TSMC, Alibaba and more: Goldman reveals AI stocks in its 'conviction list' — giving one 105% upside

Published Wed, Oct 25 20238:30 PM EDT

Amala Balakrishner @in/amala-balakrishner @_amalabk

Investor sentiment around artificial intelligence has soured on the back of the U.S. government's recent export curbs on AI chips — but Goldman Sachs is still bullish. "While investor sentiment around AI is weaker of late especially following new U.S. regulations, we think global competition could make the introduction of AI to major industries a primary focus," the investment bank's analysts, led by Daiki Takayama, wrote in an Oct. 23 note. And they're optimistic about Asia. "We believe AI is at the early stage of rapid market expansion and we remain positive on the related value chains as the next big thing for Asia technology," the analysts said. They also cited the Taiwanese Semiconductor Manufacturing Company 's expectation of a 50% AI revenue CAGR (compound annual growth rate) from 2022 to 2027. TSMC is in Goldman's conviction list of stocks as it is "well positioned to capture the AI mega trend in the coming years," the bank said, citing its "leading chipmaking capabilities" and 60% share of the global foundry market. The bank added that TSMC is likely to beat its peers thanks to " growing demand for high performance computing semiconductors … despite a near-term outlook made choppier by weaker demand from the mobile and PC industries ." The bank has a 12-month price target of 725 New Taiwan dollars ($22.40) on the stock, giving it a potential upside of just over 33% from its Oct. 24 close. Here are some of the other stocks in Goldman's conviction list. They belong to two categories: those that enable AI and those empowered by AI. AI enabler stocks Companies in this category "make generative AI possible," according to Goldman. The list includes public cloud hyperscalers, which mainly include internet giants, and hardware companies. Aside from TSMC, Goldman's conviction list stocks in this category include Chinese tech giant Hon Hai Precision Industry and Japanese electronics manufacturing company Ibiden . It has a target price of NT$149 for Hon Hai — giving it around 52% potential upside — and 10,000 Japanese yen ($66.73) for Ibiden, or around 35.5% upside. Apple supplier Hon Hai — also known as Foxconn — is currently undergoing tax audits and on-site investigations by Chinese authorities on its land use. However, Goldman remains positive on the stock, saying the company expects its AI servers to reach triple digits in the second half of the year. AI-empowered names The bank's conviction list stocks in this category include Chinese machine industry player Envicool , Japanese video game publisher Bandai Namco Entertainment and industrial equipment company Keyence . The bank has a target price of 51.4 yuan ($7.03) for Envicool — giving it around 105% potential upside from its Oct. 24 close — and 4,200 yen for Bandai Namco, or around 35% upside. Goldman has an 83,000 yen price target on Keyence, giving it an upside of 56.7%. Stocks that are both Goldman named Chinese tech giants Alibaba and Baidu as its conviction list stocks that are both in the business of enabling and empowering AI. The bank has a target price of $134 for Alibaba — giving it around 61.2% potential upside from its Oct. 24 close — and $181 for Baidu, or around 62.4% upside. Along with fellow tech giant Tencent , Goldman said, Alibaba and Baidu are "best positioned to capture the incremental AI computing demand and improve their cloud market positioning vs. state-owned telcos," thanks in part to their inventory of GPUs (graphics processing units). — CNBC's Michael Bloom and Sheila Chiang contributed to this report.