What Are the 2 Top Artificial Intelligence (AI) Stocks to Buy Right Now?

TSMC is benefiting from a surge in AI hardware demand, reporting revenue growth of 38% year‑over‑year in the first seven months of 2025 and raising its 2025 revenue growth guidance to 30% (from mid‑20% previously); the company is positioned to capture further share in the expanding Foundry 2.0 market (estimated $298bn this year, 10% CAGR through 2029). Twilio is seeing AI‑driven acceleration in software and services, with a 57% Y/Y increase in communications deals ≥$500k in Q2 2025, active accounts +10% Y/Y, a dollar‑based net expansion rate of 108% (up 5pp) and a 1.5pp upward tweak to 2025 organic revenue growth guidance; both stocks are presented as attractively valued (TSMC ~24x forward earnings; Twilio ~3x sales).

Analysis

Market structure: AI demand is concentrating value in advanced-node foundry capacity and cloud comms/AI software. TSM (TSM) and GPU/AI chip designers (NVDA, AMD, QCOM indirectly) are clear winners as 80% of generative-AI spend this year is hardware-driven and TSMC revenue is +38% YTD with guidance raised to +30% for 2025; expect sustained pricing power on N5/N3 capacity through 2025–2026 and elevated HBM/DRAM demand tightening memory and substrate markets. Legacy fabs (INTC) and commodity/low-end foundries are losers as order mix shifts to high-margin advanced packaging and co-design services, pressuring their ASPs and share.

Risk assessment: Key tail risks are (1) tighter export controls or a China/Taiwan geopolitical shock that would instantaneously disrupt >20% of global foundry capacity, (2) an AI demand re-rating if enterprise adoption stalls and inventory builds, and (3) customer-concentration risk at TSM (Nvidia/Apple/AMD/Qualcomm). Near-term (days–weeks) price moves will track earnings and order updates; medium-term (3–12 months) risk centers on capex-led supply additions; long-term (2–5 years) depends on Foundry 2.0 secular growth (IDC +10% CAGR to 2029).

Trade implications: Tactical long positions in TSM (1.5–3% portfolio) and TWLO (1–2%) are favored, sized for 6–24 month holds; use 6–9 month call spreads on TSM to capture upside while limiting cash outlay and buy TWLO 9–12 month LEAPS if customer expansion persists. Pair trade: long TSM / short INTC (relative underperformance hedge) given structural node disadvantage. Rotate sector exposure into semis, AI infra suppliers (ASML on supply-chain watch) and cloud software, trimming cyclical consumer and retail-sensitive names by 3–5%.

Contrarian angles: Consensus underestimates the speed of capex response — aggressive capex by foundries and memory vendors could create oversupply in 12–24 months, pressuring ASPs and making current multiples (TSM 24x forward) vulnerable. TWLO’s 3x sales multiple discounts execution risk — if dollar-based net expansion slips below 105% for two consecutive quarters, re-rate risk is material. Historical parallel: the 2017–2019 GPU cycle saw rapid price inflation followed by a 30–50% correction once inventory normalized; watch order-book growth and customer inventory as early warning indicators.

Key Decisions for Investors

• Establish a 1.5–3% long position in TSM (TSM) using a 6–9 month call spread (e.g., buy ATM calls, sell 20–25% OTM calls) to capture upside from continued N5/N3 tightness; target +25–40% upside in 6–12 months, stop-loss at -12% or if quarterly backlog declines >15% QoQ.
• Initiate a 1–2% strategic long in Twilio (TWLO) via 9–12 month LEAPS (buy deep ITM calls) conditional on maintaining dollar-based net expansion ≥108%; reduce or hedge if DBNER drops below 105% for two quarters.
• Implement a pair trade: go long TSM (size 2%) and short INTC (size 1.5%) to express foundry share shift; rebalance if TSM guidance falls >5 percentage points or if Intel announces credible node roadmap within 6 months.
• Sell short-dated (30–60 day) call spreads on over-owned AI darlings (NVDA) around earnings to collect premium; if IV spikes >40% and delta-adjusted exposure exceeds 2% portfolio, cap position and reassess after earnings volatility decays.
• Monitor 3 quantitative triggers over next 90 days: (A) TSMC capex guidance increases >10% YoY (signal to add), (B) Twilio large-deal count growth decelerates to <30% YoY or DBNER <105% (signal to reduce), (C) any new China export control announcement or Taiwan geopolitical escalation (signal to hedge semis via put spreads or reduce EM/TWD exposure).