3 AI Stocks to Buy Sitting in the Sweet Spot

Stocks to buy

AI stocks to buy are increasingly getting a lot of attention. Investors cannot overlook its tremendous potential. With fresh developments constantly being made, AI stocks are fast becoming an enticing investment option.

With AI already being used in healthcare and finance to enhance decision-making processes, improve efficiency, and lower costs, there has been a significant increase in demand for AI products and services. As a result, we expect AI stocks to experience significant growth in the foreseeable future.

It is hard to state the size of the AI market firmly. However, Precedence Research expects the artificial intelligence market to reach $1,591.03 billion by 2030, with a compound annual growth rate (CAGR) of 38.1% from 2022 to 2030.

Regardless of any estimates, one thing is for sure. AI is here to stay and will transform various industries. Under these circumstances, investors need to remain vigilant. They cannot let this opportunity slip. Despite not being immediately apparent, AI will inevitably penetrate every industry in the future. Therefore, investing in AI stocks is a great way to diversify your portfolio.

The following article contains three AI stocks to buy with solid operating models and prospects. If you want to invest in forward-thinking companies, it is worth considering these three:

MSFT Microsoft $277.26
TSM Taiwan Semiconductor Manufacturing $94.23
ANET Arista Networks $168.04

Microsoft (MSFT)

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In 2019, the software giant Microsoft (NASDAQ:MSFT) invested $1 billion in OpenAI. Because of the partnership, Microsoft Azure became OpenAI’s exclusive cloud provider.

In January 2023, Microsoft furthered its commitment to OpenAI with a new multiyear, multi-billion-dollar investment. The software giant is reportedly investing $10 billion in OpenAI, the company behind the AI tool ChatGPT. The innovative platform is why the entire investment world is taking notice of AI.

By combining its own proprietary Prometheus model with OpenAI’s model, Microsoft aims to revamp its Bing search engine. Whether or not Microsoft can take away meaningful search share from Google is debatable.

As of January 2023, Bing, the online search engine, held approximately 8.85% of the global search market. Google, the market leader, had a share of around 84.69%. Yahoo’s market share was recorded at 2.59%.

While it is hard to say whether Microsoft’s Bing search engine will capture significant market share from Google, Microsoft is leading the way in adopting AI-enabled enterprise use cases.

In non-AI related developments, Kirk Materne, an analyst at Evercore ISI, upped his target on the software giant from $280 to $295. According to the Financial Times, Microsoft is planning to launch a new mobile gaming app store in the upcoming year, subject to regulatory approval of its bid to acquire Activision Blizzard (NASDAQ:ATVI).

However, Microsoft’s 10% drop in share price over the past year reflects the current state of the tech industry. Since the beginning of this year, over 100,000 layoffs have occurred in the tech industry. As a result, investors have been skeptical of tech companies’ growth potential.

But Microsoft is a proven performer. And its AI initiatives are yet another reason to buy. Hence, any weakness is a great opportunity to purchase more stock.

Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)

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Taiwan Semiconductor Manufacturing (NYSE:TSM) is the largest semiconductor foundry in the world, specializing solely in semiconductor fabrication.

TSM’s cutting-edge process technology and advanced packaging services facilitate the development of AI technology by enabling the design of advanced chips. It is a pick-and-shovel play among AI stocks.

However, over the past year, TSM stock is down almost 14%, mainly because analysts expect a slowdown this year, as its main customers experience post-pandemic headwinds.

AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) experienced significant growth during the pandemic. That comes as no surprise. Due to the crisis to increased demand for PC upgrades for online classes, remote work, and gaming. However, this growth has slowed down as lockdowns ended.

Qualcomm (NASDAQ:QCOM) benefited from the 5G upgrade cycle. Still, the end of that cycle, coupled with inflationary headwinds and COVID-19 lockdowns in China, has reduced the market’s interest in new smartphones.

However, despite facing competition in the manufacturing of smaller, more energy-efficient chips, TSMC continues to do well.

In the fourth quarter of 2022, TSMC earned 32% of its revenue from 5nm chips, 22% from 7nm chips. Meanwhile, 54% of total wafer revenue came from the segment defined as 7-nanometer and more advanced technologies.

TSMC is anticipated to generate additional revenue from the 5nm node this year, as it ramps up production for its latest 3nm chips, which are estimated to make up a “mid-single-digit” percentage of the company’s 2023 revenue.

Considering these circumstances, TSMC presents an enticing prospect among AI stocks to buy.

Arista Networks (ANET)

Source: Sundry Photography / Shutterstock.com

Arista Networks (NYSE:ANET) is at the forefront of providing cloud networking solutions to enterprise data centers, cloud service providers, and internet companies.

Its products include high-performance switches, routers, and other network equipment designed to meet the demands of high-bandwidth, low-latency applications.

AI workloads are bandwidth-intensive, requiring many interconnected processors and gigabits of throughput. GPUs employed for AI training can carry out billions of operations in parallel. With the increasing sophistication of AI models, the networks they operate on have also become more advanced.

In response, Arista’s switches are optimized to meet the escalating need for speedy and reliable data transmission within and between data centers. The switches will provide the required performance and scalability to tackle even the most arduous applications.

Jayshree Ullal, President and CEO of Arista Networks, declared that the fiscal year 2022 proved remarkable for the company, even amidst industry-wide supply chain obstacles. Arista Networks surpassed growth, revenue, and profitability projections, with a revenue of $4,381.3 million, a significant rise of 48.6% from the previous fiscal year of 2021.

Considering the expanding AI industry, investing in this stock could be wise.

On the publication date, Faizan Farooque did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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