platform and infrastructure, giving it the supercomputing capabilities it needs to train and deploy its models.
In return, Microsoft gets exclusive licenses to OpenAI's large language models (LLMs). With access to OpenAI's LLMs (arguably some of the best available), Microsoft can integrate these powerful AI models into its own ecosystem of products and services. From Azure to Office products to Dynamic 365, adding advanced AI capabilities will enhance performance, improve the user experience, and bolster Microsoft's offerings.
Regarding Azure, AI could fuel a growth machine that's already Microsoft's fastest-growing segment. In the third quarter of its fiscal 2024, Microsoft's revenue grew 17% year over year to $61.9 billion, driven by the 31% revenue growth of Azure and other cloud services.
MSFT Revenue (Quarterly) data by YCharts
Even without recent AI developments, Microsoft's products and services were staples in the global business world. With this new component, the company is positioned to be a driving force of technology.
2. Taiwan Semiconductor Manufacturing
While AI is generally associated with software, there are vital hardware components that shouldn't be overlooked. That's where Taiwan Semiconductor Manufacturing (TSM -2.02%) (TSMC) comes into the picture. TSMC is the world's largest semiconductor producer, creating chips that are the cornerstone of the AI pipeline.
TSMC's chips are used in data centers, graphics processing units (GPUs), AI accelerators, and other products that allow for faster, more efficient data processing vital to AI application training, deployment, and operation. Without TSMC's chips, you could argue that AI advancements would be significantly slowed, making it indispensable in the AI supply chain.
The high performance of TSMC's chips has made them the choice of some of the world's top tech companies. Microsoft and Amazon (AMZN -0.87%) use them for their data centers, Nvidia uses them for its GPUs, Apple uses them for smartphones, and dozens of other companies rely on them for their products. It's worked wonders for TSMC's financials, too.
In the first quarter, TSMC generated close to $18.9 billion in revenue, up close to 13% over the prior year. High-Performance Computing (HPC), which includes AI and data center applications, accounted for 46% of it and is TSMC's largest revenue segment. Smartphones, which were 38% of revenue, continue to be a pain point for TSMC with slow sales, but that shouldn't negate its long-term growth potential.
3. Amazon
Amazon has been using AI for a while now, whether it be for product recommendations, optimizing its supply chain, or assisting customers with chatbots. Even so, it's still in the earlier stages of fully incorporating AI into its vast ecosystem of products and services.
Amazon is one of the leaders in machine learning, having invested heavily in the technology. Amazon's cloud platform, Amazon Web Services (AWS), is one of the most comprehensive platforms on the market. It offers SageMaker -- which simplifies the process of building, training, and deploying machine learning models -- advanced data processing tools, and AI-powered analytics.
AWS is the world's leading cloud platform, with a 31% market share as of the first quarter. While Azure has a 25% market share and has been gaining ground in recent years, AWS should continue to be Amazon's bread-and-butter profit generator. Although AWS generated only around 17% of Amazon's first-quarter revenue, it accounted for over 61% of its operating income (profit from its core business operations).
AMZN Operating Income (Quarterly) data by YCharts
As an extension of its wildly successful e-commerce business, Amazon's introduction of Supply Chain by Amazon stands to gain a lot from AI developments. Supply Chain by Amazon is a one-stop shop for businesses looking to streamline their logistics, and Amazon's AI developments should enhance these capabilities even further.
With its extensive AI integration and expansion of AWS, Amazon is well-positioned to continue its market-beating growth and return great shareholder value.
