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

The last couple of years have been absolutely phenomenal for tech stocks, as evidenced by the 90% growth recorded by tech stocks. Nasdaq-100 Technology Sector index over this period, and artificial intelligence (AI) is one of the main reasons for this remarkable surge.

After all, artificial intelligence has created significant demand for equipment such as semiconductors and server components, and creates a need for software that can be used in real-world situations to help users improve their productivity and efficiency. Specifically, demand for artificial intelligence hardware is projected to increase 31% per year through 2035, generating annual revenue of $624 billion.

Meanwhile, the artificial intelligence software market is expected to grow at a compound annual growth rate of nearly 34% over the next five years. That’s why we’ll take a closer look at the future of AI. Taiwan semiconductor manufacturing (New York Stock Exchange: TSM)commonly known as TSMC, and Twilio (New York Stock Exchange: TWLO)two companies that can help investors take advantage of the growing demand for both hardware and software for artificial intelligence.

1. Taiwan semiconductor manufacturing

Semiconductors play a critical role in the rise of artificial intelligence: AI models are trained using chips such as graphics processing units (GPUs), central processing units (CPUs), and application-specific integrated circuits (ASICs). It is for this reason that such Nvidia, Advanced microdevices, BroadcomAnd Marvell Technology are seeing strong demand for their chips.

The common link between these companies is TSMC. The semiconductor companies mentioned above are fabless by nature, meaning they simply design their chips and outsource production to a foundry like TSMC. As a result, TSMC reported a stunning acceleration in its growth this year.

The Taiwanese foundry giant’s revenue in the first nine months of 2024 rose 32% year-on-year. For the full year, TSMC management expects revenue to increase nearly 30%. This puts the company’s revenue at $90 billion, based on the company’s 2023 revenue of $69.3 billion. It’s worth noting that TSMC’s revenue shrank nearly 9% last year as the company struggled due to weak demand for smartphones and personal computers (PCs).

However, the emergence of a new catalyst in the form of artificial intelligence has markedly changed TSMC’s fortunes in 2024, as evidenced by the impressive growth it achieved in the first nine months of the year. This is not surprising, since demand for artificial intelligence chips has simply increased: Future Market Insights estimates that the market could achieve an annual growth rate of 26% over the next decade.

This gives TSMC a tremendous opportunity to deliver sustainable growth for years to come, given that it makes chips for major players in this market. Moreover, according to Counterpoint Research, TSMC is the world’s leading foundry company with a market share of 62%. This further confirms the fact that the company intends to play an important role in the growth of the AI ​​chip market in the long term.

However, TSMC’s AI prospects don’t end there. The company also makes chips for consumer devices such as smartphones and PCs. AMD, AppleAnd Qualcomm use TSMC manufacturing facilities for production of chips for its products. Considering the demand for smartphones and PCs with support for artificial intelligence ready for takeoffthis could prove to be another profitable growth driver for TSMC.

All of this explains why analysts predict that TSMC will expect healthy earnings growth in the future.

TSM EPS Estimate for Current Fiscal Year data on YCharts

More importantly, investors can buy this stock now at an attractive 21 times forward earnings, which represents a discount to Nasdaq-100 forward index return multiple of 30 (using the index as a proxy for technology stocks). Thus, investors wishing to add AI stocks to add to your portfolios in November, you should definitely take a closer look at TSMC as it has the potential for more growth.

2. Twilio

Twilio operates in the communications platform as a service (CPaaS) market, offering clients 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 through which it creates a centralized database containing all of the company’s interactions with its customers.

Twilio is now using artificial intelligence to help its clients improve customer experience as well as sales by combining its communications expertise with customer data. The company announced its latest conference call with income that the company is “embedding artificial intelligence and machine learning across the entire Twilio platform,” a move it says will allow it to “automate capabilities, improve productivity, and enable personalization at scale.”

Management added that customers who started using Twilio’s AI tools saw improvements in their sales performance. CEO Josema Shipchandler said on the earnings call:

The adoption of artificial intelligence tools by Twilio customers is now helping to improve the company’s sales. The company reported third-quarter revenue growth of 10% year-over-year to $1.13 billion, a good improvement from the 5% year-over-year growth recorded in the same quarter last year. Moreover, Twilio’s addition of artificial intelligence tools to its platform encourages customers to spend more money.

This is reflected in the net dollar growth rate of 105% in the third quarter, again an improvement over last year’s 101%. A net dollar expansion rate greater than 100% means existing Twilio customers have increased their use of the company’s solutions or adopted more of its offerings. That’s because this metric compares Twilio customers’ spending in a quarter with the same group of customers spending during the same period last year.

Improved customer spending and Twilio’s efforts to control costs are the reasons why its earnings grew an impressive 76% year-over-year to $1.02 per share in the prior-year quarter.

Consensus estimates call for Twilio’s earnings to grow nearly 20% annually over the next five years, meaning its net income could reach $6.09 per share in 2028 (using 2023 earnings of $2. 45 per share as a basis).

Assuming the company hits that mark over the next five years and trades at (then) a Nasdaq-100 Index forward earnings multiple of 30, its share price could reach $183. This would be an increase of 110% over current levels.

Twilio is currently traded only 22 times forward profitwhich means it has an attractive value. Investors have the opportunity to buy it. before it gets higher after its last quarterly report.

Don’t miss your second chance at a potentially profitable opportunity.

Have you ever felt like you missed out on an opportunity to buy the best performing stocks? Then you’ll want to hear this.

In rare cases, our expert team of analysts issues Promotion “Double the rate” recommendations for companies that they think are about to become popular. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you had invested $1,000 when we doubled down in 2010, you will have $23,324!*

• Apple: if you had invested $1,000 when we doubled down in 2008, you will have $42,133!*

• Netflix: if you had invested $1,000 when we doubled down in 2004, you will have $420,761!*

We’re sending out Double Down alerts for three great companies right now, and there may not be another chance like this anytime soon.

See 3 Double Down promotions »

*Stock Advisor returns as of November 4, 2024.

Harsh Chauhan 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 disclosure policy.