Artificial intelligence (AI) could be one of the biggest trends of this century, and it's just getting started. That's why it could be a good idea to own some of the top companies benefiting from this trend.
Let's look at three leading AI stocks to own right now.
Image source: Getty Images.
1. Nvidia
Nvidia (NVDA +5.93%) saw where AI was headed years before the rest of the market. The company's creation of its CUDA software in 2006 helped lock developers into its ecosystem, as most of the foundational code for AI workloads was written for it. Even if a rival chipmaker were to come up with a slightly better chip, companies would need to rip out years of code and retrain engineers to switch, especially when it comes to training large language models (LLMs).
And while ASICs have become all the rage, since they are unable to be reprogrammed, they risk becoming obsolete in a quickly changing AI world. That's why Nvidia still controls more than 90% of the graphics processing unit (GPU) market.
NASDAQ: NVDA
Key Data Points
Nvidia also built out the other important pieces needed to run AI workloads. Its proprietary NVLink interconnect lets its GPUs act as one massive unit, which is a huge advantage as AI workloads become more demanding. Now, Nvidia is going on offense again. It recently invested up to $100 billion in OpenAI to keep its chips front and center with a customer in the midst of one of the largest AI infrastructure buildouts.
CEO Jensen Huang believes data center spending on AI could grow to as much as $4 trillion in the next several years, and Nvidia looks better positioned than anyone to capture that growth. It is not just a chipmaker anymore, but the backbone of the entire AI ecosystem.
2. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM +6.30%) is the powerhouse behind nearly every advanced AI chip. Designing AI chips is hard, but manufacturing them at scale with high yields is even harder. TSMC pulled ahead of competitors like Intel and Samsung in producing chips at the smallest nodes with reliable yields, which is why nearly every AI chip designer, including Nvidia, depends on it.
NYSE: TSM
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The company's ability to keep shrinking node sizes while maintaining strong yields has created a technology lead that rivals have yet to close. Nearly three-quarters of its revenue comes from chips built on 7 nanometer nodes or smaller, with 3nm chips already a big contributor and 2nm production on the way. That lead has given TSMC pricing power, letting it raise prices as demand surges.
TSMC projects AI chip demand will grow at a more than 40% compound annual growth rate (CAGR) through 2028, which gives it years of visibility into rising revenue and profits. Whether the biggest winner in AI chip design ends up being Nvidia or someone else, TSMC wins either way because they all need its cutting-edge fabs. As the need for advanced chips spreads to other areas, such as robotaxis and robotics, TSMC's role will only become more critical.
3. Alphabet
Alphabet (GOOGL +2.53%) (GOOG +2.92%) surprised many investors by turning AI from a potential threat into a tailwind. A year ago, the fear was that generative AI would hurt Google's core search business, but the opposite happened. Features like AI Overviews, Circle to Search, and Lens are driving more queries, often with higher commercial (shopping) intent that feeds into its large advertising network. A recent court ruling also let Alphabet keep its Apple search deal and maintain control over Chrome and Android, keeping its distribution edge intact.
NASDAQ: GOOGL
Key Data Points
Alphabet is also a major force in cloud computing. Google Cloud revenue jumped 32% last quarter while profits more than doubled, thanks to soaring demand for AI workloads. It is one of the few companies with a fully integrated AI stack, including its own Gemini models and custom chips that help it compete on both cost and performance.
On top of that, Alphabet's Waymo unit continues to expand its robotaxi operations, while its quantum computing team is making progress toward cutting error rates that could eventually make the technology viable. These bets could become new growth drivers in the years ahead, while search and cloud continue to deliver today. Alphabet has gone from being seen as vulnerable to AI to becoming one of its biggest beneficiaries, which makes the stock a buy.
