Tech Stocks Take a Hit: Two AI Stocks Worth Investing in for the Long Run

Recently, technology stocks have faced a notable decline, highlighted by a 13% drop in the Nasdaq-100 Technology Sector index over the last month. This downturn is largely attributed to faltering investor confidence, driven by the ongoing trade tensions following the tariffs introduced by the Trump administration on countries such as Canada, Mexico, and China. These tariffs provoked retaliatory actions from those nations, further unsettling the market.

As a result, many investors have opted to exit their holdings, particularly in the artificial intelligence (AI) sector, where stocks have been severely affected. For instance, Palantir Technologies (PLTR) has seen its stock fall by 25% in just a month, while semiconductor leader Taiwan Semiconductor Manufacturing (TSMC) has dropped 15% in the same timeframe. Nevertheless, this decline may present a valuable buying opportunity for astute investors, particularly as these companies are poised to benefit from extensive future market opportunities.

1. Palantir Technologies

Despite its recent stock price decline, Palantir Technologies continues to be valued highly. The company is positioned to tap into a vast market within the generative AI software sector, which could support significant growth for years to come.

According to McKinsey, the market for AI software and services could soar from $85 billion in 2022 to an astonishing $1.5 trillion by 2040, with some estimates suggesting revenues may reach up to $4.6 trillion. Palantir is already enjoying the benefits from this expansive market potential.

The company's customer base is rapidly growing, and with each quarter, its revenue prospects are improving, leading to increased revenue and earnings growth. In the fourth quarter of 2024, Palantir reported revenue growth of 36% year-over-year, amounting to $828 million. Additionally, earnings surged by an impressive 75% as clients increased their investment in its Artificial Intelligence Platform (AIP).

The AIP is instrumental in helping both commercial and governmental clients integrate generative AI tools into their workflows, enhancing productivity and operational efficiency. This increasing adoption is evidenced by the fact that customers tend to expand their use of AIP after initiating their contracts. Palantir's Chief Revenue Officer, Ryan Taylor, noted a remarkable increase in U.S. commercial customers—nearly five times the number from three years ago—signifying substantial growth opportunities.

Recently, Palantir secured contracts worth $1.8 billion, a 56% year-over-year increase. The value of its remaining contracts also saw a 40% surge to $5.43 billion, which points to sustained growth potential. Although tariffs might affect near-term spending, the long-term productivity benefits from generative AI solutions could motivate customers to invest more.

In light of these indicators, accumulating Palantir stock during this downturn could be a wise decision, setting investors up for potential long-term gains driven by the burgeoning generative AI market.

2. Taiwan Semiconductor Manufacturing

TSMC is a leading player in the global semiconductor industry, manufacturing chips for consumer electronics and partnering with prominent chip designers. It holds a commanding market share of 64%, positioning it to take advantage of the expected growth in the semiconductor market.

According to Deloitte, the global semiconductor industry may experience growth exceeding threefold in the next 15 years, potentially generating $2 trillion in annual revenue by 2040. AI chips are expected to be pivotal in fueling this growth, with sales projected to rise by 35% each year over the next decade.

TSMC produces chips for numerous major AI companies, including Nvidia, Broadcom, Advanced Micro Devices, and Marvell Technology. As a result, TSMC is well-positioned to benefit from significant investments being made by tech giants such as Microsoft, Amazon, Meta Platforms, and Alphabet to enhance their AI infrastructure. Furthermore, TSMC manufactures chips for Apple and Qualcomm, which also contributes to its potential growth driven by AI advancements in personal computers and smartphones.

TSMC enjoys a competitive edge over its rivals thanks to its advanced chip manufacturing processes. Orders for its cutting-edge 3-nanometer (nm) and 5-nm chips are robust, leading to operational facilities running at full capacity. In response to this demand, TSMC plans to increase its capital expenditure by about 33% in 2025, focusing a significant portion on advanced chip production to meet the needs of its AI customers.

This approach comes at a crucial time, as chips produced using leading-edge technology provide enhanced computing power while being more energy efficient. Analysts anticipate that TSMC's revenue from 2nm chips could quadruple from 2025 to 2026, highlighting its ongoing commitment to innovation.

Management expects a compound annual growth rate of around 20% over the next five years, with the potential for sustained growth beyond that, given the continuous expansion expected in the semiconductor sector.

Currently, the drop in TSMC's stock has resulted in a price-to-earnings ratio of just 25, which is favorable compared to the Nasdaq-100 index's earnings multiple of 30. Buying TSMC stock at this valuation offers an appealing opportunity as the company gears up for future growth driven by AI advancements.

stocks, AI, investment