AI Stocks with a Long-Term Wealth Focus, Mirroring Buffett's Strategy
Article: Alphabet and TSMC: Attractive AI-Related Stocks for Value Investors
In the rapidly evolving world of technology, two companies stand out as attractive investments for value investors: Alphabet (GOOGL) and TSMC (TSM). Both companies have strong positions in the AI sector, are well-positioned for long-term growth, and offer reasonable valuations that align with the Warren Buffett value investing model.
Valuations and Growth Prospects
Alphabet, a leader in AI for at least a decade, trades at about 18.6 times forward earnings, which is below the S&P 500’s average of 23.2 times. This relatively inexpensive valuation is surprising given its 12% revenue growth and 49% diluted earnings-per-share growth reported in Q1 2025. The market's undervaluation of Alphabet implies potential for multiple expansion that could increase stock price.
TSMC, the world's largest manufacturer of semiconductors, benefits from explosive growth in AI chip demand. Its stock recently rose 59% over three months, yet trades at a forward PE of about 24, below the Nasdaq 100 average of 32. TSMC produces more than half of the third-party chip production in the world and roughly 90% of advanced chip production. Companies such as Apple, Nvidia, AMD, and Broadcom rely on its infrastructure and expertise.
Fit with Warren Buffett Value Investing Model
Both companies have strong moats. Alphabet's dominance comes from its search engine, AI capabilities, and ecosystem, while TSMC's technological leadership and manufacturing scale in semiconductors make it difficult to displace. Their current valuations are reasonable or undervalued relative to their earnings growth and market positions.
Alphabet and TSMC demonstrate consistent earnings growth and possess durable competitive advantages, providing long-term earnings visibility and resilience. Their dominant positions in rapidly growing AI-related markets give them exposure to secular growth trends, supporting future expansion without speculative pricing.
Risks and Challenges
Alphabet is currently facing regulatory concerns, specifically regarding monopoly in search and ad tech. TSMC, due to its headquarters in Taiwan, is sometimes considered risky, but there are no imminent signs of an invasion.
In conclusion, Alphabet and TSMC combine durable moats, robust AI-driven growth prospects, and reasonable valuations, making them fitting candidates for a Warren Buffett-style value investing approach that emphasizes long-term business quality and intrinsic value rather than hype or short-term speculation.
[1] Alphabet Inc. Q1 2025 Earnings Release [2] TSMC Q1 2025 Earnings Release [3] TSMC Annual Report 2024
- The reasoning behind Alphabet and TSMC being attractive investments aligns with Warren Buffett's value investing model, as both companies have strong positions in the AI sector, exhibit robust growth prospects, and offer reasonable valuations.
- In the fast-expanding technology sector, TSMC's stock, despite a recent 59% surge over a three-month period, still trades at a forward PE lower than the Nasdaq 100 average, making it an attractive investment option for value investors.
- The potential risks associated with Alphabet, such as regulatory concerns regarding monopoly, and TSMC, due to its headquarters in Taiwan, should be carefully considered before investing to ensure a long-term, successful investment strategy.
