3 Artificial Intelligence (AI) Stocks to Buy Today, Still Below Their 2021 Highs

As 2023 comes and goes, the high-tech sector of the stock market is buzzing with the promise of artificial intelligence (AI) technology. While some stocks soared in response to the AI-based revolution, others were left behind. There’s not always a good reason for this.

Three of The Motley Fool’s top technology experts came together to share the most affordable AI strategies on the market. Read straight dope with their clear-eyed picks. taiwan semiconductor manufacturing (TSM 1.03%), Amazon (AMZN 1.20%)and applied materials (AMAT 4.74%). All three companies are trending at levels well below their record highs in 2021, and are eager for a comeback from 2024 onwards.

Someone needs to make all these AI chips

Anders Bylund (Taiwan Semiconductor): Semiconductor manufacturing giant Taiwan Semiconductor Manufacturing Co. (commonly known as TSMC) has experienced many challenges in recent years, but most of the changes have been helpful.

• The global semiconductor manufacturing capacity shortage that began in 2021 has effectively ended by the end of 2023.
• Inflationary pressures that had suppressed consumer demand for new cars, smartphones and other devices fresh from electronics factories have receded.
• TSMC has begun construction on several new manufacturing facilities, including in Arizona, Japan and China, which are expected to open between 2024 and 2026. If this capacity increase isn’t the final nail in the proverbial coffin of scarcity, I don’t know what is. takes.
• The company likely would have maintained its lead in chip manufacturing technology despite new competition from the United States. intel (INTC 3.02%)The company aims to test operate a 2-nanometer process node in 2025. The three largest chip foundries are neck and neck in an eternal race to provide the world’s most advanced manufacturing processes, packing more processors per silicon wafer with real benefits. Contributes to both production costs and processing performance.

Admittedly, it hasn’t all been smooth sailing. Intel’s unexpected entry into the third-party manufacturing stage has added another headwind to TSMC’s business. Ongoing political tensions between China and the United States don’t help either, but the company is trying to avoid problems by locating new facilities far from China’s sphere of influence, such as Arizona.

But what I’m still talking about are dominant players in key industries with tremendous growth prospects as the global economy emerges from the inflation-tinged shackles it has worn in 2021. Taiwan Semiconductor’s stock trades at just 15 times expected earnings and 8.4 times sales. The stock is about 20% below its all-time highs set in February 2021 and January 2022.

I have been a fan of Taiwanese cicadas and their stocks for decades. The company never ceases to amaze me with its iron-fisted dominance in the chip manufacturing market and impressive financial results. Since I first looked into it in 2006, the stock has increased nearly 1,000%, quadrupling its return. S&P500 Market indexes over that period — and despite that, TSMC’s stock remains reasonably priced and looks poised for further growth at this point.

As companies from all sectors look for a foothold in the exploding AI industry, the chip industry is bound to be overloaded with orders, and TSMC’s production lines will be busy for years to come. Therefore, we highly recommend picking up some TSMC stock before the stock price rises again.

E-commerce is back in full force and cloud will follow in 2024

Nicholas Rossolillo (Amazon): After the bear market, many investors are finding solace in a “flight to safety” in the so-called “Magnificent Seven” stocks, the big tech platforms that have continued to grow and outperformed the broader market in 2023. Ta.

But not all recent Mag7s are that great. Amazon, for example, is still down nearly 20% from its all-time high in late 2021.

I believe 2024 may be the year that Amazon finally reaches its peak again. The e-commerce and cloud computing leader is in the midst of a multi-year process to right-size its operations to increase profitability. E-commerce has been implementing robots in distribution centers for years. And to further monetize its marketplace, Amazon is rolling out advertising features for third-party sellers. Amazon is already leveraging AI to optimize advertising, and in late 2023 it introduced AI-generated images that marketers can use to promote products.

And on the cloud computing front (Amazon Web Services remains the cloud market leader), Amazon reported that customer spending appears to be strong after a year of efforts to cut costs and conserve cash. And, although late to the generative AI community, Amazon Web Services has started installing it. Nvidia To keep up with the times, we are also deploying GPUs in our data centers.

In fact, even external research shows that the cloud market is poised for a huge year in 2024.technology researcher gartner believes that global cloud spending will increase 20% this year to approximately $680 billion. That could be a sign of good things to come for Amazon stock.

Amazon currently trades at about 28 times Wall Street analysts’ 2024 free cash flow estimates, a profit metric that has jumped about 50% this year as Amazon’s optimization efforts begin to bear fruit. It suggests that there is a possibility. I will continue to buy Amazon stock even at this level.

Billy Duberstein (Applied Materials): Applied Materials is only about 10% below its late 2021 high, but expect the all-star semiconductor leader to break through that resistance level and eventually move higher.

Applied’s business has an excellent combination of growth, profitability, and shareholder return, and it should be able to grow its earnings even further in the future. And compound interest is ultimately the secret to creating new highs in the stock market.

Applied’s strong financial profile stems from the fact that it is the world’s most diversified semiconductor equipment company, with leadership in several key technologies spanning cutting-edge chips, advanced specialty chips, and memory. We are demonstrating.

This diversification was on full display over the past year, when sales of Applied’s cutting-edge and memory devices declined. However, sales of cutting-edge specialized equipment typically used in the production of automotive and industrial chips remained strong. So while front-end wafer fabrication equipment is expected to decline by about 15% in 2023, according to industry group SEMI, Applied actually grew semiconductor equipment sales by 4.8% in the last fiscal year. succeeded in.

While impressive, some investors believe that the historically strong industrial and auto sectors are headed for a downturn, which has caused Applied’s stock to plateau somewhat in recent months. But Applied’s cutting-edge tools, especially those for AI chips and high-bandwidth memory, should get even better in the near future.

In a recent analyst note last week, Keyvan Capital Markets analysts raised their outlook on several AI stocks based on current channel checks. Applied was not included in the list of stocks upgraded, but the company’s cutting-edge tools are helping produce chips from each of the three featured stocks. Therefore, the growth of cutting-edge tools should offset weaknesses in the specialty. This is especially true since IDC predicts that the overall semiconductor market will recover in 2024 with a growth of 20%.

And Applied isn’t resting on its laurels. The company is a forward-thinking company constantly seeking new avenues of growth and the next big technology advancement. For example, the company is currently looking to apply its atomic-level manufacturing capabilities to augmented reality.Last week, Applied and alphabet (GOOG 2.06%) (Google 2.02%) Announcing a multi-generation collaboration for Google’s new lightweight augmented reality glasses platform. And last year, Applied announced a $4 billion investment in the groundbreaking EPIC R&D Center. The EPIC Center will be a nexus of collaboration between university researchers, Applied, and the company’s chip manufacturing customers to accelerate the pace of innovation.

Applied’s high profitability allows it to invest in these new businesses, and it returns capital to shareholders through share buybacks and increased dividends, while securing the future of its business to some extent. It should not fall any further below its all-time high.