Artificial intelligence (AI) has become one of the hottest technology trends and is just getting started. The largest tech companies in the world are spending billions of dollars to create new products and services, all while trying to stay on top.
But just like with any other investing trend, it's essential to weed out the companies that are merely following the hype to find the ones that are actually leading the way. Here are three AI stocks that are hands-down AI leaders that are buys right now.
1. Nvidia
Nvidia (NVDA +1.73%) justifiably gets a lot of attention in the AI world. The company was an early leader in artificial intelligence when it began selling graphics processing units (GPUs) to large tech companies for AI processing.
Fast forward a few years, and Nvidia is still leading the AI charge. It holds an estimated 70% to 95% of the AI chip market and continues to add new products, like its latest H200 chip, to spur new demand. Nvidia CEO Jensen Huang said on the company's latest earnings call that demand for the H200 had already surpassed supply.
NASDAQ: NVDA
Key Data Points
Tech companies, racing to create the best AI products and services, will continue to upgrade their data centers in the coming years, likely fueling more sales of Nvidia's chips. Huang believes tech companies around the world will spend more than $1 trillion over the next five years investing in AI and doubling the number of data centers.
With demand already outpacing supply for Nvidia's H200 and H100 chips, companies literally can't get enough of the company's processors. Nvidia's stock is by no means cheap, but a greater than 10% decline in its share price over the past month is opening up a buying opportunity for investors looking for a long-term AI play.
2. Advanced Micro Devices
Advanced Micro Devices (AMD +11.44%) is another leading semiconductor company powering the AI revolution. Its much-larger-rival Nvidia gets most of the attention, but there's plenty to like about AMD's AI opportunity, and the company proved it in its most recent quarter.
AMD reported second-quarter results (which ended June 29), and its data center sales, including its AI chip sales, more than doubled. Data center revenue rose 115% from the year-ago quarter to $2.8 billion, led by demand for its Instinct GPUs.
NASDAQ: AMD
Key Data Points
The massive jump in data center sales meant that the segment accounted for nearly half of AMD's revenue in the quarter. And there's likely more on the way.
AMD's management said on its earnings call that the "overwhelmingly positive" demand for its AI chips caused the company to raise 2024 data center guidance to $4.5 billion, up from the previous guidance of $4 billion.
With AMD's stock underperforming its AI peers lately, investors have a nice buying opportunity. AMD shares are down about 10% this year, but the pullback may not last long considering AMD's recent data center growth.
3. Taiwan Semiconductor Manufacturing
Companies that design AI semiconductors and develop AI software often receive the most attention, but there's another AI angle you might be overlooking: chip manufacturers.
Taiwan Semiconductor Manufacturing (TSM 0.84%), or TSM, makes the semiconductors that Nvidia and others design, and its scale is nearly unmatched. The company manufactures about 90% of the world's most advanced chips, and production demand is on the rise.
NYSE: TSM
Key Data Points
TSM's sales increased 32.8% in the second quarter (which ended on June 30), and earnings per American depositary receipt were $1.48, outpacing Wall Street's consensus estimate of $1.41. The impressive results were driven by AI chip demand, and TSM's management expects both AI and smartphone semiconductor manufacturing to increase in the third quarter.
"Moving into third quarter 2024, we expect our business to be supported by strong smartphone and AI-related demand for our leading-edge process technologies," Taiwan Semiconductor CFO Wendell Huang said in a statement.
Despite the company's opportunities, investors have been a little nervous about TSM lately. There are some risks of geopolitical uncertainty, particularly if China invades Taiwan in the future.
While that's definitely a concern, the recent pullback on TSM's stock price has also given investors an opening. Over the past month, the company's shares are down about 9%, allowing investors to buy Taiwan Semiconductor's stock at a slight discount.
