In this article, I’ve looked into tech’s buzzword: Artificial Intelligence (AI) which has the ability to completely transform the world. According to analysts at PwC, AI could add up to $15.7 trillion to global GDP in 2030, which is more than the current output from India and China combined.
As software companies and technology giants, including Taiwan Semiconductor Manufacturing Company Limited (TSM), Adobe Inc. (ADBE), and Shutterstock, Inc. (SSTK), invest in AI technology, investing in their shares could present significant long-term opportunities.
The AI sector is flourishing within the technology industry. As AI technologies increasingly enable machines to learn, interpret patterns, and perform tasks with human-like intelligence, the adoption of AI is snowballing across a wide range of industries.
According to the IBM Global AI Adoption Index 2022, a survey conducted over 7500 businesses reveals that 35% of companies already use AI in their everyday work (a four-point increase from 2021), while 44% of organizations are working to embed AI into current applications and processes.
As a result, demand for powerful, efficient AI tools will likely explode, and companies that can deliver them will be quite prosperous.
Moreover, Gartner Inc. (IT) recently predicted that by 2028, 50% of organizations will have replaced time-consuming bottom-up forecasting approaches with AI. “We’re seeing widespread acceptance among finance leaders that technology is driving finance processes towards an autonomous state of operation,” said Matthew Mowrey, senior director analyst, research in the Gartner Finance practice.
The AI industry is experiencing a surge in global growth, with funding for AI reaching $9.3 billion in the fourth quarter of 2022, reflecting an increase of 15% sequentially. Furthermore, the global market for AI is expected to reach $1.59 trillion by 2030, growing at a CAGR of 38.1%.
With companies investing extensively in AI research and development to stay competitive in areas ranging from product creation to customer service, buying stocks like TSM, ADBE, and SSTK can provide investors with a fruitful way to obtain exposure to this booming industry.
Given this backdrop, let’s evaluate their fundamental strength.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, tests, and markets integrated circuits and other semiconductor products globally. Its products are used in automotive electronics, high-performance computing, and mobile device markets.
On April 21, the company signed a 20,000 GWh renewable energy joint procurement contract with ARK Power (a subsidiary of ARK Solar Energy). The agreement enables TSM suppliers and subsidiaries to purchase renewable energy and provides assistance with electricity evaluation and planning services.
Through this venture, TSM is expected to cut around 500,000 metric tons of carbon emissions per year, promoting a sustainable low-carbon semiconductor supply chain.
On February 14, TSM’s board of directors authorized a $3.50 billion capital injection plan for TSM Arizona. The company tripled its initial $20 billion commitment to the Arizona chip facility in December, bringing it to $40 billion. This marks one of the biggest foreign investments in American history. The company could benefit considerably by expanding its business operations.
Last year in December, the company announced that its 3nm technology had achieved volume production with good yields, which was duly celebrated with the topping ceremony of its Fab 18 Phase 8 facility. The company believes 3nm technology could generate end products worth a staggering $1.50 trillion within five years of achieving volume production.
TSM’s net revenue increased 3.6% year-over-year to NT$508.63 billion ($16.57 billion) in the first quarter that ended March 31, 2023. Its gross profit grew 4.9% from the prior year’s quarter to NT$286.50 billion ($9.33 billion), while its income from operations came in at NT$231.24 billion ($7.53 billion), up 3.3% year-over-year.
In addition, the company’s net income and EPS increased 2.1% year-over-year to NT$206.99 billion ($6.74 million) and NT$7.98, respectively.
The consensus EPS estimate of $6.38 for the fiscal year 2024 represents a 23.9% improvement year-over-year. The consensus revenue estimate of $85.67 billion for the next year represents a 20.8% increase from the same period last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of TSM have gained 33.6% over the past six months and 12.1% year-to-date to close the last trading session at $83.49.
TSM’s promising fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has an A grade for Momentum and Quality and a B for Sentiment. In the 91-stock Semiconductor & Wireless Chip industry, it is ranked #21.
Beyond what we stated above, we also have TSM ratings for Growth, Value, and Stability. Get all TSM ratings here.
Adobe Inc. (ADBE)
Multinational software company ADBE offers a line of products and services used by professionals, communicators, businesses, and consumers for creating, managing, delivering, measuring, optimizing, engaging, and transacting with content and experiences across various digital media formats.
On April 13, the company expanded Frame.io’s industry-leading video collaboration platform to photos and PDF documents, broadening the cloud-based solution’s appeal to new markets with a wider range of creative professionals and businesses than before.
As demand for content continues to accelerate across channels and surfaces, this expansion should reap substantial benefits for the company and drive its long-term growth prospects.
On March 21, ADBE unveiled Adobe Firefly, a new family of creative generative AI models, first focused on the generation of images and text effects to bring more precision, power, speed and ease directly into Creative Cloud, Document Cloud, Experience Cloud and Adobe Express workflows.
David Wadhwani, president of the Digital Media Business at ADBE, stated, “With Firefly, Adobe will bring generative AI-powered ‘creative ingredients’ directly into customers’ workflows, increasing productivity and creative expression for all creators from high-end creative professionals to the long tail of the creator economy.”
In the fiscal first quarter (ended on March 3, 2023), ADBE’s total revenue increased 9.2% year-over-year to $4.66 billion. Its gross profit grew 9% from the year-ago value to $4.09 billion, while its non-GAAP operating income rose 6.9% from the prior-year quarter to $2.13 billion.
In addition, ADBE’s non-GAAP net income and non-GAAP EPS came in at $1.75 billion and $3.80, representing an increase of 9% and 12.8% year-over-year, respectively.
Street expects ADBE’s revenue and EPS to increase 8.8% and 13% year-over-year to $4.77 billion and $3.79, respectively, for the current quarter ending May 30, 2023. Also, it surpassed the consensus EPS estimates in each of the trailing four quarters, which is promising.
The stock has gained 17.5% over the past six months to close the last trading session at $335.83.
It is no surprise that ADBE has an overall rating of B, translating to Buy in our POWR Ratings system. It has an A grade for Quality and a B for Sentiment.
The stock is ranked #18 among 134 stocks in the Software – Application industry. Click here for additional ratings on Growth, Value, Momentum, and Stability for ADBE.
Shutterstock, Inc. (SSTK)
SSTK is a technology company that provides quality content and creative workflow solutions internationally. It offers image services consisting of photographs, vectors, and illustrations used in visual communications. SSTK provides services under the Shutterstock, Bigstock, Offset, TurboSquid, and PremiumBeat brands.
On March 21, SSTK announced its partnership with NVIDIA Corporation (NVDA) to build AI foundation models for generative 3D artist tools. This collaboration enables customized Shutterstock content trained with NVIDIA Picasso generative AI cloud service to use text prompts to rapidly generate 3D content for industrial digital twins, entertainment and gaming.
With such transformative capabilities, the company seems poised to capitalize on an extraordinarily large market opportunity.
On January 25, the company launched a generative AI to its all-in-one creative platform. The text-to-image technology converts prompts into larger-than-life, ethically created visuals ready for licensing.
Chief Executive Officer at SSTK, Paul Hennessy, said, "Shutterstock has developed strategic partnerships over the past two years with key industry players like OpenAI, Meta, and LG AI Research to fuel their generative AI research efforts, and we are now able to uniquely bring responsibly-produced generative AI capabilities to our own customers."
During the first quarter that ended March 31, 2023, SSTK’s revenue increased 8.1% year-over-year to $215.28 million. The company’s adjusted net income was $47.13 million, representing a 26.8% year-over-year increase, while its adjusted EPS came in at $1.29, up 29% year-over-year. Also, its adjusted EBITDA grew 27.3% from the prior-year quarter to $69.76 million.
Analysts expect SSTK’s EPS and revenue to increase 16.9% and 4.1% year-over-year to $0.97 and $215.31 million for the quarter ending June 30, 2023. It surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 12.9% to close the last trading session at $51.84.
SSTK’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. It has a B grade for Growth, Value, and Quality. Moreover, it is ranked #2 out of 28 stocks within the Internet – Services industry.
To see SSTK’s ratings for Momentum, Stability, and Sentiment, click here.
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TSM shares were trading at $84.26 per share on Friday afternoon, up $0.77 (+0.92%). Year-to-date, TSM has gained 13.58%, versus a 7.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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