AI is one of the most transformational technologies to come along in decades. The AI market is expected to reach $4.8 trillion by 2033, according to the United Nations Trade and Development report.
If you have $1,000 to commit to a long-term investment strategy, buying shares of the companies supplying the chips and cloud services for AI is a solid bet.
Here are two AI stocks to buy and hold in this bull market.
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1. Taiwan Semiconductor Manufacturing
It's no coincidence that most of the companies with market caps over $1 trillion are involved in semiconductors and cloud computing. Chips make up a substantial portion of data center spending, and Taiwan Semiconductor Manufacturing (TSM -0.09%) is in a lucrative position of making chips for other semiconductor companies.
TSMC is the largest chip manufacturer in the world, commanding a high market share of the global foundry market. The chip industry is known to be cyclical, but it's also been on an upward trajectory over the last several decades. TSMC has delivered double-digit annualized revenue and earnings growth for many years. The stock has climbed 1,200% over the last 10 years, outperforming the Nasdaq's 359% return.
TSMC's chips are used in smartphones, cars, consumer electronics, and data centers. Demand for AI is where the action is. Demand for AI chips helped push the company's revenue up 44% year over year in the second quarter, driven by strong demand for cutting-edge processors. Management previously guided for AI accelerator revenue to double in 2025 and grow at a mid-40% annual rate over the next five years.
Recent growth and forward guidance show TSMC in a great position to capitalize on the growing investment in data center infrastructure. It is not only benefiting from the strong demand for Nvidia's chips, but it also helps investors benefit from demand from Nvidia's competitors, such as Advanced Micro Devices and Broadcom, that also rely on TSMC's manufacturing expertise.
TSMC's record of growing revenue and earnings should continue. From a risk perspective, this is an excellent chip stock to buy for the long term, considering its diversification across computing markets and customers that depend on its services.
2. Oracle
Large organizations are migrating their data from on-premise servers to the cloud, and this is driving strong growth for cloud services offered by Amazon, Alphabet (Google), and Microsoft. However, Oracle (ORCL 0.06%) might be the best cloud stock of them all. It doesn't compete with these companies, but instead, benefits from their growth. This is because Oracle's database and software applications are integrated across all the leading cloud platforms. This multicloud offering is driving exceptional growth for Oracle, and its growth is accelerating due to AI.
Oracle has made substantial investments in expanding its data center infrastructure around the world and building its AI capabilities to take advantage of the current demand. Companies appear to be in an all-out scramble to catch up in AI. This is evident in the numbers, where Oracle's cloud infrastructure service revenue surged 54% year over year last quarter to $3.3 billion.
What's most telling about Oracle's future growth is the sharp acceleration in remaining performance obligations (RPO), which is contracted revenue not yet realized. Oracle's RPO surged 359% year over year to $455 billion last quarter. This sends a clear signal that AI demand is exceptionally strong and not slowing down.
Management noted significant demand for AI inferencing, where customers are clearly choosing Oracle to apply advanced AI reasoning to get more insights from their data. Oracle is delivering a platform that keeps business data secure but leverages the power of popular large language models like OpenAI's ChatGPT or Google Gemini.
The stock's recent post-earnings pop, which followed a similar jump after the previous quarter's financial results, indicates that investors are undervaluing the AI growth opportunity. Oracle is in a unique competitive position with its multicloud strategy that should deliver solid returns for long-term investors.
