The U.S. presidential election is in the history books, and Donald J. Trump is now the president-elect. An uncontested election and a clear winner sparked a far-reaching rally on Wall Street yesterday, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all reaching record territory -- and that rally continued into Thursday. Some of the biggest gainers were companies at the forefront of artificial intelligence (AI), as some on Wall Street believe the policies of the incoming administration could provide a boost for the AI revolution.
With that as a backdrop, chip foundry Taiwan Semiconductor Manufacturing (TSM +0.62%), commonly referred to as TSMC, jumped 4.4%; social media and AI specialist Meta Platforms (META +0.52%) rallied 3.4%; and AI chip specialist Broadcom (AVGO 1.04%) climbed 2.6%, as of 1:22 p.m. ET on Thursday.
A check of all the usual sources -- earnings results, changes to analysts' ratings, and regulatory filings -- turned up nothing in the way of company-specific news that helped fuel gains for AI stocks. This suggests that investors are predicting additional upside for AI stocks under the incoming Trump administration.
image source: Getty Images.
A changing of the guard
The obvious euphoria of an uncontested election aside, there are other reasons AI stocks have gotten a boost. Several analysts have penned missives that suggest that AI could benefit from the incoming administration, and investors have taken notice.
Wedbush analyst Dan Ives made it clear that he expects "a strong AI focus out of the gates from Trump for U.S. big tech players." He also believes that "AI initiatives will ramp in the U.S.," ultimately benefiting the biggest players in technology, and more specifically, AI.
He went on to point out that there could be a potential shakeup in the Federal Trade Commission (FTC). Lina Khan, commissioner of the FTC, has challenged many deals in the tech industry and waged antitrust battles with some of the biggest names in the industry. Ives believes that, based on comments Trump made during the run-up to the election, Khan could be replaced, which Ives views as a "huge positive" for big tech.
NYSE: TSM
Key Data Points
Analysts at UBS echoed Ives' view, suggesting that "big tech's AI spending should continue to support the AI trade." They went on to note, "AI adoption and monetization have picked up further," and the accelerating revenue growth and expanding margins among the world's biggest cloud infrastructure providers is evidence that their investments in AI are bearing fruit.
But wait, there's more
Generalizations aside, there are specific reasons our trio of AI stocks could continue to benefit from the paradigm shift represented by generative AI. These systems have the ability to automate mundane, time-consuming tasks, resulting in dramatic increases in productivity. These three are each an innovator in the field of AI:
- Taiwan Semiconductor is the world's largest chip foundry and the leading producer of high-end semiconductors used for AI.
- Meta Platforms has leveraged data from its billions of daily users to fuel the development of Llama AI, which has become one of the most widely used AI models out there.
- Broadcom creates many of the chips and ancillary tech used in data centers and cloud computing, where much of AI lives.
NASDAQ: META
Key Data Points
Generative AI is growing at a rapid pace, and the market is expected to be worth between $2.6 trillion and $4.4 trillion in the coming years, according to global management consulting firm McKinsey and Company. If these three AI players can capture just a sliver of that opportunity, there are likely blue skies ahead.
Yet each of these companies is attractively priced, as Broadcom, TSMC, and Meta are currently selling for 29 times, 28 times, and 26 times forward earnings, respectively.
Given the magnitude of the opportunity and each company's place within the broader AI ecosystem, I would submit that each one is a buy.
