Over the last couple of years, artificial intelligence (AI) stocks have taken center stage. The surge in AI infrastructure spending, coupled with investors’ enthusiasm over its transformative potential across various industries, has driven some company stock prices sky-high. As a result, it can seem challenging to find a solid company with stocks trading fairly and priced under $200.
However, there’s still plenty of room for growth in AI investments. Analysts at Bain suggest that AI hardware and software markets might expand by 40% to 55% annually until 2027.
While many stocks have already factored in these optimistic prospects, three particular software and hardware firms stand out as noteworthy opportunities. These stocks, each priced around $200, offer exciting entry points for those eager to delve into AI investments.
### 1. Alphabet
Alphabet, the parent company of Google, seemed initially at risk as competitors advanced in AI. Yet, Alphabet’s leadership has skillfully woven AI into its core products, thereby maintaining a competitive edge. The most significant update in search technology is the integration of AI-driven responses, offering users tailored answers with source links directly from their Google queries.
Google’s innovative search capability now provides enhanced user satisfaction and engagement. Over the past 18 months, their strides in AI have led to a 90% reduction in cost for generating AI responses, facilitating global deployment.
Google also introduces innovative ways to search the web, like Circle to Search, allowing users to easily conduct searches by circling items on a smartphone display, and Google Lens, which uses images taken by users to enhance search simplicity. These features have notably increased activities like product discovery.
Moreover, Google Cloud, Alphabet’s cloud division, has experienced substantial revenue growth as developers leverage its resources for generative AI applications. This growth delivered $1.9 billion in operating income last quarter, a significant leap from $270 million a year prior.
Alphabet’s AI innovations continue, with the release of Gemini 2.0, their latest large language model featuring AI agents facilitating internet browsing and code debugging. The company’s vast scale and distribution prowess remain key to its ability to develop and popularize AI technologies.
With Alphabet’s stock priced at $194, it’s a compelling value. Analysts are forecasting consistent, double-digit earnings growth, yet the stock is trading at just 22 times projected 2025 earnings—a steal compared to its peers in the AI sector.
### 2. Qualcomm
Known for its extensive wireless patents encompassing 3G to 5G technologies, Qualcomm benefits from high-margin revenue streams as licensee fees from smartphone manufacturers. This ensures a strong foundation for the company’s continued innovation in chipmaking.
Qualcomm’s repertoire includes chipsets for phones—spanning from basic wireless connectivity chips to the Snapdragon series, housing both application processors and modems. High-end Android phones frequently utilize these chips.
In 2024, Qualcomm began introducing Snapdragon processors tailored for Windows PCs, addressing the growing need for on-device AI processing. This approach maintains user data privacy and enables AI functions offline.
Though the adoption of AI-capable PCs has been gradual, rising demand for on-device AI from smartphone users seems likely. This trend necessitates advanced processors like the Snapdragon, potentially boosting Qualcomm’s market share in the coming years.
Qualcomm’s automotive chip segment is also gaining traction. With automotive tech increasingly reliant on rapid AI processing, the company emerges as a likely partner for car makers. The segment’s $45 billion design win pipeline promises significant growth potential.
Currently priced under $160, Qualcomm presents a feasible option for playing the future of on-device AI across multiple platforms, including smartphones and automobiles. Analysts predict about 10% earnings growth per year over the next couple of years, with shares trading at a modest 14 times forward earnings, making Qualcomm a smart buy.
### 3. Taiwan Semiconductor Manufacturing
Globally renowned as the largest chip maker, Taiwan Semiconductor Manufacturing Company (TSMC) collaborates with leading chip designers like Nvidia, Apple, and Broadcom to produce cutting-edge AI chips. As a force to reckon with, TSMC commands over 60% of the semiconductor foundry market.
TSMC’s formidable technological prowess underpins its extensive market share. Nvidia’s CEO lauded TSMC for being unrivaled in the industry. Such dominance ensures more resources for TSMC to invest in advancing technology further, reinforcing a cycle of success.
Fueled by growing AI chip demand, TSMC witnessed a 39% rise in revenue and a 54% surge in earnings owing to increased margins. Demand largely stemmed from AI chips, bolstered by robust smartphone orders. The revenue trajectory for the fourth quarter reflects a promising 31% growth with healthy margins.
While profit margins might narrow once TSMC launches its next-gen technology in late 2025, they are set to improve alongside scaling production in response to continuous AI chip demand. As such, TSMC’s revenue is poised to outpace the broader industry.
At about $200, TSMC shares trade at 23 times projected future earnings. However, resilient margins and surging revenue signal analysts’ expectations for a 27% earnings jump by 2025. While growth may not perpetuate at this rate, TSMC remains crucial in AI advancement. Hence, its robust growth potential underscores the value of investing at its current price point.
