Artificial intelligence (AI) has become the hottest investment trend over the past year and a half, and there’s a good chance that the rapid proliferation of this technology will continue to be a key growth driver for the stock market over the next decade. .
After all, the global AI market is expected to generate nearly $2.6 trillion in annual revenue in 2032, up from an estimated $538 billion last year. Buy and stay strong semiconductor stocks long term is one of the best ways to capitalize on this immense opportunity. Indeed, training and deployment of AI models is not possible without AI chips.
This explains why the biggest companies and governments have been queuing to buy chips people like Nvidia, sending the graphics specialist’s shares soaring on the back of its breathtaking top and bottom line growth. However, you should also consider buying another chipmaker to make the most of the AI ​​boom: Semiconductor manufacturing in Taiwan (NYSE:TSM).
TSMC is a strong player in the AI ​​chip boom
Popularly known as TSMC, the Taiwan-based foundry giant is at the heart of the AI ​​semiconductor market as its process nodes enable customers such as Nvidia to produce powerful chips. For example, Nvidia’s Hopper architecture, which helped the company become the dominant player in the AI ​​chip market, was based on TSMC’s 4N manufacturing process.
And now, Nvidia will manufacture its next-generation Blackwell AI processors using TSMC’s 4NP process. However, Nvidia isn’t the only one lining up to get their hands on TSMC’s chips. Intel reportedly leveraged TSMC’s 3-nanometer (nm) chip production line to make laptop processors.
It’s worth noting that Intel itself is a chipmaker, unlike Nvidia, which only designs its chips and outsources their manufacturing to TSMC. However, Intel has fallen behind in the race to develop advanced chips, which is why it has tapped TSMC for manufacturing. Given that TSMC has consistently pushed the boundaries in product development and is poised to move to more advanced process nodes, such as 2nm, it will not be surprising to see continued demand from ‘Intel and Nvidia.
It turns out they’re not the only chipmakers looking to TSMC to support their AI ambitions. From Qualcomm has AMD has Apple has Broadcom has Marvell Technology, TSMC’s customer list is long and illustrious. As a result, the company’s plant utilization rate remains very high. For example, TSMC’s 3nm chip production line reportedly had a 95% utilization rate last month.
Such strong demand explains why TSMC’s business is booming in 2024. Its revenue in the first five months of the year was up 27% year over year. This is a nice turnaround from last year, when the company’s revenue fell due to weak end-market demand. Looking ahead, TSMC’s revenue growth is expected to remain strong as the company capitalizes on its formidable 62% foundry market share and exercises its pricing power.
TSMC enjoys a lead of almost 50 percentage points over the second founder, Samsung. This explains why the company is able to increase the prices of its chips. At the same time, investors should note that TSMC will increase the production capacity of its advanced chips by 60% by 2026 to be able to fulfill more AI-related orders.
Overall, it can be said that TSMC is pulling the right levers to ensure it continues to make the most of the long-term opportunities that AI has to offer. This could help significantly increase the company’s revenue over the next decade, as the AI ​​chip market is expected to generate a whopping $372 billion in revenue in 2032, up from just $15 billion in 2022.
Investors Can Expect Substantial Gains Over the Next Decade
Analysts expect TSMC’s profits to grow at an annual rate of 21% over the next five years. However, as the following chart indicates, the company’s earnings per share (EPS) growth estimates have seen a significant increase over the past year.
According to the chart above, TSMC’s earnings could grow nearly 23% this year from $5.18 per share in 2023. However, next year, its bottom line is expected to grow at a faster rate, by 25%. The estimate for 2026 has also increased, and it won’t be surprising to see this semiconductor stock outperform analyst estimates over the long term, given the massive end market opportunity it sits on.
The Next Platform, an online publication that covers high-performance computing and hyperscale data centers, estimates that AI could boost TSMC’s overall revenue to $180 billion in 2030. That would be a big jump by compared to its 2023 revenue of $69 billion. Keep in mind that the AI ​​chip market could also continue to grow beyond the end of the decade.
That’s why investors looking to add an AI stock to their portfolio would do well to buy this chipmaker before it adds to the 61% gains it has posted so far in 2024.
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Apple, Nvidia, Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom, Intel, and Marvell Technology and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Mad Motley has a disclosure policy.
1 Incredible Artificial Intelligence (AI) Stock to Buy and Hold for the Next 10 Years was originally published by The Motley Fool
