With the latest market sell-off hitting tech stocks much harder than any other sector, I think it's smart to start looking for bargain-buying opportunities in this area. Whether there's a trade war or not, the artificial intelligence (AI) arms race isn't going to slow down, as one company isn't going to cut its AI spending just because another does. Instead, that company will likely see it as an opportunity to gain ground on a competitor.
As a result, these companies will be just fine over the long term, making this short-term blip a fantastic buying opportunity. The four companies I'm focusing on right now are Nvidia (NASDAQ: NVDA), Taiwan Semiconductor Manufacturing (NYSE: TSM), Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), and Amazon (NASDAQ: AMZN). I think each is a fantastic buy amid the latest market sell-off and should be bought on the dip.
Chip suppliers like TSMC and Nvidia still have massive demand
Why do these four stand out above the rest? Each is a service provider in the AI arms race.
Taiwan Semiconductor's chips go into nearly any high-tech device. Because it is a chip foundry, it manufactures the chip designs that other companies (like Nvidia) bring to it. Many investors feared that Taiwan would be the target of some of President Trump's tariffs, but with TSMC's latest $100 billion investment in U.S. manufacturing capacity, it may have sidestepped this threat.
However, TSMC's CEO, C.C. Wei, commented that a threat from President Trump didn't cause this expansion. Instead, his company sees massive U.S. chip demand, and it makes sense to build factories where the demand is. This backs up Wei's earlier projection that AI-related chip revenue for his company is projected to rise at a 45% compound annual growth rate (CAGR) over the next five years.
Companywide revenue is expected to reach nearly 20% growth over that same period, so it's clear that Taiwan Semi has massive chip demand coming. A market sell-off doesn't change that fact, so investors shouldn't be too worried about Taiwan Semiconductor's stock.
Nvidia is a huge customer of TSMC, as its graphics processing units (GPUs) are filled with chips from TSMC's facilities. GPUs have been widely used in the AI buildout because of their ability to compute in parallel. This makes them ideal for tasks that require massive computing power, like training an AI model. Nvidia has had an incredible two years of growth, but it's not stopping yet. In Q1, they expect 65% revenue growth to $43 billion. While Nvidia doesn't give full-year guidance, Wall Street analysts project 56% growth to $204 billion.
During its Q4 conference call, Nvidia was asked about what tariffs would do for its business, but the management side-stepped the question, stating that they don't really know what the U.S. government's plan is. Still, the demand for Nvidia's GPUs is insatiable, and with the stock trading for an unbelievably cheap 25 times forward earnings, it's time to load up on Nvidia stock.
The cloud computing buildout to support AI is still underway
Amazon and Alphabet both have primary businesses that power their AI investments. However, both businesses are trying to build out their cloud computing footprint, which will be used to provide computing power to many clients.
Cloud computing is a huge trend in the AI arms race, as many companies don't want to spend the massive upfront cost to buy a data center filled with expensive Nvidia GPUs to train AI models and run them. Instead, they turn to cloud computing providers, like Amazon Web Services (AWS) and Google Cloud, to run these workloads. Essentially, Amazon and Alphabet's customers are renting computing power from these giants, and the demand here is far from done growing.
Over the long term, cloud computing will be a huge part of both companies' businesses, as each sector is growing faster than the overall business. In Q4, Google Cloud's revenue grew 30% year over year while companywide revenue increased at a 12% pace. AWS revenue grew 19% year over year versus a total growth of 10%.
As a further boost to buy these stocks, both are the cheapest they have been for some time. With each stock trading at attractive price-to-forward earings, I think they are both strong buys now alongside Nvidia and Taiwan Semiconductor.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Alphabet, Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
