Putting all of your eggs in one basket is a recipe for disaster, as you could be wrong. This has been true for the artificial intelligence (AI) investment theme as well. While you've done fantastic if your sole pick was Nvidia (NVDA -0.36%), it has been the opposite if your pick was C3.ai (AI 1.44%) (and if you use April 2023 as the starting point).
Being diversified is an important part of a well-balanced portfolio today. If you want to devote a section of your portfolio to AI, I urge you to consider a balanced approach, like investing in these three companies.
1. Taiwan Semiconductor
AI has generated such high stock returns over the past year because of its widespread effects. There are hardware companies, AI tool providers, and companies that provide the software needed to implement AI in a business. I'll choose one from each of those categories, as I think it provides a well-balanced AI investing approach.
Starting with the hardware side, I chose Taiwan Semiconductor (TSM 1.27%). While some may be shocked that I didn't choose Nvidia, I think TSMC also has a great investment thesis. Taiwan Semi is a chip foundry, which means it's an expert in fabricating chips designed by others. With a client list that includes Nvidia, AMD, Apple, and others, it's safe to say TSMC is a (if not the) top dog in its industry.
AI is expected to greatly impact the company, as management believes AI-related products will grow at a compound annual growth rate (CAGR) of 50% for the next five years. By then, AI revenue should make up at least 20% of its total revenue. Furthermore, around a quarter of TSMC's business goes to making Apple products. The iPhone market has been poor recently, but Apple's latest announcement that its Apple Intelligence features will only be available on newer models should boost sales. This is great news for TSMC and further serves as a reason to buy the stock.
2. Alphabet
For AI tools, I chose Alphabet (GOOG -1.84%) (GOOGL -1.76%). Alphabet is primarily an advertising company, but its integration of AI with this product line is my reason for investing. While the rollout of its generative AI platform, Gemini, was far from smooth, it's starting to become a respected force in its field. Gemini can be used for nearly unlimited purposes but has already been deployed to assist clients in creating ads and summarizing results for Google search users.
Alphabet also has a strong cloud computing offering with Google Cloud. Cloud computing is critical in AI because many companies don't have the financial resources to purchase an AI-dedicated server. So, they rent that computing power from a cloud computing provider like Google Cloud. Google Cloud is a top pick for companies working in AI and has captured 60% of funded generative AI start-ups and 90% of generative AI unicorns (private companies with greater than a $1 billion valuation) as customers.
3. UiPath
Lastly, for software, I chose UiPath (PATH). UiPath shareholders have had a bumpy path recently with the CEO departing and a lower immediate sales forecast, but the product it provides is still incredibly useful.
UiPath's robotic process automation (RPA) software allows its users to automate repetitive tasks, improving productivity. While it's not an AI technology by itself, it incorporates multiple facets of AI, including generative AI. This further expands the number of tasks the software can automate, which expands its use cases.
Additionally, UiPath integrates with Microsoft Copilot for Microsoft 365, which is a key partnership, as that is one of the most common business tools used today. With many executives pushing their companies for practical AI use cases, UiPath's product stands out among the rest.
Although UiPath may have stumbled, the long-term outlook for the RPA industry is bright. Grand View Research projects a nearly 40% compound annual growth rate in the RPA industry from now until 2030. With UiPath being one of the top names in this space, it's set to capitalize on this boom.
