The AI Industry’s Growth and Attractive Investment Opportunities
The artificial intelligence (AI) industry is experiencing rapid growth, making it an attractive sector for investors. However, the AI hype has led to inflated stock prices and valuations for several tech companies. Fortunately, investors can still find AI bargains among companies directly benefiting from AI adoption.
Three such companies are Taiwan Semiconductor Manufacturing (TSM), Super Micro Computer (SMCI), and Alphabet (GOOGL). Nvidia relies on TSMC to manufacture its AI chips, while Supermicro provides servers and data storage solutions to businesses building AI systems. Alphabet, Google’s parent company, is heavily investing in AI and incorporating it into various products.
Comparing Valuations
When comparing the price-to-earnings (P/E) ratio of these three AI stocks to Nvidia, they appear to be trading at much lower valuations. Data from YCharts illustrates this disparity. Various headwinds, including global economic uncertainty introduced by tariff policies, have put downward pressure on their share prices. However, the long-term trend of AI adoption is expected to boost their businesses.
Three AI Stocks to Consider
1. Taiwan Semiconductor Manufacturing (TSMC)
TSMC is a compelling investment due to its leadership in manufacturing chips used for AI tasks. Its expertise in producing 3-nanometer (nm) chips has led to rapid sales growth, with these chips contributing 22% of its $25.5 billion first-quarter revenue. TSMC is already working on its next-generation 2nm technology, expected to enter production later this year.
In Q1, TSMC’s sales grew 35% year-over-year to $25.5 billion, with a gross margin of 58.8%, up from 53.1% the previous year. Despite potential near-term volatility due to tariffs, TSMC is well-positioned for long-term growth, having received $6.6 billion in federal funding to build semiconductor facilities in the United States.
2. Super Micro Computer (Supermicro)
Supermicro sells servers and data storage solutions to businesses building AI systems. After addressing several short-term issues in 2024, the company reported $4.6 billion in revenue for fiscal 2025 Q3, a 19% year-over-year increase. Although this fell short of its forecast, Supermicro expects to close out fiscal 2025 with sales between $21.8 billion and $22.6 billion, a significant increase from the prior year’s $14.9 billion.
The AI market’s growth is expected to drive Supermicro’s business forward. The market is forecasted to expand from $184 billion in 2024 to $826 billion by 2030. Supermicro’s current challenges are largely macroeconomic, but its AI-focused business positions it for long-term success.
3. Alphabet (Google)
Alphabet is investing heavily in AI, with $52.5 billion in capital expenditures last year to build cutting-edge AI systems. Every product with at least half a billion users now incorporates Alphabet’s AI. This has contributed to double-digit year-over-year sales growth in Google’s search engine and cloud computing business, Google Cloud.
In Q1, Google’s revenue reached $50.7 billion, and Google Cloud earned $12.3 billion. Alphabet’s total Q1 revenue was $90.2 billion, up from $80.5 billion in 2024. Waymo, Alphabet’s self-driving car business, also demonstrates AI success, providing over 250,000 passenger rides per week, a fivefold increase from last year.
A Buying Opportunity
TSMC, Supermicro, and Alphabet have faced headwinds that pushed their share prices down, creating a buying opportunity for long-term investors. The ongoing expansion of the AI market and these companies’ demonstrated success with AI position them for growth in the coming years. Their current valuations make now a good time to invest in these AI stocks.
