But there could be a lot of growth when it comes to investing in AI. The market for AI hardware and software is expected to grow between 40% and 55% annually until 2027, according to analyst Bain.
While many stocks already have these high expectations in price, these three software and hardware manufacturers offer the opportunity to buy in their companies at a good value. And the best part is that each stock trades for around $200, making it accessible to almost anyone interested in getting started with AI stocks.
The biggest change in research in the past year is the new overview of AI. If you’ve typed a question into Google’s search box in the past few months, you’ve probably seen AI-generated answers with links to their sources.
Management says the new feature increases engagement and satisfaction among users, as they find Google can answer more of their questions. Meanwhile, its advances in AI over the past 18 months have allowed it to reduce the cost of using generative AI to answer these questions by 90%, allowing it to roll out the feature globally.
The company is also using its AI capabilities to offer new ways to search the web. One product, Circle to Search, allows users to search for words or images on a web page while browsing on their Android smartphone and start a search. Google Lens makes searching the web as simple as taking a photo. Both have increased valuable search types such as product discovery and purchase.
Meanwhile, Google Cloud, Alphabet’s cloud computing division, has seen its revenue grow substantially as developers tap its computing for generative AI applications. Not only have revenues grown over the past two years, but they are also now producing significant operating profits for Alphabet. Google Cloud generated $1.9 billion in operating income last quarter, down from $270 million a year ago and a loss of $700 million in the third quarter of 2022.
Alphabet continues to innovate in AI. It released the newest version of its major language model (Gemini 2.0) in December, with AI agents built on top of the model to help with browser navigation and debugging computer code. Alphabet’s scale and distribution capabilities give it an advantage in developing and popularizing its AI-driven software.
With shares trading at $194 as of this writing, the stock looks like a great value. Despite analyst expectations for double-digit earnings growth over the coming years, it trades for just 22 times 2025 earnings expectations. That’s a bargain compared to other AI stocks.
Qualcomm (NASDAQ: QCOM) is best known for its wireless patents, covering 3G, 4G and 5G connectivity. Each smartphone manufacturer pays a license to Qualcomm to use its patents. That extremely high-margin revenue has helped fuel Qualcomm’s chip-making innovation, and that’s unlikely to change anytime soon.
Qualcomm makes chipsets for smartphones, ranging from simple baseband chips that allow phones to connect to a wireless network to the all-in-one Snapdragon line, which incorporates an application processor with a baseband or set of modems. You can find a Snapdragon chip in most high-end Android phones.
So far, Qualcomm’s chips haven’t had much to do with AI. That’s starting to change, though. In 2024, Qualcomm introduced a line of Snapdragon processors designed for Windows PCs with the goal of running AI inferences on the device. Keeping AI processes on-device ensures that user data remains privateand allows users to take advantage of AI capabilities without an Internet connection.
While the adoption of so-called “AI PCs” powered by Qualcomm chips has been slow, it seems that more customers will likely demand on-device AI from their smartphones in the future. It requires high-end processors, such as Qualcomm’s Snapdragon. As a result, Qualcomm could end up taking more market share in smartphones in the next few years.
Meanwhile, Qualcomm also has a growing automotive chip segment. As automotive computers become increasingly complex and dependent on fast on-device AI processing, Qualcomm could prove a valuable supplier to automakers in the coming years. At its investor day in November, management said it had $45 billion in design wins in its automotive pipeline. For reference, the segment generated $2.9 billion in revenue during fiscal 2024.
Qualcomm’s stock price of less than $160 makes it a great way to play the future of AI on the device through smartphones and PCs, not to mention the massive potential in the automobile. Analysts expect earnings growth of about 10% for each of the next two years, while the stock trades for just 14 times forward earnings estimates. Qualcomm’s potential to expand its share into multiple devices makes it an attractive stock at this price.
Taiwan Semiconductor Manufacturing Company (NYSE: TSM)otherwise known as TSMC, is the largest chip manufacturer in the world. Contracts with the largest chip designers, including Nvidia, Appleand Broadcom to manufacture the most advanced AI chips on the market. It is a dominant force, commanding more than 60% of all expenditures for semiconductor foundries.
TSMC commands such a strong market share because of its advanced technological capabilities. Nvidia CEO Jensen Huang praised TSMC in September, calling it the best in the industry “by an incredible margin.” Thanks to its massive market share, TSMC should be able to maintain that technological advantage. That gives them much more money than their competitors to invest in developing the next generation of technology, creating a virtuous cycle.
TSMC has been a clear winner as demand for AI chips grows. Revenue rose 39% in the third quarter, and earnings rose 54% as its margins widened due to demand. Demand was mostly fueled by AI-related chips, but strong smartphone orders also helped move the needle. Fourth quarter revenue is on track for 31% growth, as well as strong margins.
Investors should expect profit margins to contract as TSMC rolls out the next generation of its processes by the end of 2025. However, they should expand over time as the company scales production, especially if demand of AI chips remains strong. With a growing need for high-end processing capabilities in all devices, TSMC should be able to command an even larger share of semiconductor production in the coming years, despite already having a dominant position. As such, revenues should grow faster than the overall industry.
At its current price of about $200, the stock trades for about 23 times forward earnings. That said, strong margins and rising revenues put the analyst consensus estimate for 2025 earnings growth at 27%. While TSMC may not maintain that growth rate, it won’t go down there very quickly as it remains a key piece of the puzzle in the continued progress of artificial intelligence. With such strong growth potential, TSMC is a no-brainer for $200.
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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Alphabet, Apple, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions and recommends Alphabet, Apple, Nvidia, Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
3 No-Brainer Artificial Intelligence (AI) Stocks to Buy by 2025 with $200 Now was originally published by The Motley Fool
