The past two years have been dominated by artificial intelligence (AI) stocks. The influx of spending on AI infrastructure and development, combined with investor excitement about the potential for it to transform multiple industries, pushed the stock prices of several companies into astronomical territory. It can be difficult to find a great company with shares trading at a fair price for less than $200.
But there can still be a lot of growth left when it comes to investing in AI. According to analysts at Bain, the AI hardware and software market is expected to grow between 40% and 55% annually through 2027.
Although many stocks already have these high expectations baked into the price, these three software and hardware producers all offer the opportunity to buy into their companies at a good price. And the best part is that each stock trades for around $200, making them accessible to just about anyone interested in getting started with AI stocks.
The biggest change in search over the past year is the new AI overview. If you've typed a question into the Google search box in recent months, you've probably seen AI-generated answers with links to their sources.
Management says the new feature increases engagement and satisfaction among users as they find Google can answer more of their questions. Meanwhile, advances in AI over the past 18 months have allowed the company to reduce the cost of using generative AI to answer these questions by 90%, allowing it to roll out the feature across the world.
The company is also using its AI capabilities to offer new ways to search the web. One product, Circle to Search, allows users to circle words or images on a web page and initiate a search while browsing on their Android smartphone. Google Lens makes searching the web as easy as taking a photo. Both increased valuable search types such as product discovery and shopping.
Meanwhile, Google Cloud, Alphabet's cloud computing division, saw its revenue grow substantially as developers leverage its computing power for generative AI applications. Not only has revenue grown over the past two years, but it now delivers meaningful operating profits to Alphabet. Google Cloud generated $1.9 billion in operating revenue last quarter, up from $270 million a year ago and a loss of $700 million in the third quarter of 2022.
Alphabet continues to innovate in the field of AI. It launched the latest version of its major language model (Gemini 2.0) in December, along with AI agents built on the model to assist with browser navigation and debugging computer code. Alphabet's scale and distribution capabilities give it an advantage in developing and popularizing its AI-driven software.
With shares trading at $194 at the time of writing, the stock appears to be of great value. Despite analysts' expectations of double-digit earnings growth in the coming years, earnings growth for 2025 is estimated to be only 22 times higher. That's a bargain compared to other AI stocks.
Qualcomm (NASDAQ: QCOM) is best known for its wireless patents, which cover 3G, 4G and 5G connectivity. Every smartphone maker pays a license to Qualcomm to use its patents. Those extremely high-margin revenues have fueled Qualcomm's innovation in chip manufacturing, and that's unlikely to change anytime soon.
Qualcomm makes chipsets for smartphones, ranging from simple baseband chips that allow phones to connect to a wireless network to the all-in-one Snapdragon line, which incorporates an application processor with a baseband or modem set. Most high-end Android phones contain a Snapdragon chip.
So far, Qualcomm's chips don't have much to do with AI. However, that is starting to change. In 2024, Qualcomm introduced a range of Snapdragon processors designed for Windows PCs with the aim of running AI inference on the device. By keeping AI processes on-device, user data remains private and users without an internet connection can take advantage of AI capabilities.
While adoption of so-called “AI PCs” powered by Qualcomm's chips has been slow, it appears that more customers are likely to demand AI on their devices from their smartphones in the future. That requires more expensive processors, such as Qualcomm's Snapdragon. As a result, Qualcomm could end up capturing more smartphone market share in the coming years.
Meanwhile, Qualcomm also has a growing automotive chip segment. As automotive computers become increasingly complex and dependent on fast on-device AI processing, Qualcomm could prove a valuable supplier to automakers in the coming years. At its investor day in November, management said it had $45 billion in design gains in its auto pipeline. For reference, the segment generated $2.9 billion in revenue in fiscal 2024.
Qualcomm's share price of less than $160 makes it a great way to play the future of AI on devices on smartphones and PCs, not to mention the huge potential in the automotive industry. Analysts expect earnings growth of about 10% over the next two years, while shares are trading at just fourteen times forward earnings estimates. The potential for Qualcomm to expand its market share to multiple devices makes it an attractive stock at this price.
Taiwanese semiconductor manufacturing company (NYSE: TSM)also known as TSMC, is the largest chip manufacturer in the world. It contracts with the largest chip designers, including Nvidia, AppleAnd Broadcom to manufacture the most advanced AI chips on the market. It is a dominant force, accounting for more than 60% of all semiconductor foundry spending.
TSMC has such a strong market share due to its advanced technological capabilities. Nvidia CEO Jensen Huang praised TSMC in September, calling it the best in the industry “by an incredible margin.” Thanks to its huge market share, TSMC should be able to maintain that technological advantage. This gives the country much more money than its competitors to invest in the development of the next generation of technology, creating a virtuous cycle.
TSMC has emerged as a clear winner as demand for AI chips soars. Sales rose 39% in the third quarter and profits rose 54% as margins expanded thanks to demand. Demand was mainly fueled by AI-related chips, but strong smartphone orders also helped. Fourth quarter revenue is on track for 31% growth and strong margins.
Investors should expect profit margins to shrink when TSMC rolls out the next generation of its processes in late 2025. Still, they should increase over time as the company scales up production, especially if demand for AI chips remains high. With a growing need for high-end processing capabilities across all devices, TSMC should be able to control an even larger share of semiconductor manufacturing in the coming years, despite already occupying a dominant position. As such, sales should grow faster than the industry as a whole.
At its current price of about $200, shares trade for about 23 times forward earnings. That said, strong margins and growing revenue mean the analyst consensus estimate for 2025 is 27% earnings growth. While TSMC may not maintain that growth rate, it won't get rid of it anytime soon, as it remains an important piece of the puzzle in the continued advancement of artificial intelligence. With such strong growth potential, TSMC is a no-brainer at $200.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy has positions in Alphabet, Apple, Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool holds positions in and recommends Alphabet, Apple, Nvidia, Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
3 No-Brainer Artificial Intelligence (AI) Stocks to Buy for 2025 with $200 Right Now was originally published by The Motley Fool
