It isn't easy to assess where a rapidly changing industry like artificial intelligence (AI) will be a decade from now. However, I think I've pinpointed two stocks at the forefront of the AI arms race that will be fine 10 years later.
Meta Platforms (META 0.04%) and Taiwan Semiconductor Manufacturing (TSM -1.20%) are the two stocks that meet this criteria. Although they operate in vastly different areas of the AI investment sphere, each has what it takes to stand the test of time and be a phenomenal investment over the next decade.
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Meta Platforms
Meta Platforms is likely better known by its former name, Facebook. Most of Meta's revenue comes from social media sites it owns, specifically from advertisements on those platforms. In Q1, 98% of Meta's revenue came from ads, so it's clear that Meta is an ad business.
Meta has implemented AI tools into its advertising toolkit, which helps advertisers craft better ads to cater to a specific viewer. These premium features lead to better ad performance, which allows Meta to increase the price of an ad, as they can guarantee a better outcome.
Additionally, Meta is making huge investments in several real-world AI devices, such as its glasses. While these products are still a ways out, if they become a hit and a must-have item, a brand new revenue stream will open up for Meta. This isn't accounted for in its current valuation, and could lead to explosive stock performance if these items take off.
Meta isn't going anywhere in the next 10 years, and it's setting itself up well with its AI investments. Meta is a strong pick to buy and hold for the next decade, as long as investors are patient through the various economic cycles, which will cause ad revenue to rise and fall.
Taiwan Semiconductor
Taiwan Semiconductor (or TSMC) is the world's leading fabrication foundry, continuously innovating to provide cutting-edge chips. This is key to its maintaining its position atop the chipmaking world. Investing in Taiwan Semi is a smart way to play nearly any technological trend, as TSMC is most likely producing the chips behind the technology.
For example, iPhones and Nvidia (NASDAQ: NVDA) GPUs utilize chips made by Taiwan Semi. Although these devices may be replaced by other products, the chips that go into these upstarts will still likely be sourced from Taiwan Semiconductor.
So, an investment in Taiwan Semi is a bet that we will use more chips and more advanced chips, which seems like a no-brainer in the current environment.
Management has pinpointed significant growth in AI-related chips, as they expect revenue to expand at a 45% compound annual growth rate (CAGR) over the next five years. That's monster growth, and it cements TSMC's place as a stock that will still be relevant a decade from now.
Each stock still looks attractive at its current valuation level
Both stocks look like great long-term picks, but why are they buys now? It would have been far better to load up on both stocks just a month ago, as the market has recovered quickly. Still, I think both stocks provide solid entry points.
META PE Ratio data by YCharts
From a trailing price-to-earnings (P/E) ratio viewpoint, both stocks are still trading below where they traded for most of 2024. While this may not be a bargain price point, it's still a fair price for both stocks, which gives me confidence that investors can take a position now without fear of overpaying for the stock.
