These tech leaders trade at reasonable valuations despite reporting strong growth in AI.
Artificial intelligence (AI) is a massive opportunity for investors. Just as the internet spawned several new industries, such as e-commerce and smartphones, AI will also create new industries in the next 20 years that don’t exist today.
Sticking with industry-leading tech companies that are enabling the AI revolution is all you need to do well. If you have a few thousand dollars you’re committing to a long-term investment plan, here are two AI stocks you can buy and hold for the long term.
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1. Taiwan Semiconductor Manufacturing (TSMC)
Shares of Taiwan Semiconductor Manufacturing (TSM 2.58%) have delivered outstanding returns for investors over many years. It’s the largest chip manufacturer in the world. Top AI companies like OpenAI and Alphabet‘s Google (GOOGL 3.10%) (GOOG 2.98%) are using TSMC to build their chips. This puts TSMC in a lucrative position to capitalize on the AI boom.
Importantly, TSMC’s long-term track record of delivering profitable growth is why you can sleep well at night investing in this stock. Over the last 10 years, revenue grew 14% on an annualized basis, and that includes a few soft demand cycles along the way, yet AI chip demand is causing revenue to accelerate. The company’s revenue grew 44% year over year in the most recent quarter.
The momentum continues to build for TSMC. For example, Google just announced its Tensor G5 AI chip will be made by TSMC and deliver improved performance for AI features on Google’s Pixel phones.
Meanwhile, ChatGPT maker OpenAI is tapping TSMC for its first custom AI chip. Given the lead times for making new chips, TSMC should be mass-producing OpenAI’s new chip in 2026. This is a positive indicator for TSMC’s future growth.
While some on Wall Street might be concerned about spending on AI infrastructure, including chips, running out of gas in the near future, the key signal for investors is that the largest tech companies continue to guide for more capital spending in data centers and AI infrastructure, which benefits TSMC. The company expects growth for advanced AI chips to increase more than 40% annually over the next five years.
Despite these demand trends, the stock is still reasonably priced. At a forward price-to-earnings ratio of 23, investors should continue to outperform the broader market with TSMC stock.
2. Alphabet (Google)
Alphabet is benefiting from multiple growth opportunities. The company hauled in $371 billion in trailing revenue over the last year from advertising, cloud computing, and AI. The stock also trades at a reasonable valuation that suggests it’s likely undervalued, especially as its cloud computing business continues to report strong growth.
Alphabet has more than 2 billion users across seven products, making Google one of the most valuable brands. Its investments in AI features are making its products more useful and driving solid gains for its core advertising businesses like Search and YouTube. Google Search reported another solid quarter of growth with ad revenue increasing by 12% year-over-year in Q2.
The company’s advantage in AI can be seen in the growth happening at Google Cloud. Cloud revenue grew 32% year-over-year last quarter, and this lifted the segment’s operating profit to $2.8 billion for the quarter, up from $1.2 billion in the same quarter last year. This shows businesses are increasingly choosing Google Cloud at a time when there is stronger competition than ever in the cloud market due to AI.
Alphabet said it will spend $85 billion in capital expenditures this year to meet cloud demand. Despite spending this huge amount on technology infrastructure, management expects the demand-supply situation for cloud services to remain “tight” entering 2026. This indicates incredibly strong demand that should see Alphabet’s cloud business continue to report high double-digit growth for the foreseeable future.
This echoes the strong demand for AI chips that TSMC is seeing in its business, and suggests that the AI opportunity is still in the early innings. Despite Alphabet’s strong competitive advantage with billions of people using its services every day, in addition to a booming enterprise cloud business, the stock trades at a reasonable forward P/E of 20. This makes Alphabet stock a solid long-term buy.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.