Artificial intelligence (AI) is the next industrial revolution. Statista estimates the AI market will grow 26% per year to reach $1 trillion by 2031. This estimate is based on growing investment in autonomous technology, machine learning, and natural language processing, among other trends.
Investing in the stocks of industry leaders is all you need in order to do well. Here are two companies benefiting from growing demand for advanced chips and cloud services that can help you profit off the AI race.
Image source: Getty Images.
1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM +6.30%) is the leader in making chips for other semiconductor companies. Its chips are used in many different applications, from smartphones to data centers.
The world is always going to need more-powerful chips. This is why the chip industry has grown for decades, fueling double-digit annual returns for shareholders in TSMC (as it's also known). While industry growth is occasionally interrupted by recessions in the broader economy, AI is a major catalyst for industry growth.
TSMC reported revenue growth of 35% year over year in the first quarter. Strong demand is benefiting margins, as earnings jumped 53% over the year-ago quarter.
NYSE: TSM
Key Data Points
AI chips make up a small percentage of TSMC's business, but management expects revenue from AI to grow at a mid-40s percentage on a compound annual basis through 2029.
The company faces competition from Samsung, Intel, and other foundries. But its competitive moat is based on decades of investing in advanced technologies that support a wide range of chips for many markets.
Last year, TSMC made more than 11,000 chip products for over 500 customers. It is capable of manufacturing about 17 million 12-inch silicon wafers every year, and it continues to expand that capacity to support growing demand.
The stock recently hit new highs but still trades at an attractive valuation. Its forward price-to-earnings ratio (P/E) is 24, and analysts expect revenue and earnings to increase at an annualized rate of 17% through 2029.
Investors can expect the stock to deliver gains roughly in line with the company's earnings growth, which puts Taiwan Semiconductor stock on track to potentially double in five years.
Image source: Getty Images.
2. Oracle
Oracle (ORCL +4.75%) is a leading cloud database company. The stock has soared to new highs recently following strong financial results as it benefits from growing demand in cloud computing and AI workloads.
Investors looking at Oracle's total revenue growth might be confused as to why the stock has rocketed from a low of about $120 in April to $235 in July. Its total revenue rose just 8% year over year last quarter, but this growth is about to significantly accelerate over the next year.
NYSE: ORCL
Key Data Points
Oracle's cloud infrastructure business reported a revenue increase of 52% year over year in the first quarter. This segment comprises less than 20% of the company's revenue, but demand is outstripping supply. Chairman and chief technology officer Larry Ellison called demand "astronomical" after his company received an order from a client for all available cloud capacity.
The company's competitive position was recently validated by its inclusion in the Stargate Project, which will invest $500 billion through 2030 to build world-class AI infrastructure in the U.S. Oracle is joining Nvidia, Microsoft, Arm Holdings, and OpenAI to build the most advanced computing systems for AI.
All this points to accelerating revenue growth. Management expects its cloud infrastructure business to increase 70% in fiscal 2026, up from 50% in fiscal 2025. Through fiscal 2030 (ending in May), Wall Street analysts project Oracle's total revenue to rise 15% on a compound annual basis, with earnings growing 18%.
The stock is not cheap, but its forward P/E of 32 seems fair considering the opportunities ahead. Oracle's role in Stargate, along with accelerating growth over the next several years, should lead to market-beating returns for investors.
