2 Attractive Artificial Intelligence (AI) Stocks to Buy in November

The past few years have been absolutely phenomenal for tech stocks; This is evident from the company’s 90 percent earnings. Nasdaq-100 Technology Sector It is stated that the index has been on the rise during this period and artificial intelligence (AI) is one of the main reasons for this extraordinary increase.

Ultimately, AI has created significant demand for hardware such as: semiconductors and server components are also creating the need for software that can be applied to real-world situations to help users increase their productivity and increase efficiency. More specifically, demand for AI hardware is predicted to grow at an annual rate of 31% by 2035, generating $624 billion in annual revenue.

Meanwhile, the AI ​​software market is expected to experience a compound annual growth rate of almost 34% over the next five years. That’s why we take a closer look at the prospects for artificial intelligence. Taiwan Semiconductor Manufacturing (NYSE: TSM)Popularly known as TSMC and Twitter (NYSE: TWO)Here are two companies that could help investors capitalize on the growing demand for both AI hardware and software.

1. Taiwan Semiconductor Manufacturing

Semiconductors play a critical role in the proliferation of AI, with AI models being trained using chips such as graphics processing units (GPUs), central processing units (CPUs), and application-specific integrated circuits (ASICs). This is the reason for the likes Nvidia, Advanced Micro Devices, broadcomAnd Marvel Technology They are seeing strong demand for their chips.

The common link between these companies is TSMC. The semiconductor companies mentioned above are foolproof in nature; This means they simply design their chips while outsourcing their manufacturing to a foundry like TSMC. As a result, TSMC has seen a tremendous acceleration in its growth this year.

The Taiwan-based foundry giant’s revenue in the first nine months of 2024 increased by 32% compared to last year. For the full year, TSMC management expects revenue to increase by almost 30%. This translates into revenue of $90 billion, based on the company’s 2023 revenue of $69.3 billion. It’s worth noting that TSMC’s revenue fell by almost 9% last year as the company struggled due to weak demand for smartphones and personal computers (PCs).

However, the arrival of a new catalyst in the form of artificial intelligence has significantly reversed TSMC’s fortunes in 2024; This is evident from the impressive growth it recorded in the first nine months of the year. This is not surprising, as demand for AI chips is growing rapidly, with Future Market Insights predicting that this market could reach an annual growth rate of 26% over the next decade.

This puts TSMC in a terrific position to post strong growth in the coming years, given that it produces chips for major players in this market. Additionally, according to Counterpoint Research, TSMC is the world’s leading foundry with a 62% market share. This further reinforces the fact that the company will play a significant role in the growth of the AI ​​chip market in the long run.

But that’s not where TSMC’s hopes for artificial intelligence end. The company also produces chips for consumer devices such as smartphones and PCs. AMD, AppleAnd Qualcomm Use TSMC’s manufacturing facilities produces chips for its products. With the demand for AI-powered smartphones and PCs Ready for take offThis could be another lucrative growth driver for TSMC.

All of this explains why analysts predict TSMC will follow healthy earnings growth going forward.

TSM EPS Estimates for the Current Fiscal Year data Y Charts

More importantly, investors can buy this stock right now at an attractive 21 times forward earnings. Nasdaq-100 the index’s forward earnings are a multiple of 30 (using the index as a proxy for technology stocks). So, investors who want to add artificial intelligence stock Investors investing in their portfolios in November should definitely take a closer look at TSMC as it has the potential to deliver further upside.

2. Twitter

Twilio operates in the communications platform as a service (CPaaS) market, providing customers with application programming interfaces (APIs) through which they can connect with their customers through multiple channels such as voice, video, chat, email, and others. . The company also provides a customer data platform, where a company creates a central database containing all interactions with its customers.

Twilio now combines its communications expertise with customer data to use AI to help its customers improve their customer service experiences and sales. The company drew attention in its latest statement earnings conference call It is “embedding artificial intelligence and machine learning across the entire Twilio platform,” and says the move will allow it to “automate capabilities, increase productivity, and increase personalization at scale.”

Management added that customers who started using Twilio’s artificial intelligence tools saw an improvement in their sales performance. CEO Khozema Shipchandler said on the earnings call:

The adoption of AI tools by Twilio customers is now driving an improvement in the company’s sales. It reported third-quarter revenue growth of $1.13 billion, up 10% year over year; This is a good improvement compared to the 5% annual growth it recorded in the same quarter last year. Even better, Twilio’s addition of AI tools to its platform encourages customers to spend more money.

This is evident in the third quarter when the net expansion rate in dollar terms was 105%, again representing an improvement on the previous year’s reading of 101%. A net expansion rate of over 100% in dollar terms means Twilio’s existing customers are using more of the company’s solutions or adopting more of its offerings. That’s because this metric compares Twilio’s customers’ spending in the quarter to the same customer group’s spending in the previous year.

Rising customer spending and Twilio’s focus on keeping costs under control are why its earnings rose an impressive 76% year-over-year to $1.02 per share in the previous quarter.

Consensus estimates expect Twilio’s earnings to grow at almost 20% annually over the next five years; This means the dividend could reach $6.09 per share in 2028 (based on earnings of $2.45 per share in 2023).

Assuming it hits that goal within the next five years and (at that time) trades in line with 30 times the forward earnings of the Nasdaq-100 index, its stock price could reach $183. This would represent a 110% increase from current levels.

Twilio currently trades just 22 times forward earningsThis means it is attractively valued. Investors have a chance to buy before we go higher following its latest quarterly report.

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Hard Chauhan It has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing and Twilio. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a feature disclosure policy.