Although the market has rebounded recently, multiple AI stocks still look like great long-term buys. Investors need to look past the price they could have bought them for just a month ago, as those prices are long gone. Furthermore, investors shouldn't sit on the sidelines waiting for another drop, as it may not come for some time.
With this in mind, I've got three AI stocks that still look like solid buys and can make investors a great profit if they're willing to hold on to them for at least three to five years.
Image source: Getty Images.
Nvidia
Nvidia (NASDAQ: NVDA) has been the king of AI investments since the start of 2023, and that outlook isn't changing anytime soon. Nvidia's graphics processing units (GPUs) have processed the calculations to train many of the AI models that we've used to this point, and although there is competition rising from custom AI accelerators that some of Nvidia's clients are designing themselves, the flexibility and computing power that a GPU provides is still unrivaled. As a result, GPUs will continue to be the computing option of choice moving forward.
This makes Nvidia a stock well worth owning, and it's still not priced all that expensively compared to where it spent most of 2024.
As a result, I think Nvidia is still a solid buy here, as many investors made a ton of money by buying and holding Nvidia's stock throughout 2024 at price points more expensive than today's levels.
Taiwan Semiconductor
Taiwan Semiconductor (NYSE: TSM), often referred to as TSMC, is a critical supplier of chips and produces the chips that go into cutting-edge devices like Nvidia's GPUs. Furthermore, orders at TSMC are often placed years in advance, giving management unparalleled insight into the demand for chips. As an example, TSMC's existing Arizona fabrication facility has sold out chip production through 2027, which means that it likely has orders at least through 2028 in its system.
So, when management is willing to give commentary on what the next five years look like, investors should listen. Over the next five years, they expect AI-related chips to grow at a 45% compound annual growth rate (CAGR). That's impressive growth, and is a contributing factor to the near-20% CAGR they expect companywide. Few companies of TSMC's size can put up predictable and sustainable 20% growth for a period of five years, yet that isn't priced into Taiwan Semi's stock yet.
At 21 times forward earnings, you're paying a market-average multiple for a company that can reliably put up market-crushing growth.
As a result, Taiwan Semiconductor makes for a great purchase right now.
Alphabet
Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) may be a somewhat controversial stock pick compared to Nvidia or Taiwan Semiconductor, as the challenges it faces are quite steep. Investors are worried about how its base Google search engine business will fare with rising AI competition and a potential economic downturn ahead. Additionally, it has been found guilty of operating two illegal monopolies, which could lead to Alphabet's breakup.
This has led the market to place a cheap valuation on Alphabet's stock, as investors are worried about the future.
At just 17.5 times forward earnings, Alphabet's stock is incredibly cheap, but does its cheap stock price outweigh the risks? I think so.
Alphabet is currently juggling the traditional Google search versus AI search very well through its AI overviews feature. Furthermore, Google Search's revenue rose 10% year over year in Q1, so if AI were a problem (it has been widely available for three years now), we likely would have seen at least some effect in this area.
Alphabet can't control what the broader economy does, but history tells us that the economy eventually bounces back, so the economic outlook is only a short-term headwind for Alphabet.
Lastly, the government's investigation into what to do with Alphabet is completely unknown. However, breakups and spinoffs tend to unlock more value for shareholders, and it's possible that a broken-up Alphabet might be worth more than an intact one. Still, we're years away from knowing what Alphabet's business makeup will look like, and the base business is compelling enough that I think the stock is a solid buy right now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Alphabet, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
