The realm of artificial intelligence (AI) investing is rapidly evolving, with new opportunities and challenges emerging for investors.
In this article, we will explore the current landscape of AI stocks, focusing on key players and trends shaping the market. We will delve into the performance of prominent AI stocks, including the Fab 4 and alternative picks, analyzing their valuation metrics and growth prospects.
Additionally, you’ll find top stock picks that offer compelling opportunities for investors seeking exposure to the AI revolution. Join us as we navigate the dynamic world of AI investing and uncover potential investment gems in this transformative sector.
Which Stocks Are In The Magnificent Seven Stocks?
The Magnificent Seven stocks, or Mag7, represents a cohort of tech giants that have captured the market's attention with their innovation, growth and influence. This group includes Tesla
Initially hailed as the successors to the FAANG stocks, the Mag7's rise was led by trailblazers Tesla and Apple, propelling them to the forefront of the tech industry.
Here’s a quick look at how the Magnificent 7 stocks have performed over the recent past:
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What Are The Fab 4 Stocks?
The Fab Four stocks in the realm of tech investing are Nvidia, Amazon, Meta Platforms and Microsoft. These companies are renowned for their advancements in AI and are widely regarded for their growth potential. These stocks are also part of the Magnificent Seven, the group that also includes Tesla, Apple and Google (Alphabet). The Magnificent Seven, once considered the successors to the FAANG stocks, have collectively made a significant impact on the tech industry.
However, as the sector's landscape evolved, challenges emerged for Tesla, Apple and Google, leading to a slowdown in their growth and a subsequent recalibration of the Mag7's standing in the market.
Enter the Fab 4. Despite the absence of Tesla, Apple and Google, investors see the continued strength of the Fab 4 as a positive indicator for the market's overall performance.
3 Best Stocks To Buy Instead Of The Fab 4 Stocks
As the Fabulous Four stocks—Amazon, Meta Platforms, Microsoft and Nvidia—continue to deliver impressive performance, some investors are beginning to question their valuations.
With high P/E ratios and EV/Ebitda multiples, these stocks may be trading at levels that reflect much of their future growth potential. As such, investors seeking alternatives with potentially more room for growth may want to explore other AI stocks.
Investors may want to consider Broadcom
These stocks offer investors opportunities for growth in the AI sector without the high valuations of the Fab Four stocks.
1. Broadcom (AVGO): Dominating In AI Hardware Infrastructure
Business Overview
Key Metrics:
- Current Share Price: $1,333.51
- Sector/Industry: Semiconductors
- Market Cap: $617.8 billion
- Dividend Yield: 1.6%
Broadcom is a leading player in the AI hardware infrastructure market, renowned for its wide array of products tailored to meet the escalating demand for AI technologies. The company's robust focus on semiconductor design and manufacturing has firmly established it as a frontrunner in the AI domain.
One of Broadcom's key strengths lies in its impressive free cash flows, among the highest in the tech industry. This financial stability not only reflects Broadcom's strong market position but also enables substantial investments in research and development, bolstering its competitive edge in the AI market.
Why AVGO Stock Is A Top Choice
AVGO stands out as a top pick for several reasons. Firstly, its remarkable stock performance, boasting a 1-year performance of 117.2% and a 3-year performance of 183.7%, showcases its consistent growth trajectory. Despite recent market fluctuations, AVGO has maintained its resilience, with a 6-month performance of 61.9% and a year-to-date performance of 19.9%.
Additionally, AVGO's valuation metrics, including a forward P/E ratio below the industry average and reasonable multiples, suggest that the stock may be attractively priced.
The company's recent partnership with Google Cloud further demonstrates its commitment to innovation and collaboration in the AI space, solidifying its position as a top choice for investors seeking exposure to the AI revolution.
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2. Advanced Micro Devices AMD : Powering AI With Innovative Solutions
Business Overview
Key Metrics:
- Current Share Price: $159.82
- Sector/Industry: Semiconductors
- Market Cap: $258.8 billion
- Dividend Yield: NA
Advanced Micro Devices has established itself as a significant player in the AI market, driven by its innovative CPU and GPU technologies.
The company's Ryzen PC processors and EPYC server chips have garnered widespread recognition for their exceptional performance and energy efficiency, propelling AMD to the forefront of the industry. Under the leadership of CEO Lisa Su, AMD has made remarkable strides in CPU performance and market share gains, particularly in the server CPU market.
Recent strategic acquisitions, including Xilinx
Why AMD Stock Is A Top Choice
AMD stands out as a top pick for several reasons. Its strong stock performance over the past year (86.4%), demonstrates its ability to outperform the broader market. Despite facing some short-term challenges, AMD has shown significant growth over the past six months, with a six-month performance of 71.0%.
Additionally, AMD's focus on developing chips for AI applications has positioned it as a viable alternative to Nvidia, the current leader in the AI chip market. The company's optimistic outlook, with expectations of improving profit margins and sales growth, makes it a compelling investment opportunity in the AI space.
However, it's worth noting that AMD's high valuation multiples raise concerns about its current valuation, and investors should carefully consider these factors before making investment decisions regarding AMD.
3. Taiwan Semiconductor Manufacturing Company Limited (TSM): A Global Leader In Semiconductor Manufacturing
Business Overview
Key Metrics:
- Current Share Price: $138.59
- Sector/Industry: Semiconductors
- Market Cap: $621.89 billion
- Dividend Yield: 1.40%
Taiwan Semiconductor Manufacturing Company Limited stands as the world's largest contract chipmaker, commanding a substantial 60% market share globally.
Renowned for its "pure play" manufacturing model and deep expertise in semiconductor design and manufacturing, TSMC has earned the trust of industry giants such as Nvidia and Apple.
The company's recent strong first-quarter performance, driven by increased demand in the AI industry, underscores its resilience and market leadership. TSMC's strategic investments in advanced manufacturing technologies, including its 4-nanometer scale chips, further solidify its position as a key player in the AI chip market.
Why TSM Stock Is A Top Choice
TSMC has had impressive stock performance, with a one-year gain of 68.4% and a three-year performance of 14.0%, highlighting its ability to deliver value to investors. Despite recent market fluctuations, TSMC has maintained its strength, with a six-month performance of 58.3% and a year-to-date performance of 33.1%.
Additionally, TSMC's more attractive valuation metrics compared to AMD, including a lower P/E ratio and EV/Ebitda, suggest that the stock may be more reasonably priced relative to its earnings and cash flow. With its strong track record of innovation and solid financial position, TSMC presents a compelling investment opportunity for investors seeking exposure to the AI revolution.
How We Chose These Stock Picks
Our selection process for these stock picks was primarily driven by a thorough analysis of valuation metrics such as P/E ratio, EV/Ebitda and price/cash flow. We observed that some of the Fab 4 stocks, including Amazon and Nvidia, were trading at relatively high multiples, indicating potential overvaluation. This led us to consider alternative AI stocks that offer compelling growth opportunities while being more attractively valued.
We focused on stocks that demonstrated strong performance in the AI market and exhibited favorable valuation metrics compared to the Fab 4 stocks. Additionally, we considered factors such as the companies' financial stability, track record of innovation, and strategic positioning in the AI sector. Through this analysis, we identified three stocks–Broadcom, Advanced Micro Devices and Taiwan Semiconductor–as top picks for those seeking exposure to the AI revolution.
Bottom Line
In a market where the Fab 4 stocks show signs of overvaluation, investors seeking AI opportunities should look beyond and consider alternative picks. Stocks like Broadcom, Advanced Micro Devices, and Taiwan Semiconductor present compelling options with strong growth potential and more attractive valuations.
As the AI revolution continues to unfold, these stocks stand out as top choices for investors looking to capitalize on the evolving tech landscape.
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The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download Forbes' most popular report, 12 Stocks To Buy Now.
