Investing in AI: A Three-Stock Portfolio for the $5,000 Investor

The artificial intelligence (AI) build-out is a complex process that involves multiple layers. An investor with $5,000 to put to work can split their money across three stocks: Amazon, Taiwan Semiconductor Manufacturing, and Applied Digital.

Amazon gets the biggest slice because it pairs a fast-growing AI business with the profits to pay for it. Its cloud computing segment, Amazon Web Services (AWS), grew 37% year over year in the second quarter, reaching $42.2 billion in revenue. AWS turned that growth into $16.6 billion of operating income, up about 64%. Although the company's spending on AI infrastructure is heavy, with a negative free cash flow of around $7.6 billion over the trailing 12 months, its stock trades at a reasonable price-to-earnings multiple of 24 times forecast earnings for next year.

Taiwan Semiconductor Manufacturing manufactures advanced processors for most of the leading designers in the AI chip race. The company's revenue has been climbing, with a 36% increase in the second quarter and 45% in July. Its gross margin is also high at 67.7%. However, its growth is tied closely to AI infrastructure spending, and its most advanced factories sit in Taiwan.

Applied Digital builds AI data centers and rents them to large tenants. The company has signed 15-year leases on about 1.4 gigawatts of its capacity, contracts that total around $36 billion in future rent. However, only 175 megawatts of that leased capacity was live when the company reported in late July.

The investor would put $2,500 in Amazon, $1,750 in Taiwan Semiconductor Manufacturing, and the final $750 in Applied Digital. This lopsided split is deliberate, as all three stocks ride the same underlying trend and a slowdown in AI infrastructure spending would hit them equally.