Key Points
Nvidia is becoming more than just a GPU company.
Amazon's recent rally could just be the start.
TSMC is well positioned to continue to be a big AI winner.
Tech is back! After a short period where investors decided to rotate out of technology and growth stocks and into value-oriented names, artificial intelligence (AI) stocks have returned to their rightful leadership positions. Tech continues to reshape the world we live in at a rapidly increasing pace, so it ultimately makes sense that this group is going to lead the way over the long term.
The rebound in the tech-heavy Nasdaq index has been swift, but there are still great AI stocks to buy. Let's look at three.
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Nvidia: An evolving AI giant
As the Nasdaq rallies to new highs, you don't have to go out on a limb trying to find some obscure stock to play this rally. Instead, it's easier to stick with the leader who helped get you here in the first place. That leader, of course, is Nvidia(NASDAQ: NVDA), which has just seen explosive growth over the past five years. Meanwhile, demand for its graphics processing units (GPUs) shows no signs of slowing down.
The great thing about Nvidia, though, is that the company isn't resting on its laurels; instead, it is smartly evolving. The company is moving to where the ball is going, transforming into a complete AI infrastructure provider that is now positioning itself for both inference and agentic AI. Great tech companies need to evolve, and Nvidia is showing it's more than a one-trick pony. That's what makes it a long-term buy.
Image source: Getty Images.
Amazon: Getting its groove back
Don't look now, but Amazon's (NASDAQ: AMZN) stock has its mojo back. After several years of underperformance, the stock is rallying, and I think it still has a long way to go. The company is the largest cloud computing provider in the world, and growth from its most profitable segment is now starting to accelerate. The company is nicely entrenched with Anthropic, which should help continue to power growth.
Meanwhile, the company's custom chip business should not be underestimated. Amazon recently noted that this is a $20 billion run-rate business, or $50 billion when including internal use. The company has long had chips specifically for both training and inference, and this strategy has now been validated by others. For example, Alphabet split its Tensor Processing Units (TPUs) into two to separately handle these tasks moving forward, and Nvidia entered a non-exclusive licensing agreement with Groq to leverage its language processing unit (LPU)-based inference technology and bolster its inference capabilities. Moreover, Amazon also has a central processing unit (CPU) offering, which positions it well for agentic AI, as servers dedicated to AI agents need a lot of CPUs. Ultimately, its chip business gives it a nice cost advantage in the AI race.
At the same time, Amazon's use of AI and robots in its e-commerce segment has been leading to strong efficiency gains and robust operating leverage, while it is embracing a new growth driver with satellite internet. This is a stock just starting to hit its stride, and one you want to own.
Taiwan Semiconductor Manufacturing: The more the merrier
While not in the Nasdaq index, Taiwan Semiconductor Manufacturing(NYSE: TSM) is another top AI stock to own here. The company has a near monopoly on the manufacturing of advanced logic chips, and booming demand for GPUs, CPUs, and other AI chips is a huge boon for the company.
The great thing about TSMC is that it is benefiting from not only the AI chip market expanding, but also from hyperscalers (owners of large data centers) starting to use more chip suppliers. While Nvidia is likely to remain the top dog, TSMC is also starting to see strong business from application-specific integrated circuit (ASIC) providers like Broadcom and Marvell, which are helping customers develop custom chips. Meanwhile, the need for high-performance CPUs adds another growth driver.
With multiple companies clamoring to get access to its newer processing capacity, it also gives TSMC strong pricing power. This should both drive growth and keep its gross margin high. That makes the stock a solid long-term buy.
Should you buy stock in Nvidia right now?
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Geoffrey Seiler has positions in Alphabet, Amazon, and Broadcom. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Marvell Technology, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
