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Globe and Mail
an hour ago
- Globe and Mail
2 Artificial Intelligence (AI) Stocks That Could Be Too Cheap to Ignore Right Now
Key Points Investors are pessimistic about Google Search's odds of survival. Taiwan Semiconductor's management projects monster growth over the next five years. 10 stocks we like better than Alphabet › Artificial intelligence (AI) stocks and "cheap" aren't often placed in the same sentence, but I think that's true of two stocks in particular. Both Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) and Taiwan Semiconductor Manufacturing (NYSE: TSM) appear to be cheap, but for two separate reasons. In a market that's growing increasingly expensive, I think taking a hard look at these two stocks is worthwhile, as the value they provide investors is near the best available. 1. Alphabet Alphabet is the parent company of Google, YouTube, Waymo, and the Android operating system. However, Alphabet derives the majority of its revenue from one source: advertisements. This is also the major concern from the market, as Alphabet's primary revenue source, the Google Search engine, is under attack from generative AI. Google Search accounted for 56% of revenue in the first quarter. While we don't have an individualized breakdown of Google Search's operating margin, the Google Services division generated an operating margin of 42%, accounting for over 100% of Alphabet's total operating profits. That's because this division funds various Alphabet investments that don't generate any profits, so this segment needs to continue performing well for Alphabet to remain attractive to investors. However, there are some signs of Google's dominance slipping, as its market share has fallen below 90% for the first time since 2015. Furthermore, many Wall Street analysts and other tech-savvy people have replaced Google Search with generative AI. As a result, many are forecasting the downfall of Google, which is why the stock trades at a huge discount to the market. GOOG PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio. At 19 times forward earnings, Alphabet's stock is far cheaper than the broader market, as measured by the S&P 500. The S&P 500 trades for 23.7 times forward earnings, so there is a tangible difference in valuation between these two securities. However, I think this bearish sentiment is unwarranted. In Q1, Google Search's revenue increased 10% year over year -- not a sign of a company that's failing. Additionally, I think the majority of the population could do without the capabilities of a generative AI web browser or search capabilities and are perfectly fine with the AI Overview Google offers at the top of every search result. We'll receive more information from Alphabet on July 23 when it reports its Q2 results, but I expect Google Search revenue to remain healthy, which could lead to the stock rising. 2. Taiwan Semiconductor Taiwan Semiconductor (TSMC) is the world's leading chip foundry, producing chips for giants such as Apple and Nvidia. TSMC has beaten out other chip foundries for multiple reasons, but chief among them is that it doesn't market any chips directly to consumers. Taiwan Semiconductor is a chip fab facility only, so its clients don't have to worry about it stealing their technology to produce a product that rivals their own. Additionally, Taiwan Semiconductor is always at the forefront of new chip technology. This remains true, as they are launching their 2-nanometer (nm) chip node later this year and a 1.6 nm offering in 2026. This dominance has enabled it to establish itself firmly at the forefront of the chip fabrication industry, and its services are in high demand. As a result, clients often place chip orders years in advance, which gives TSMC unparalleled insight into the direction the market is heading. Over the next five years, management projects a 45% compound annual growth rate (CAGR) in AI-related revenue and a nearly 20% CAGR in total revenue. That's market-crushing growth, and if it pans out, Taiwan Semiconductor stock will be a must-own. Despite management's strong track record and the obvious tailwinds in the chip industry, TSMC's stock trades at only 24.9 times forward earnings. TSM PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio. While this is technically more expensive than the broader market, the difference is only slight. Furthermore, with the market's long-term growth rate hovering at around 10%, TSMC's projected 20% growth rate significantly outpaces it. As a result, TSMC appears undervalued for its growth and should be acquired before the stock rises further. Should you invest $1,000 in Alphabet right now? Before you buy stock in Alphabet, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $652,133!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,056,790!* Now, it's worth noting Stock Advisor's total average return is 1,048% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 15, 2025 Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Alphabet, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Globe and Mail
an hour ago
- Globe and Mail
Nvidia Just Topped a $4 Trillion Market Cap, but a Different Artificial Intelligence (AI) Giant Is Headed to $4.5 Trillion, According to a Certain Wall Street Analyst
Key Points Nvidia has seen its stock soar thanks to incredible demand for its high-end GPUs. Nvidia faces challenges from other GPU makers and custom silicon projects from its biggest customers. This company is an AI leader on two fronts and trades at a reasonable valuation. 10 stocks we like better than Nvidia › Nvidia (NASDAQ: NVDA) has skyrocketed in value over the last three years to become the world's first $4 trillion company. The 10x-plus increase in value from three years ago was fueled by the massive spending on artificial intelligence (AI) infrastructure, of which Nvidia's graphics processing units (GPUs) are a key component. Nvidia's dominance of the AI chip market faces some challenges, though. Competing GPU makers are catching up in price performance, and Nvidia's biggest hyperscale customers are leaning more on their custom silicon designs for generative artificial intelligence (AI) applications. That could weigh on its continued growth. Meanwhile, another AI giant could quickly follow Nvidia into the $4 trillion club and climb to $4.5 trillion within a year, according to analysts at Oppenheimer. And right now, the stock looks even more attractive than Nvidia. Can Nvidia remain the most valuable company in the world? Nvidia has established itself as the clear leader in developing chips for AI training. Its competitive position is bolstered not just by maintaining more advanced technological capabilities than its next-closest competitor, though. It also leans on its proprietary software, CUDA, making it unlikely another chipmaker can supplant its position. That said, some of Nvidia's biggest customers, like Meta Platforms (NASDAQ: META) and Microsoft (NASDAQ: MSFT), are wary of becoming overly reliant on Nvidia for their AI training hardware needs. Meta, for example, is taking its Meta Training and Inference Accelerator platform and applying it to more and more generative AI applications. The next version of its chip is designed to replace Nvidia chips in AI training for its Llama foundation model. It's already using its own chips in some AI inference cases. Microsoft has similar aspirations for its Maia chips, but recently pushed back the timeline for its next-generation AI training chip to 2026 instead of this year. These types of setbacks have hit other hyperscalers in the past, including Meta, resulting in them putting in massive orders with Nvidia. However, as the big tech companies improve their design processes, they could displace a large portion of their demand for Nvidia's chips over time. For now, Nvidia's position looks well protected. That's especially true after news that the U.S. will reverse its ban on the sale of the throttled-down H20 chips in China. Nvidia wrote down $4.5 billion in inventory last quarter after the policy went in place. As a result, the company should produce strong earnings growth through the rest of the year, fueled by China and the hyperscalers. Still, the stock trades for a premium, approaching 40 times forward earnings estimates. At its current price and long-term hurdles, it might not be able to keep climbing as fast as some of the other big AI companies. The one company that could soon take Nvidia's crown Few companies even come close to the size of Nvidia at this point. There are just 10 companies with a market cap exceeding $1 trillion as of this writing, and just three of them are worth $3 trillion or more, including Nvidia itself. But Microsoft is the next-closest to Nvidia at about $3.8 trillion as of this writing, and it could join the $4 trillion in the near future, according to analysts at Oppenheimer. They put a $600 price target on the stock, implying a market cap of about $4.5 trillion and 19% upside from its price as of July 15. There are a couple of reasons Oppenheimer's analysts are bullish. First, they see acceleration in Microsoft's Azure cloud computing revenue. Azure has become the growth engine at Microsoft, fueled by demand for compute power needed for AI development. Microsoft's stake in OpenAI not only gives it a huge customer for Azure, but it also brings key tools for other AI developers. That's fueled significant growth in demand. And despite spending $80 billion on capital expenditures, mostly going toward building and outfitting new data centers, Microsoft's management says demand continues to outstrip supply. Even so, Azure is growing faster than any of the three big public cloud platforms. The other reason the analysts are bullish on Microsoft is the potential of its Copilot Studio. While they note demand for Microsoft's native AI assistant Copilot for Microsoft 365 is relatively tepid, the demand for its custom AI assistant platform Copilot Studio could produce much better results. That enables Microsoft to increase prices for its enterprise software suite while increasing retention rates. That should produce even more cash for the company to plow back into Azure and its massive capital return program, fueling earnings-per-share growth through higher earnings spread across fewer shares. Shares of Microsoft have grown relatively expensive in their own right, with the stock trading for about 33 times forward earnings. But that's a reasonable multiple to pay for the stock of a company that's leading the AI industry on two fronts with its cloud computing and enterprise software businesses. It's worth noting that Oppenheimer analysts updated their price target for Nvidia following the news that Nvidia expects the U.S. to reverse its ban on exporting chips to China. They now expect it to reach $200 per share, implying a market cap of $4.9 trillion. But for my money, I think Microsoft is the more attractive investment at the current price. Should you invest $1,000 in Nvidia right now? Before you buy stock in Nvidia, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $652,133!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,056,790!* Now, it's worth noting Stock Advisor's total average return is 1,048% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 15, 2025 Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Levy has positions in Meta Platforms and Microsoft. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Globe and Mail
2 hours ago
- Globe and Mail
Lucid Motors Proposes a 1-for-10 Reverse Split: Should Investors Be Worried?
Key Points Exploring how the proposed reverse stock split may impact Lucid stock. Details on a potential game-changing development that sent the stock surging higher. Whether investors can buy the news, or if they should stick to the sidelines instead. 10 stocks we like better than Lucid Group › Stock splits often generate headlines, and investors typically cheer them. However, Lucid Group (NASDAQ: LCID) recently announced that it proposed a 1-for-10 reverse stock split. Unlike a regular stock split, many investors see a reverse stock split as bad news because they typically occur when a stock has lost a significant portion of its value. Lucid fits that description; shares are down over 94% from their all-time high. But Lucid also announced a potential game changer the same day as the reverse stock split, which sent the stock soaring. Should investors worry about the stock and the company's future? What the reverse stock split means for investors Lucid's proposal is for a 1-for-10 reverse stock split. If approved, the reverse split would consolidate every 10 shares into one. So, Lucid's share price, currently $3, would be $30 following the reverse split, but there would be 10% as many shares as before. The bottom line here is that the stock's market capitalization and financial valuation remain unchanged. Stock splits don't mean as much for investors as you'd think, considering all the attention they receive. Usually, the reason for the stock split matters more than the split itself, especially for reverse stock splits. In Lucid's case, the reverse split will help the stock remain compliant with the Nasdaq stock exchange 's minimum share price listing requirements. Additionally, a higher share price may improve the stock's appeal to individual and institutional investors. The scoop on Lucid Group's brand-new partnership Lucid also dropped some major news. It announced a massive partnership with Uber Technologies and Nuro. The venture will have Lucid supply vehicles equipped with Nuro's autonomous driving technology to Uber for use in an autonomous robotaxi program. The deal involves the purchase of 20,000 vehicles over six years. Uber is also making "multi-hundred-million dollar investments" in Lucid Group and Nuro. The joint venture signals Uber's urgency to counter emerging autonomous competition from Alphabet 's Waymo and Tesla 's Cybercab. For Lucid, it provides a much-needed sales boost. The company's electric vehicle (EV) technology has garnered awards, but Lucid still sells far fewer vehicles than needed to sustain its factories and is operating at significant net and cash losses. Should investors worry about Lucid Group? By itself, the reverse stock split shouldn't worry investors. It's the stock's ongoing challenges that should. Share prices rarely experience such severe declines without reason. Lucid has continuously raised funds by issuing new stock. The resulting share dilution has a significant impact on the stock's performance. Uber's investment gives the company a financial incentive to help Lucid succeed, but it's likely going to dilute existing shareholders further. The 20,000 vehicles may also not be enough to get Lucid over the hump. That's approximately 3,333 vehicles annually, or 833 each quarter. It's a nice boost, but it's also unlikely to solve Lucid's volume problems single-handedly. Lucid delivered 3,109 units in the first quarter of 2025, generating $235 million in revenue, but reported a $366 million net loss and a $589 million cash-flow loss. It will still take a home run with its upcoming Lucid Earth, a more affordable SUV than its newly launched Gravity, to generate the volume it needs to operate profitably. Investors would probably be wise to remain cautious, at the very least, until Lucid grows its sales volume to the point where its financial losses become small enough to sustain its business operations without requiring additional fundraising. Until then, Lucid's business and stock could remain under pressure, even with its exciting new partnership. Should you invest $1,000 in Lucid Group right now? Before you buy stock in Lucid Group, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Lucid Group wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $652,133!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,056,790!* Now, it's worth noting Stock Advisor's total average return is 1,048% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 15, 2025
