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Best AI stocks to buy now

Best AI stocks to buy now

  • 21.03.2025 00:00
  • morningstar.com.au
  • Keywords: danger, success

The article lists top AI stocks from the Morningstar Global Next Gen AI Index, including Microsoft, Meta, TSMC, Tencent, Alphabet, Adobe, AMD, Marvell, and Baidu. These companies are undervalued, have strong ratings, and benefit from AI advancements in sectors like semiconductors, software, and internet services.

Alphabet ProductsMicrosoft ProductsNvidia ProductsMeta ProductsNvidia ServicesMSFTsentiment_satisfiedMETAsentiment_satisfiedTSMsentiment_satisfiedGOOGLsentiment_satisfiedADBEsentiment_satisfiedAMDsentiment_satisfied

Estimated market influence

Microsoft

Microsoft

Positivesentiment_satisfied
Analyst rating: Strong buy

Leading in AI with products like OpenAI and ChatGPT; strong cloud business (Azure) driving growth; high revenue and margins.

Meta Platforms

Meta Platforms

Positivesentiment_satisfied
Analyst rating: Strong buy

Dominant social media player leveraging AI for ad targeting and user engagement; investments in AI chatbots could boost future growth.

Taiwan Semiconductor Manufacturing

Taiwan Semiconductor Manufacturing

Positivesentiment_satisfied
Analyst rating: Strong buy

Largest contract chip manufacturer benefiting from AI demand; strategic focus on leading-edge technology ensures market leadership.

Tencent Holdings

Positivesentiment_satisfied
Analyst rating: N/A

Diverse portfolio with significant AI investments in advertising and content recommendation systems; WeChat's dominance provides growth opportunities.

Alphabet

Alphabet

Positivesentiment_satisfied
Analyst rating: Buy

Leading in AI through Google Search and cloud services; strong position in core advertising business with AI enhancements.

Adobe

Adobe

Positivesentiment_satisfied
Analyst rating: Buy

AI-driven tools like Firefly enhance creative software offerings; expanding digital experience solutions through acquisitions.

Advanced Micro Devices

Advanced Micro Devices

Positivesentiment_satisfied
Analyst rating: Buy

Strong GPU portfolio for AI applications; partnership with TSMC supports rapid product development and market leadership in semiconductors.

Context

Analysis of Best AI Stocks: Business Insights and Market Implications

Overview

The text highlights the top AI stocks selected based on Morningstar ratings, undervaluation, and industry leadership. These companies are poised to benefit from AI advancements across cloud computing, semiconductors, software, and internet services.

Key Findings by Company

Microsoft (MSFT)

  • Morningstar Rating: 4 Stars
  • Economic Moat: Wide
  • Undervaluation: 20%
  • Key Metrics: Azure revenue growth of ~$75B in fiscal 2024, growing at a 30% rate.
  • Strategic Focus: Leading AI portfolio (e.g., OpenAI/ChatGPT) and cloud infrastructure for AI, BI, and IoT.

Meta Platforms (META)

  • Morningstar Rating: 4 Stars
  • Economic Moat: Wide
  • Undervaluation: 23%
  • Key Metrics: ~4B monthly active users across platforms like Facebook, Instagram, and WhatsApp.
  • Strategic Focus: AI-driven ad targeting and consumer-facing AI (e.g., Llama chatbot).

Taiwan Semiconductor Manufacturing (TSM)

  • Morningstar Rating: 5 Stars
  • Economic Moat: Wide
  • Undervaluation: 35%
  • Key Metrics: ~60% market share in contract chip manufacturing.
  • Strategic Focus: Leading-edge semiconductors for AI and HPC applications, supporting demand from the US and Western markets.

Tencent Holdings (TCEHY)

  • Morningstar Rating: 4 Stars
  • Economic Moat: Wide
  • Undervaluation: 28%
  • Key Metrics: Dominance in China’s internet sector with WeChat as a key platform.
  • Strategic Focus: AI-driven advertising and gaming (e.g., Honor of Kings, PUBG Mobile).

Alphabet (GOOGL)

  • Morningstar Rating: 4 Stars
  • Economic Moat: Wide
  • Undervaluation: 31%
  • Key Metrics: Google Search generates ~90% of Alphabet’s revenue.
  • Strategic Focus: AI integration in search and cloud computing (Google Cloud Platform).

Adobe (ADBE)

  • Morningstar Rating: 4 Stars
  • Economic Moat: Wide
  • Undervaluation: 34%
  • Key Metrics: Dominance in creative software with products like Photoshop and Illustrator.
  • Strategic Focus: AI-driven tools (e.g., Firefly) to enhance content creation and marketing solutions.

Advanced Micro Devices (AMD)

  • Morningstar Rating: 4 Stars
  • Economic Moat: Narrow
  • Undervaluation: 24%
  • Key Metrics: Leading GPU provider for AI applications, partnered with TSMC.
  • Strategic Focus: AI and data center growth through partnerships and chiplet strategy.

Market Trends and Implications

1. Cloud Computing Dominance

  • Azure (Microsoft) and Google Cloud Platform (Alphabet) are key drivers of AI adoption, with Azure growing at 30% annually.
  • AWS remains a dominant player, but Microsoft’s Azure is gaining ground due to its seamless hybrid cloud capabilities.

2. Semiconductor Demand Surge

  • TSMC’s leadership in AI chips underscores the critical role of semiconductors in enabling AI and HPC applications.
  • AMD and NVIDIA are competing in the GPU market, with AMD benefiting from TSMC’s manufacturing expertise.

3. AI-Driven Advertising Growth

  • Meta and Alphabet are leveraging AI to enhance ad targeting and improve user engagement.
  • Tencent’s WeChat platform is a growing advertising channel in China.

4. Software Innovation

  • Adobe is integrating AI into creative tools, while Microsoft is expanding its SaaS offerings (e.g., Office 365).
  • Alphabet’s focus on AI for search and cloud computing positions it as a leader in multiple sectors.

Competitive Dynamics

1. Tech Giants vs. Startups

  • Large tech companies like Microsoft, Meta, and Alphabet are investing heavily in AI R&D, creating barriers to entry for startups.

2. Semiconductor Industry Consolidation

  • TSMC’s dominance in foundry services is reducing competition, but AMD and NVIDIA are challenging in the GPU market.

3. China vs. Global Players

  • Tencent and Baidu represent China’s tech sector, while companies like Microsoft and Alphabet dominate globally.

Strategic Considerations

1. Long-Term Growth Drivers

  • AI adoption across industries (e.g., healthcare, finance, automotive) will drive demand for cloud services, semiconductors, and software tools.
  • The shift to SaaS models is expected to continue, benefiting companies like Microsoft, Adobe, and Salesforce.

2. Regulatory Risks

  • Antitrust scrutiny in the US and Europe could impact Alphabet’s search business but is unlikely to disrupt its long-term dominance.

3. Geopolitical Factors

  • TSMC’s reliance on US and Western demand highlights geopolitical risks in semiconductor supply chains.

Conclusion

The selected AI stocks represent a mix of established tech giants and innovative leaders across cloud computing, semiconductors, and software. Their ability to leverage AI advancements will drive long-term growth, with Azure, Meta’s ad targeting, and TSMC’s semiconductor leadership emerging as key competitive advantages. Investors should monitor regulatory developments, industry consolidation, and shifts in consumer demand for these sectors.