Artificial intelligence (AI) investing is still one of the prevailing themes in the markets. Investors need to have some exposure to this trend, as it has the potential to be a generation-defining technology with a similar magnitude of impact as the internet.
For AI investing, my top three buys today are Nvidia (NVDA +1.68%), Taiwan Semiconductor Manufacturing (TSM +1.97%), and Meta Platforms (META +1.81%). These are major players in the AI world, and they all look like smart buys right now.
Nvidia and Taiwan Semiconductor are neutral in the AI arms race
Nvidia and Taiwan Semiconductor are investments on the hardware side of AI. This is a great area to invest in, as it doesn't require you to pick a winner. Because Nvidia graphics processing units (GPUs), filled with chips from Taiwan Semi, are used to train and run AI models, they are agnostic as to which AI company is winning the race. While models like OpenAI's ChatGPT or Anthropic's Claude may have been at the top of the generative AI race a month ago, DeepSeek's R1 recently emerged out of China as a worthy competitor, despite being trained at a lower cost.
NASDAQ: NVDA
Key Data Points
Regardless of which company the models originated from, they were mostly trained using Nvidia GPUs. That's an excellent position for Nvidia to be in, and it makes the company a strong buy right now, as the commitments for massive AI spending haven't changed despite DeepSeek's efficiency breakthrough.
Taiwan Semiconductor is also benefiting from this massive spending, as it supplies the chips that go into Nvidia GPUs as well as other AI accelerator devices that compete against Nvidia. Its management team sees incredibly strong tailwinds from this industry, and it expects AI-related revenue to grow at a mid-40% compound annual growth rate (CAGR) for the next five years. That's incredible growth and speaks to the strength that companies like Nvidia will also have over that time frame.
NYSE: TSM
Key Data Points
Although many investors are worried about DeepSeek's efficiency gains with its model, they shouldn't be. Making models cheaper to run increases their use case, which requires even more computing hardware to fill the demand. This places Nvidia and Taiwan Semiconductor in a great position, making them strong buys now, especially when you consider where they're trading.
Thanks to the weakness caused by DeepSeek, these two stocks are trading for very attractive valuations.
NVDA PE Ratio (Forward) data by YCharts
From a forward price-to-earnings (P/E) ratio standpoint, each is attractively priced, especially considering they are expected to grow at an above-market average pace. For comparison, the S&P 500 trades for 22.3 times forward earnings, so these companies only have a slight premium to the market despite fantastic growth.
Both Nvidia and Taiwan Semi are strong neutral investments in the AI arms race, and right now is a great time to scoop them up.
Meta Platforms uses its primary business to fund AI investments
Meta Platforms is more of an application play on AI, but that's not the reason it's on this list. Meta's base business, advertising on its social media sites, is incredibly strong. In the fourth quarter, Meta's "Family of Apps" revenue increased by 21% and produced an unbelievable 60% operating profit margin. By itself, that could be considered the greatest business in the world, but Meta is using some of those profits to fund its AI investments.
Meta plans to spend $60 billion to $65 billion on capital expenditures this year, mostly focusing on computing power to meet the demand for its AI model. While some investors may view this as a sideshow to the main business, Meta appears incredibly close to making a massive breakthrough.
NASDAQ: META
Key Data Points
CEO Mark Zuckerberg thinks that 2025 will be the year that it becomes possible to make an engineering AI agent with the same problem-solving capability as a mid-level engineer. That would be a massive leap forward and greatly multiply the engineering power that Meta could tap. If it can win the race to that technology, Meta's AI model could become far and away the most capable, leading many companies to deploy Meta's model.
Regardless of what happens with AI, Meta still has a very powerful base business to lean on, which makes it a safe AI investment pick. Throw in the fact that the stock trades at 28 times forward earnings, and it has become a no-brainer AI stock to buy right now.
