Two artificial intelligence-focused stocks that might potentially bring you substantial wealth.
Two artificial intelligence-focused stocks that might potentially bring you substantial wealth.
AI has driven substantial gains in stock prices over the past two years, starting with OpenAI's ChatGPT launch. While investors are familiar with success stories like Nvidia and Palantir Technologies, there are undoubtedly more profitable companies to emerge from this technological advancement.
Some CEOs believe AI could be as influential as the internet, and tech giants are already investing billions in this evolving technology to establish leadership in the anticipated next significant computing platform.
However, there are further ways to profit from AI's growth. Let's examine two possibilities.
1. TSMC
Taiwan Semiconductor Manufacturing (TSM -0.70%) may not have received as much attention as chip stocks such as Nvidia, but TSMC, also known by its abbreviation, could be the most crucial company in the AI revolution. TSMC provides chip production services to companies like Nvidia, Advanced Micro Devices, Broadcom, Qualcomm, as well as tech giants like Apple, Amazon, and Alphabet.
In essence, TSMC plays a significant role in the semiconductor industry's supply chain and AI because many companies rely on it for their product manufacturing.
TSMC has already capitalized on the AI-driven demand, as seen in its latest quarter's revenue increase of 39% year over year to $23.5 billion, and TSMC maintains attractive profit margins with an operating margin of 47.6% in the third quarter, showcasing its dominance in the industry.
TSMC seems well-positioned to capitalize on continued AI chip demand due to its presence in roughly 90% of third-party advanced chip manufacturing and its close ties with companies like Nvidia. TSMC also touts its advanced logic, memory, and packaging technologies, and its chips are used in a variety of devices, including servers in data centers and edge devices like smartphones and household appliances.
While there's some uncertainty surrounding the AI boom, demand is likely to increase over the coming years. TSMC appears better inclined to capitalize on it than other AI-focused stocks on the market. TSMC's stock has almost doubled in 2024 but still offers potential for further growth, trading at a reasonable price-to-earnings ratio of just 33.
2. Upstart
Upstart (UPST -5.62%) remains significantly below its peak during the pandemic, essentially being overlooked even as it has started to rebound this year.
Upstart utilizes AI technology to evaluate creditworthiness, enabling it to originate consumer loans, and the company claims that its technology is more effective than traditional FICO scores. Upstart has also experienced a business recovery, attributing it to improvements in its model. Management notes that Model 18, their latest update, yielded improved conversion rates in the third quarter, with more applicants receiving loans.
Upstart's business model also highlights potential in AI beyond generative AI. In addition to its competitive edge in loan origination, Upstart has significant potential due to lower interest rates, which could motivate more borrowing and potentially propel the business back to its previous peak as loan demand surged during the pandemic.
Although the company is sensitive to macroeconomic indicators, AI remains the key to unlocking its full potential. Revolutionizing the broader loan ecosystem and becoming a de facto creditworthiness measurement would generate substantial returns for Upstart, currently valued at $6.5 billion.
The business has returned to growth with quarterly revenue increasing by 20% to $162 million, though Enterprises are not yet profitable. However, there's potential for margins to expand as the business grows.
In the realm of finance, investors looking beyond tech giants could consider TSMC for its significant role in the semiconductor industry's supply chain and AI, as its chips are crucial for AI-driven devices. The company's revenue has seen a 39% increase in its latest quarter due to AI-driven demand.
Furthermore, Upstart, a company leveraging AI for creditworthiness evaluation, has the potential to revolutionize the loan ecosystem. Despite facing macroeconomic challenges, Upstart's AI technology has shown improvement, leading to increased loan approvals and revenue growth, offering potential for further profitability in the finance sector.