3 AI Stocks Poised for Growth Amidst Stock Market Decline

As the stock market faces a decline amid uncertainty regarding tariffs' impact on the economy, this situation is uncovering numerous investment prospects within the field of artificial intelligence (AI). Since 2023, AI has led the charge in the financial markets, which explains why these stocks are among the initial ones being liquidated as investors secure their profits. Additionally, some of these AI companies carry high valuations justified solely by robust investor confidence; without such optimism, those premiums wouldn’t hold up.

My attention isn’t on short-term market trends over the coming months or perhaps even the upcoming year. Rather, my focus lies on predicting where the market might be headed three to five years down the line. Given this outlook, AI stocks remain among the most promising opportunities available today. Consequently, I believe savvy investors ought to view the present downturn as a chance to acquire undervalued AI-related shares at more attractive prices.

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Further development lies ahead for these leading AI corporations.

Several AI stocks can currently be bought, yet my attention is drawn to those offering the strongest potential for growth over time. This focus directs me towards Nvidia (NASDAQ: NVDA) , Taiwan Semiconductor Manufacturing (NYSE: TSM) , and Broadcom (NASDAQ: AVGO) I believe these three selections are excellent choices since they're anticipated to see significant expansion in the coming years.

The CEO of Nvidia, Jensen Huang, envisions data center capital expenditures approaching $1 trillion by 2028. However, the firm will not seize the entire market since various aspects of data centers extend beyond what Nvidia offers. GPUs It is expected to account for a significant portion of that expenditure. Consequently, it will likely experience robust growth in the coming years, which makes it an excellent stock to invest in, particularly since it has dropped by about 25% from its peak levels.

Like Nvidia, Broadcom stands to benefit significantly from this extensive development. Despite having various product lines, Broadcom’s specialized AI accelerator segment is beginning to gain traction. These custom accelerators, referred to by Broadcom as XPUs, rival Nvidia’s GPUs since both serve as hardware options for executing AI tasks. Nonetheless, these workloads require precise configuration for XPUs, making them highly effective for specific jobs yet less suitable for others.

Although XPUs might outperform GPUs in terms of power, their limited versatility means they won’t entirely take over the AI computing industry. That’s fine since there remains significant demand for these XPUs. The company anticipates a potential market ranging between $60 billion and $90 billion by 2027 for its three partners who developed an XPU alongside Broadcom. Moreover, another four clients are set to introduce their own versions of XPUs, thereby broadening this market even further. Given that Broadcom expects just $12.2 billion in AI-related earnings during fiscal year 2024, substantial expansion lies ahead.

None of these businesses have the capability to manufacture their own chips, hence they need to buy them from semiconductor foundries for use in their products. As a frontrunner in this sector, Taiwan Semiconductor provides chips to both Broadcom and Nvidia for their respective devices.

Thanks to its position as a neutral player in the semiconductor market, TSMC possesses a distinctive perspective on the future direction of the industry since chip orders frequently get booked several years beforehand. Looking forward over the coming half-decade, Taiwan Semiconductor’s leadership anticipates AI-associated earnings increasing at a compound annual growth rate (CAGR) of 45%. In general, company executives predict a revenue CAGR close to 20%, signaling substantial expansion on the horizon.

This group is anticipated to deliver substantial growth in the coming years; however, their shares are currently undervalued due to certain near-term concerns.

These shares are currently priced below their recent values.

No one can predict precisely how tariffs will impact the global economy, yet we can confidently assert that the majority of AI expenditures will probably continue. Businesses aim to gain an edge over rivals and those who invest heavily when others retreat may find themselves at an advantageous position. Consequently, much of the AI funding is expected to persist since this situation could resemble a 'game of chicken' among major AI providers.

Following the recent selloff, all of these have dropped by at least 25% from their peak values. They are now trading at appealing prices. forward price-to-earnings (P/E) ratio.

These shares have not been this inexpensive since early 2024, and they're approaching the price levels seen across the wider market. S&P 500 The stock is trading at 21.1 times future earnings, indicating that Taiwan Semiconductor is already available at a significant discount. Additionally, both Nvidia and Broadcom are not far behind in terms of valuation.

Nonetheless, we understand that these three firms are anticipated to expand at a significantly higher rate compared to the overall market in the coming years. Consequently, this presents an ideal opportunity to acquire stakes in these leading AI companies while their stock prices are discounted, following the release of their Q1 financial outcomes. is probably going to reverse these stocks' performance.

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Keithen Drury holds stakes in Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool owns shares of and advocates for purchasing Nvidia and Taiwan Semiconductor Manufacturing. Additionally, The Motley Fool endorses Broadcom. The Motley Fool has a disclosure policy .