Artificial intelligence (AI) is already transforming many industries, but not all tech companies will benefit equally. The companies with the most potential notched their AI lead years ago before their rivals had even jumped on the AI trend.
The competitive moats established by Alphabet (GOOG -0.65%) (GOOGL -0.71%) and Taiwan Semiconductor (TSM 0.04%) could be significant as AI grows, resulting in impressive gains similar to how AI darling Palantir has benefited recently. There are no guarantees that these two companies will see their share prices rise by more than 800% like Palantir's have over the past two years, but their competitive positions are certainly setting them up for success. Here's how.
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Alphabet is building the AI services of the future
Alphabet has invested in AI for many years, but as the AI tech wars have heated up, it's now accelerating its AI offerings. A series of videos on Google's blog show an upcoming version of Gemini 2.0, the company's AI agent, in what the company says will help bring about the "agentic era."
One particularly interesting clip shows Gemini 2.0 shopping online for a user, adding relevant items to their shopping cart with just a brief description of what they want. Another video shows the AI agent embedded into smart glasses, helping someone remember their passcode for getting into their building and giving them real-time descriptions of what they see around London.
The company says the AI agents will be able to remember, complete tasks with multiple instructions, and make decisions on their own. We're still in the beginning stages of this market, but Nvidia CEO Jensen Huang recently said that AI agents could be a "multitrillion-dollar opportunity" in the coming years.
And that's not the only AI advantage Alphabet has. The company also owns the autonomous ride-hailing company, Waymo. Developing self-driving vehicles is expensive and difficult, and Waymo is far ahead of the competition, with the company averaging 100,000 paid trips per week.
The global ride-hailing market will be worth an estimated $11 trillion by 2030, creating a massive market that autonomous vehicle services like Waymo can tap into. Waymo also recently finished a funding round that values the company at $45 billion, making it an important asset to Alphabet's AI future.
Taiwan Semiconductor is ahead of the AI chip-manufacturing curve
Every major technology company offers some sort of AI service, and more services are being developed all the time. This has led to a surge in AI infrastructure spending, with large tech companies pouring money into data centers to keep up with increasing processor demand.
The result could be a doubling of data center spending over the next five years, reaching an estimated $2 trillion. And here's where Taiwan Semiconductor, also called TSMC, comes in. The company holds an estimated 90% of the world's most advanced chips, giving the company a massive advantage as AI spending ramps up.
Not only does TSMC hold the lead in AI chip manufacturing, but the company also has more advanced manufacturing processes that set it apart. For example, TSMC's 3-nanometer (3nm) manufacturing technology is the "industry's most advanced semiconductor technology," offering the best power and performance that AI players, including Nvidia, AMD, and Google, have already tapped into.
TSMC will take its advantage a step further when the company begins its 2nm process later this year, which will be the most advanced tech in the semiconductor industry in both density and energy efficiency.
Both of these AI stocks look well priced right now
Taiwan Semiconductor's shares have a forward price-to-earnings (P/E) ratio of 22.7. Alphabet's is 21.8, making both stocks relatively well priced compared to the S&P 500's forward P/E ratio of 23.2.
The latest research from PwC estimates AI could become a $15.7 trillion market by 2030. That's too big of a market to ignore, and considering TSMC and Alphabet shares are relatively inexpensive right now, investors would be wise to consider putting some money toward these two tech leaders as AI grows.
