The Best Artificial Intelligence (AI) Growth Stocks to Buy Right Now

Tech stocks have delivered remarkable gains for investors since the start of 2023, with a 69% increase in value Nasdaq-100 Technology Sector index during this period. Artificial intelligence (AI) played a central role in this extraordinary rally.

Technology companies, large and small, have benefited from AI adoption. Super Micro Computer (NASDAQ: SMCI) and Taiwan Semiconductor Manufacturing (NYSE: TSM) both have received good growth due to the proliferation of AI.

However, the fiery rally in tech stocks has recently stalled. The Nasdaq-100 technology sector has fallen 11% in the past month due to several factors, such as growing concerns about a US recession following a weak jobs report and fears that AI will not be in the latter live up to the hype.

But the recent quarterly results of the aforementioned companies suggest otherwise. These tech players indicate that AI infrastructure spending continues to remain robust, so it may be a good idea to buy shares of these AI companies following the recent market selloff. Let’s look at the reasons.

TSMC stock is too attractive to pass up right now

AI has given the semiconductor industry a big boost. The AI ​​chip market is expected to register an annual growth rate of 38% over the next decade, generating annual revenue of $514 billion in 2033. Taiwan Semiconductor Manufacturing, popularly known as TSMC, is one of the best ways in which investors can capitalize. this opportunity.

TSMC is a foundry that makes chips for fabless semiconductor companies like Nvidia and AMD. It also produces chips for device makers such as Appleand even Intel turned to TSMC to produce advanced chips despite having its own production lines. So TSMC stands to gain from the proliferation of AI in multiple markets such as data centers, smartphones, and personal computers.

TSMC’s growth accelerated due to strong demand for its advanced chips from the aforementioned customers. The Taiwanese foundry giant reported a 33% year-over-year increase in revenue for the second quarter of 2024 to $20.8 billion. This marked a significant acceleration from the 13% year-over-year growth reported by TSMC in Q1.

For the third quarter, TSMC expects revenue of $22.8 billion in the middle of its guidance range. That would translate to year-over-year growth of nearly 32 percent, suggesting that demand for the company’s chips will remain healthy. As such, TSMC’s 15% pullback over the past month presents a smart buying opportunity for investors, especially given that analysts have raised their earnings growth expectations for TSMC lately.

The story continues

Also, TSMC is currently trading at 29 times trailing earnings, which is a slight discount from Nasdaq-100 Average earnings of the index multiple of 31 (using the index as a proxy for technology stocks). Buying this AI stock right now seems like a no-brainer given its tremendous growth and attractive valuation.

Demand for AI servers drives amazing growth for Supermicro

TSMC-made chips that are deployed in data centers to handle AI workloads must be mounted on server racks — resulting in huge demand for Supermicro’s offerings over the past year.

Supermicro makes server and storage solutions, and the company has gained ground in the AI ​​server market thanks to its modular offerings that enable data center operators to reduce energy costs. Its revenue in the recently ended 2024 fiscal year doubled year-over-year to $14.9 billion from $7.1 billion the previous year.

However, Supermicro shares fell 20% in a single session following its results, after it missed Wall Street earnings expectations due to narrow margins. The company has been aggressively investing to increase its manufacturing capacity to meet the booming demand for AI servers, and that’s why its non-GAAP gross margin fell to 14.2% in fiscal 2024 from 18.1% in the previous year.

The company has expanded its manufacturing capacity to multiple locations around the globe as it aims to increase production capacity of its liquid-cooled servers, which are gaining traction in AI data centers to reduce power consumption and increase performance . Mordor Intelligence estimates that liquid-cooled data centers could reach 23% annual growth by 2029.

So Supermicro is doing the right thing by focusing on capacity expansion right now, as it should be able to capture a larger portion of this rapidly growing opportunity. Additionally, the global AI server market is expected to grow by 30% annually through 2033, and Supermicro is growing at a much faster rate than this space.

This suggests that the company is gaining market share in AI servers, and so sacrificing short-term margins seems like the right thing to do given the long-term opportunity at hand. Supermicro’s management believes its margins will return to the normal range by the end of fiscal 2025. Analysts remain bullish on its growth prospects after fiscal 2024 earnings rose 87% to $22.09 per share.

Most importantly, Supermicro now trades at just 24 times trailing earnings and 13 times forward earnings — a nice discount to the Nasdaq-100. Investors should consider adding this fast-growing company to their portfolios while it remains bearish.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before buying stock in Taiwan Semiconductor Manufacturing, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $763,374!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The stock advisor returns as of August 12, 2024

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.

Selling the Stock Market: The Best Artificial Intelligence (AI) Growth Stocks to Buy Right Now was originally published by The Motley Fool