It’s hard to avoid the fearful “AI bubble” comments these days, especially as the big technology companies move into earnings where, of course, there’s a fairly high bar. Amazon and Taiwan Semiconductor can give you pause and are actually value picks right now.
And while it’s been a while (Liberation Day) since we’ve had a big correction, I do think that the big drop could see investors really hit the panic button over the potential for the sell-off to get horrifically bad.
While it’s always wise to consider the downside risks, even when you couldn’t be more bullish, I think that investors shouldn’t proceed forward with the expectation that the AI boom in stocks will lead to a massive crash, like during the dot-com bust, or the horrific implosion of 1929.
Of course, if you bring up the year 2000, 2001, or 1929, you’re going to get attention, as you ring the alarm bells on valuations in today’s market. However, I think it’s a bit of a stretch to think things could get as bad as these often-referenced historic extremes, especially as artificial intelligence (AI) technology leads to greater automation in the workplace.
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- Amazon and Taiwan Semiconductor are intriguing AI stocks that aren’t bubbly in the slightest.
- As long as the valuations and fundamentals make sense, it’s tough to dismiss the whole market or the AI theme as a whole as a bubble.
- Nvidia made early investors rich, but there is a new class of ‘Next Nvidia Stocks’ that could be even better; learn more here.
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AI bubble or not, there are some AI stocks that look cheap
Undoubtedly, if we are due for the end of the so-called “no hire, no fire” era and the start of mass layoffs (AI will probably have a lot to do with the cuts if we are headed for another year of efficiency), perhaps it makes more sense to worry about the bullish extreme with AI than the bearish one (a bubble bursting). Either way, there are doomsdayers on both sides of the equation. If AI takes off too fast, investors will land big gains, but perhaps at the cost of employment as we know it.
Though it’s worth hearing out the arguments for and against AI bubbles or a more optimistic AI boom that sees artificial general intelligence and superintelligence replace humans across the labor market sooner rather than later, I think investors should stay the course and insist on investing in value, which, I think, is still abundant in today’s scorching-hot market as the S&P 500 looks to break 6,900. Here are three AI stocks that challenge the notion that we’re in an AI bubble:
Amazon
Amazon (NASDAQ:AMZN) is an underestimated AI play in the Magnificent Seven, but that could change as the firm continues to invest opportunistically in the space. With the e-commerce and public cloud giant recently slashing 14,000 corporate roles to become “leaner in the AI era,” questions linger as to whether other big tech firms will follow in its footsteps.
Undoubtedly, there’s been hefty AI spending of late, and, with that, could come yet another so-called “year of efficiency.” Arguably, I’d say the current climate rhymes most, not with the 2000-01 bubble bust, but the 2022-23 reigning in of spending. Such a move helped kick off a historic bull run in tech stocks in the years that followed. The only difference this time around is that rates are falling.
Either way, Amazon is rebuilding with AI in mind, and with Amazon Web Services (AWS) poised to get a big AI jolt, I’d not sleep on Amazon. It’s a relative value play after gaining just 50% in the past five years. It’s trailed the S&P over the timespan, and with a 25.8 times forward price-to-earnings (P/E) multiple, the AI innovator has not looked this cheap in a long time. Sure, AWS could use more of an AI boost, but investors might not have to wait long as Amazon doubles down on AI.
Taiwan Semiconductor
Taiwan Semiconductor (NYSE:TSM) is arguably one of the biggest pillars holding up the AI boom. It’s the foundry giant that’s critical to the AI chip boom, and while business has surely been booming, the stock still doesn’t look appropriately valued. Maybe that’s due to the geopolitical risks of being based in Taiwan, the cyclical nature of chips, or something else. Either way, I think the multiple vastly discounts the sustained, highly profitable growth that lies ahead.
At 25.3 times forward P/E, TSM stock looks like no bubble. In fact, the opposite might be true for a firm whose economic moat is wider than you can imagine.
As Taiwan Semiconductor goes all-in on AI, I see room for margin gains and multiple expansion. And if U.S.-China relations improve by leaps and bounds (the latest Xi-Trump meeting suggests such, in my opinion) from here, I think TSM stock could be the AI value stock to own for the long run.
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