Nvidia (NASDAQ:NVDA) has enjoyed an unforgettable stock market run since the start of 2023. Shares of the graphics card specialist have soared 727% in less than 18 months thanks to the crazy demand for chips needed to train and deploy artificial intelligence (AI) models ). .
Its profits and bottom lines have grown at an unprecedented rate since AI began to be adopted by the general public. Revenue for fiscal 2024 (which ended last January) jumped 126% to $60.9 billion, while adjusted profit rose 288% year over year to reach $12.96 per share. More importantly, Nvidia is expected to continue growing at a breathtaking pace.
Analysts expect its revenues to double again in the current fiscal year to just over $120 billion. Nvidia’s earnings, on the other hand, are expected to more than double to $27.03 per share. The company can indeed generate such dazzling growth thanks to its dominant position in the AI ​​chip market.
But if you missed Nvidia’s astonishing rally and are looking to capitalize on the booming AI chip market – which is expected to grow 40% annually through 2032 and generate more than $1.11 trillion in annual revenue – consider buying Nvidia’s foundry partner. Taiwan semiconductor manufacturing company (NYSE:TSM)popularly known as TSMC.
Let’s take a look at the reasons why TSMC could be one of the best AI stocks buy now.
TSMC trades at an attractive valuation
TSMC shares currently trade at 31 times trailing earnings, which is a considerable discount to Nvidia’s 71 times trailing earnings. Of course, due to the latter’s phenomenal growth, its forward earnings multiple drops to 45, but TSMC trumps the graphics card giant on this front as well, with shares trading at 26 times earnings estimates .
Buying the Taiwan-based foundry giant at this valuation seems like a no-brainer given that it makes the AI ​​chips designed by Nvidia. More precisely, Nvidia would be the second customer of TSMC chips, representing 11% of its turnover in 2023.
Better yet, TSMC looks like a smart investment in AI, as it makes chips for many of the major chipmakers looking to make a dent in the AI ​​market. Both Intel And Advanced microsystems are using TSMC to produce AI chips, putting the company in a strong position to capitalize on long-term growth in the AI ​​semiconductor market.
For example, AMD’s new AI chip, the MI325X, will be manufactured using TSMC’s N5 and N6 process nodes. Looking ahead, AMD’s MI350X chip, expected next year, will be based on TSMC’s 3 nanometer (nm) process node.
Intel tapped TSMC to make its Lunar Lake chips for AI-enabled PCs. Nvidia has already used TSMC’s process nodes to make its latest AI chips and is expected to use TSMC’s 3nm node for its Rubin chips, scheduled for release in 2026.
Foundry giant can capitalize on AI growth in several ways
We’ve already seen that TSMC plays a critical role in helping companies like Intel, AMD, and Nvidia produce the hardware needed for AI training and inference. But at the same time, it is also well-positioned to benefit from the growing adoption of AI-enabled PCs and smartphones.
Apple, for example, is reportedly looking to secure TSMC’s 2nm chip production capacity to deploy AI features in devices such as the iPhone and iPad. In addition, Qualcomm has reportedly tapped TSMC to help make chips to power AI-enabled PCs, using its 4nm manufacturing process. Qualcomm also uses TSMC to make its AI-focused Snapdragon 8 Gen 3 smartphone chips.
Gartner predicts that global shipments of AI-enabled PCs and smartphones could increase from 29 million units last year to 295 million units in 2024. Even then, there will be a long runway for growth for sales of these devices in the long term — only 22% of PCs and smartphones shipped this year are expected to be AI-enabled.
So while Nvidia’s AI opportunity currently lies primarily in the data center market, TSMC stands to gain from proliferating this technology on multiple fronts.
TSMC expected to see stronger growth
TSMC’s 2023 revenue fell 9% to $69.3 billion thanks to broader weakness in the semiconductor market. However, conditions in the sector are changing for the better: its revenue in the first quarter of 2024 increased by 13% year-on-year to reach $18.9 billion. Additionally, TSMC’s revenue for April climbed nearly 60% year-over-year, a nice acceleration from the 34% growth seen in March.
Analysts predict TSMC’s revenue will grow nearly 23% in 2024 to just over $85 billion, which would be a marked improvement over its performance last year. Better yet, TSMC is expected to once again generate revenue growth of over 20% in 2025, and there is a good chance that it will be able to maintain these healthy growth levels thanks to multiple AI-related catalysts mentioned above.
Investors who couldn’t buy Nvidia stock before it took off would do well to buy TSMC now. It plays a key role in the proliferation of this technology, which looks set to translate into impressive revenue and profit growth.
Should you invest $1,000 in semiconductor manufacturing in Taiwan right now?
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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 Gartner and Intel 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.
Here are my best artificial intelligence (AI) stocks to buy right now (hint: it’s not Nvidia) was originally published by The Motley Fool
