As winter begins to fade and March approaches, the landscape of investing is shifting, particularly in the realm of artificial intelligence (AI). The momentum surrounding AI is not just a fleeting trend; it is poised to remain a dominant theme well into 2025. For investors, this means it’s crucial to strategically position their portfolios to capitalize on the burgeoning opportunities within this sector.
Top Stock Picks for March: AI Facilitators and Hardware Providers
In the current market, I’ve identified four standout stocks that are worth considering this March. These can be categorized into two distinct groups: AI facilitators and AI hardware providers.
AI Facilitators: Alphabet and Meta Platforms
Alphabet (GOOG, GOOGL) and Meta Platforms (META) are at the forefront of the AI revolution, acting as key facilitators in the ongoing AI arms race. Both companies have developed generative AI models that cater to a wide range of users. Alphabet’s Gemini and Meta’s Llama models are prime examples of how these tech giants are leveraging AI to enhance their offerings.
While both models serve similar purposes, their operational frameworks differ significantly. Meta’s Llama model is available for free, allowing users to access its capabilities without a subscription. This strategy enables Meta to gather extensive data, which is invaluable for training future AI models. Conversely, Alphabet’s Gemini offers a free version, but users can unlock advanced features through a premium subscription. Notably, Gemini is also integrated into Google Search, enhancing its utility and reach.
The impact of AI on both companies is profound, prompting substantial investments in their AI capabilities to meet growing demand. Recently, both stocks experienced a downturn due to broader tech market weaknesses, presenting a potential buying opportunity for investors. With Meta trading at 26 times forward earnings and Alphabet at 19.5 times, both stocks appear to be attractively priced given their growth potential.
GOOGL PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio.
AI Hardware: Taiwan Semiconductor and ASML
The advancements in AI would not be possible without the crucial role played by chip manufacturers and equipment suppliers. Taiwan Semiconductor (TSM) and ASML (ASML) are two companies that stand out in this regard.
Taiwan Semiconductor is the largest contract chip manufacturer globally, producing chips for many leading tech firms. The company is witnessing a significant surge in demand for its AI-related chips, with management projecting an impressive 45% compounded annual growth rate (CAGR) over the next five years. This growth underscores the escalating need for hardware to support AI innovations.
However, to meet this rising demand, Taiwan Semiconductor must invest in advanced machinery, which is where ASML comes into play. ASML is the sole manufacturer of extreme ultraviolet lithography machines, essential for creating the intricate designs found on modern chips. The company’s technological monopoly, backed by decades of research and substantial investment, positions it as an irreplaceable player in the semiconductor industry.
Both ASML and Taiwan Semiconductor are not only beneficiaries of the AI arms race but also stand to gain from the overall increase in chip usage across various sectors. Fortunately for investors, both stocks are currently priced at attractive entry points.
ASML PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio.
The valuations of TSMC and ASML reflect their leadership positions in their respective markets, making them compelling investment opportunities this March. As the AI arms race continues to unfold, these stocks are likely to emerge as long-term winners in the market.
Disclosure
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. Suzanne Frey, an executive at Alphabet, is also a member of The Motley Fool’s board of directors. Keithen Drury holds positions in ASML, Alphabet, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Alphabet, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
