Sunday, February 25, 2024

3 Stocks to Buy in AI, Cloud, and Semiconductors Before 2023 Ends

HomeStock-Market3 Stocks to Buy in AI, Cloud, and Semiconductors Before 2023 Ends

With 2023 nearing its end, tech investors would be remiss not to scoop up shares of three promising companies prior to the fresh start of 2024: Alphabet, UiPath, and ASML. The upside potential of this trifecta of stocks remains obscured by current muted valuations and near-term headwinds. However, their long-term growth drivers related to transformational tech trends point to a prosperous 2024 and beyond.

Alphabet: Multiple Catalysts Converging in AI and Advertising

Most investors instantly recognize Alphabet as the parent entity encompassing Google, YouTube, and other subsidiaries. Yet despite its ubiquitous brand presence, Alphabet trades at inexpensive valuations given imminent growth opportunities in AI and advertising.

On the AI front, Alphabet continues narrowing the gap with competitors in ushering in the next era of computing. In 2023 alone, the company unveiled Bard, its conversational AI service rivaling chatbots like Microsoft’s Bing AI and Anthropic’s Claude. More importantly, Alphabet open-sourced the foundation model behind Bard known as Gemini.

By transparently publishing research on models like Gemini, Google clouds the lead of formerly secretive AI labs at rivals like Anthropic. As Alphabet democratizes access to state-of-the-art AI, developers will flock to its cloud computing platforms to build the next generation of apps and services.

Cloud forms the backbone of Alphabet’s bold AI ambitions. According to Canalys, the company’s Google Cloud platform grew at almost twice the speed of the overall cloud infrastructure market in 2022. With organizations increasingly turning to the cloud to harness AI and machine learning capabilities, Google Cloud remains well-positioned to capture expanding wallet share.

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At the same time, Alphabet’s advertising machine looks to reaccelerate after a pandemic hangover. Google Search and YouTube combine to form the internet’s largest advertising vehicle. Although advertisers pulled back spend amid economic uncertainty in 2022, they will eventually funnel marketing dollars toward Alphabet’s unmatched reach.

eMarketer estimates Google will account for over 28% of total worldwide digital ad expenditure by 2025, topping rivals like Meta. As macro conditions improve in 2024, investors can expect ad revenues flooding back toward industry juggernaut Google.

Two potential massive growth verticals converging makes Alphabet a top stock to own for 2024 and over the next decade. Even with a dominant position in AI and ads, the stock trades at just below 20x forward earnings compared to a 5-year average earnings multiple of over 30x.

UiPath Automating Workflows of the Future

UiPath provides software to help enterprise customers streamline workflows through robotic process automation (RPA). Its platform uses artificial intelligence and machine learning to identify repetitive tasks that can be fully automated.

By deploying UiPath to handle monotonous business processes like data entry, filing invoices, or customer service queries, employees free up time to focus on creative, value-added work. Analysts at Gartner have identified UiPath as an RPA industry leader for three consecutive years.

Make no mistake, RPA still remains in its infancy. Despite rapid growth, Grand View Research sees the global RPA market reaching just $2.3 billion in 2022. However, it estimates an over 13x explosion in market size to $30.9 billion by 2030.

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As more functions become digitized across back, middle, and front offices, automation adoption will dramatically rise. And UiPath sits at the forefront of increasing demand with best-in-class software capabilities.

For a high-growth SaaS disruptor in an estimated $30 billion total addressable market, UiPath trades at a relative bargain. It currently boasts a price-to-sales multiple of just over 10x compared to over 20x for peers.

Considering UiPath expects to hit $1.5 billion in ARR this year on 24% revenue growth rates, the stock deserves a much loftier valuation. Once organizations complete digital transformations over the next decade, they will turn to automation leaders like UiPath to optimize workflows. Buying shares at today’s levels offers a window to benefit from future ubiquity.

ASML’s AI Exposure Makes It a Different Beast

Headquartered in the Netherlands, ASML manufactures advanced semiconductor equipment that has become the backbone of the digital economy. Specifically, it designs lithography machines that etch nanometer-sized transistor patterns onto silicon wafers used to produce integrated circuits (ICs).

All leading-edge chipmakers producing processors for smartphones, data centers, AI accelerators, and more rely on ASML’s extreme ultraviolet (EUV) lithography systems. The astronomical complexity of EUV lithography presents a virtually insurmountable barrier to entry for competitors.

Put simply, ASML operates as an unassailable monopoly in the current semiconductor landscape. Its technological leadership should support demand for decades as chipmakers shrink transistor sizes to pack more compute power for technologies from AI to 5G and ambient computing.

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Backing up its future growth prospects, ASML’s year-over-year quarterly revenues have risen by an average of over 25% since 2019. Although off historical highs, shares still reflect a premium multiple.

However, appreciation potential more than counterbalances any perceived overvaluation. Securing access to the picks and shovels supplier for potentially the next major computing wave around AI represents a worthwhile investment rationale.

Bull Case Strengthening for Top Technological Innovators

In totality, the bull case for platform companies like Alphabet, UiPath, and ASML with tentacles extending into multiple high-growth technology arenas appears stronger by the day. As AI permeates both the enterprise and consumer spheres over the coming years, these organizations stand ready to capitalize.

Although market turbulence has depressed their valuations from peaks, current inflation-adjusted earnings multiples sit well below 5-year averages. This signals an opportune moment for long-term investors to initiate positions.

With the kickoff of 2024 close at hand, these stocks boast too much potential to remain ignored. Alphabet, UiPath, and ASML deserve consideration for any technology-focused portfolio given durable competitive strengths and capabilities catalyzing the innovations of tomorrow across AI, cloud, automation and computing hardware.

So rather than write off 2023 as a lost year for tech, proactive investors should use the remaining weeks in December to grab shares of companies rich with possibilities in 2024. Establishing stakes in Alphabet, UiPath, and ASML today could set the stage for outsized returns over the next 3 to 5 years at minimum.

Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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