With November here, investors can start thinking about how they want to position their portfolio for 2025. One trend that has arrived and stuck around is artificial intelligence (AI), so having a portion of your portfolio devoted to this generational shift is critical.
There are some screaming deals in some areas, and many companies have been ignored for years. These represent great values, and I think buying shares of a business like PayPal (NASDAQ: PYPL) is a great way to balance out the growth of AI with more traditional value investing.
The AI plays
Taiwan Semiconductor is the biggest chip manufacturer in the world. It makes chips for essentially all the cutting-edge tech companies, like Nvidia and AMD. AI is starting to become a massive part of its business and has grown much quicker than management projected.
In Q3, Taiwan Semiconductor gave guidance that AI-related chips would triple in revenue this year and account for a mid-teens percentage of its revenue. Just under a year ago, in its Q2 FY 2023 conference call, management said AI-related chips made up just 6% of their business and would grow to become a low-teen percentage of revenue after five years of growth.
Clearly, demand for AI chips is here, and management doesn't see the well drying up anytime soon. We're just scratching the surface of the computing power necessary to make serious progress in AI implementation. Taiwan Semiconductor is a company set to benefit from this boom. As a result, I think it's a great stock to buy right now.
Furthermore, it's not terribly expensive when you consider 2025 earnings. Taiwan Semi trades at 22.1 times 2025 earnings -- not a bad price for a dominant company.
One company heavily involved in the AI arms race is Meta Platforms, the parent company of social media sites like Instagram and Facebook. It derives a significant chunk of its revenue from advertising. This is a highly profitable business, and Meta uses the cash flows from this area to invest in other endeavors.
One of those is AI, which has some investors worried. Meta is known to spend a lot of money on projects that CEO and founder Mark Zuckerberg thinks are the future. Few of these investments have worked out (just look at the metaverse), but generative AI could be a different story (since there are actually practical applications). Meta has been warning investors for multiple quarters that they should "expect significant capital expenditures growth in 2025."