Three Notable Artificial Intelligence Shares to Consider Purchasing in November
Almost every tech corporation now boasts about their artificial intelligence capabilities. I get why, given AI's significant impact on various software and services.
Yet, just because numerous companies are swiftly integrating AI, it doesn't make them top AI investments. Instead, focus on industry leaders deeply engaged in this sector, setting the pace in the AI competition. Here are three prominent AI investments leading the charge that you might consider at the moment.
1. Palantir Technologies
Palantir Technologies (PLTR (-2.17%)) was in the business of assisting organizations manage data prior to AI's widespread adoption. For years, it specialized in employing AI to help the government sift through massive amounts of data, but it's since expanded into the commercial market.
Its early advantage in this domain is yielding benefits. The company recently reported its third-quarter results (ending Sept. 30), showing revenue rising 30% from the previous year to $726 million, while adjusted earnings per share surged 43% to $0.10.
U.S. commercial revenue, a rapidly expanding part of Palantir's business, increased sales by 54% to $179 million, accounting for approximately one-quarter of the company's total revenue in the quarter. A portion of this growth stems from Palantir's impressive customer growth, which expanded by 39% in the quarter, including 104 customer deals worth $1 million or more.
My only concern with Palantir is the company's elevated valuation. Palantir's shares currently have a forward price-to-earnings ratio of 101. This is costly by any standard.
However, the company is strategically positioned in the AI race and is financially sound, boasting $4.6 billion in cash and cash equivalents. With companies clamoring for its technology and sales and earnings growing at a robust pace, Palantir may still have room to grow.
2. Nvidia
Nvidia (NVDA (-2.69%)) is a natural choice when talking about top AI investments. For years, the company has reigned supreme in the graphics processing unit (GPU) market, primarily used for gaming. But now, its GPUs are the go-to choice for powering AI data centers as well.
The latest projections place Nvidia's chips between 70% to 95% of the AI chip market, and its recent product lineup, including its well-known H200 processor, is expected to maintain their edge over competitors for some time.
You might question if demand for AI chips can sustain growth for Nvidia. To that, I'd say that both Nvidia's CEO Jensen Huang and Goldman Sachs believe $1 trillion in AI spending will happen over the next few years, with most of it allocated to data centers.
Even with Nvidia's remarkable 380% price increase over the past three years, its forward P/E ratio of 35.8 is still comparatively low to some other AI investments. Despite its expensive valuation, Nvidia is unquestionably the leader in the AI processor market, and AI spending is still just starting to pick up pace.
The company's early advantage and advanced processors should help it stay ahead of competitors, and the intense AI competition among all tech companies will drive Nvidia's success for an extended period.
3. Taiwan Semiconductor Manufacturing
Investors can also gain exposure to the AI space through chip manufacturing. There are chip designers, such as Nvidia, and then there are the companies that actually produce the processors, like Taiwan Semiconductor Manufacturing (TSM (-3.63%)).
TSM generates about 90% of the world's most advanced processors, and the AI boom is propelling the company's growth. TSM recently reported impressive third-quarter financial results a few weeks ago (for the period ending Sept. 30), with sales rising 39% to $23.5 billion and diluted EPS skyrocketing 54% to $1.94 per American depositary receipt (ADR).
TSM's management reported third-quarter growth was driven by "strong smartphone and AI-related demand" and that more growth is on the horizon. The company projects fourth-quarter sales will increase 35% at the midpoint of guidance.
TSM boasts the lowest forward P/E ratio on this list, at just 21.2, making it a bargain compared to its AI peers. With TSM at the helm of advanced chip processor manufacturing, the company is ideally situated to capitalize on more companies ramping up their AI data center spending.
After recognizing the potential of AI investments, it's crucial to conduct thorough research before making any financial decisions. Considering the three prominent AI investments mentioned earlier, Palantir Technologies, Nvidia, and Taiwan Semiconductor Manufacturing, each has a unique role in the AI sector.
Palantir Technologies, with its robust data management and AI capabilities, has shown impressive growth in its commercial market, reporting a 30% revenue increase and a 43% surge in adjusted earnings per share in the third quarter. This growth is powered by strong customer growth and expanding sales, making it an attractive option for investors, despite its elevated valuation.
