Talk of a potential artificial intelligence (AI) bubble shook AI stocks back in November, and this concern reemerges on occasion. This is because AI stocks have soared over the past few years, with many reaching high valuations -- and earnings expectations are high too. Investors worry that any bump along the path may deal a significant blow to stock performance, and that's made many think twice about investing in AI stocks in recent weeks.
But evidence hasn't supported a bubble scenario. Companies that have reported earnings -- from chip manufacturer Taiwan Semiconductor Manufacturing (TSMC) to cloud provider Amazon -- have spoken of soaring demand and have delivered significant revenue growth. Forecasts have also highlighted the strength of the AI market. Worldwide information technology spending is set to exceed $6 trillion for the first time in 2026, thanks to AI, according to Gartner. That's an increase of more than 10%.
Considering all of this, here's how to invest right now.
Image source: Getty Images.
What's your investing strategy?
First of all, it's important to consider your own investing strategy. Are you an aggressive investor who aims to bet heavily on AI, or are you cautious and aim to pick up only one or two of the safest AI bets around? It's crucial to answer this question before you get started so that you'll feel comfortable with your choices -- and that they'll reflect your investing goals.
If you're an aggressive investor, you might invest in a basket of AI stocks involved in various aspects of the AI story. If you're cautious, you might choose one or two of the most well-established AI players to add to your portfolio and leave it at that. In either case, it's key to make your AI bet -- or any bet -- part of a diversified portfolio, choose only quality stocks, and hold on for the long term.
Now, let's consider which stocks may benefit from this spending trend. Clear winners could be chip designers such as market leader Nvidia or rival Advanced Micro Devices. If you're particularly focused on safety and you worry about the competition among chip designers, you might opt for TSMC -- this company actually makes the chips of Nvidia, AMD, and other market leaders so it will benefit from the successes of all. And as cloud companies build out infrastructure this year and beyond, they'll need AI chips.
The need for memory and storage
Another winner of this stage of AI spending may be Micron Technology (MU +4.11%), the maker of memory and storage systems. With the growth of AI inference -- the process models go through to solve problems -- a great deal of memory is needed, and that could represent massive growth for Micron. In the recent quarter, Micron said AI momentum drove record revenue and free cash flow.
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Key Data Points
Investors also may think of a company such as Corning, which provides optical fiber products for data centers -- the company has created new fibers, cables, and connectors specifically for these customers to address their AI needs.
As cloud service providers build out infrastructure, it's likely they'll invest in chips, memory, connectivity, and other tools and services to support this effort. The companies serving those needs are likely to benefit during this stage of investment, so we might see significant growth in revenue in the later quarters of this year and beyond.
It's important to remember that the semiconductor industry traditionally has been cyclical, with demand ebbing and flowing in response to current needs, product cycles, and inventory levels, for example. We still could see this movement in the future, though AI, considering its specific needs, may alter the pattern somewhat, extending periods of high demand. In any case, quality cyclical players may slip at times but generally go on to win over the long run.
All of this means that right now, as IT spending heads for record levels, it's a great idea to invest in companies powering the AI infrastructure build-out.
