2 AI Stocks with High Potential for Growth

2 min read | August 12, 2024 12:00 AM PDT | By Team Kalkine Media

2 AI Stocks with High Potential for Growth — Image source: Shutterstock

Taiwan Semiconductor

Taiwan Semiconductor (NYSE:TSM) is a crucial player in the tech industry, producing chips for major companies like Nvidia, Apple, Alphabet, and AMD. Its technology is indispensable to the functioning of numerous tech products.

Despite a recent downturn, with the company's stock down nearly 20% from its 2024 highs, Taiwan Semiconductor's performance remains strong. In the second quarter, revenue increased by 33% year over year in U.S. dollars, and the company forecasts 32% growth for the third quarter. A new chip generation set to launch in late 2025 promises significantly higher energy efficiency, further boosting its appeal.

Even with these positive attributes, Taiwan Semiconductor's stock is relatively attractively priced at 24 times forward earnings. The anticipated growth in artificial intelligence and other advanced technologies could further enhance the company's value.

Alphabet

Alphabet (NASDAQ:GOOGL), primarily known for its Google platform, is making significant strides in the AI sector. Its large language model, Gemini, has overcome initial challenges to become a leading option for generative AI models, now integrated into Google Search and Android phones. This model's ongoing refinement will make it an essential tool for AI developers.

In addition to its AI advancements, Alphabet is heavily investing in cloud computing, a critical infrastructure component for AI. Many companies lack the computing power to train AI models and thus rely on Alphabet's extensive network of data centers. This has been a substantial growth area for Alphabet, with the division achieving 29% growth in the second quarter.

Alphabet's momentum is set to continue, with about 60% of funded generative AI startups and nearly 90% of generative AI unicorns being Google Cloud customers. As these companies expand, their usage of Alphabet's services will increase, driving higher revenue. Furthermore, Alphabet's custom Tensor Processing Unit (TPU) offers superior performance for AI workloads compared to Nvidia's GPUs, adding another layer of competitive advantage.

Alphabet trades at a relatively low 20.7 times forward earnings, compared to the S&P 500's 22.2 times forward earnings. This positioning suggests Alphabet is undervalued, making it an attractive option during the market downturn.

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