Nvidia (Nasdaq: NVDA) It has had an unforgettable success on the stock market since the beginning of 2023. The shares of the company specializing in graphics cards have risen by a whopping 727% in less than 18 months thanks to the insane demand for the chips required for training and deploying artificial intelligence (AI) models. .
Its top and bottom lines have grown at an unprecedented pace since AI began gaining mainstream adoption. Revenues in fiscal 2024 (which ended last January) jumped 126% to $60.9 billion, while adjusted earnings increased 288% year over year to $12.96 per share. More importantly, Nvidia is expected to continue growing at an impressive pace.
Analysts expect its revenue to nearly double again in the current fiscal year to just over $120 billion. On the other hand, Nvidia's earnings are expected to double to $27.03 per share. The company can actually achieve such excellent growth because A dominant position in the AI chipset market.
But if you've missed Nvidia's dizzying rise and are looking to capitalize on the booming market for AI chips — which are expected to deliver 40% annual growth through 2032 and generate more than $1.11 trillion in annual revenue — consider purchasing an Nvidia foundry partner. Taiwan Semiconductor Manufacturing Company (NYSE: TSM)Popularly known as TSMC.
Let's take a look at the reasons why TSMC is one of the reasons Best AI Stocks To buy now.
TSMC is trading at an attractive valuation
TSMC shares currently trade at 31 times trailing earnings, a significant discount compared to Nvidia's earnings of 71 times. Of course, given the latter's massive growth, its forward earnings multiple has fallen to 45, but TSMC is outperforming the graphics card giant on that 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 manufactures Nvidia-designed AI chips. More specifically, Nvidia is said to be the second-largest customer of TSMC's chips, accounting for 11% of its revenue in 2023.
Better yet, TSMC looks like a smart investment in AI because it manufactures chips for several major chipmakers that want to make an impact in the AI market. both of them Intel Corporation And Advanced micro devices TSMC is used to produce AI chips, putting the company in a strong position to benefit from the long-term growth of the AI semiconductor market.
For example, AMD's new AI chip, the MI325X, will be manufactured using TSMC's N5 and N6 processing nodes. Looking ahead, AMD's MI350X chip, expected next year, will be based on TSMC's 3nm process node.
Intel has tapped TSMC to make Lunar Lake chips aimed at AI-enabled computers. Nvidia is already using TSMC processing nodes to manufacture its latest AI chips, and is expected to use TSMC's 3nm node for its Rubin chips, scheduled for release in 2026.
The foundry giant can benefit from the growth of artificial intelligence in multiple ways
We've already seen TSMC play a critical role in helping the likes of Intel, AMD, and Nvidia produce the hardware needed for AI training and inference. But at the same time, it is also well placed to benefit from the growing adoption of AI-powered computers and smartphones.
appleFor example, it is reportedly looking to secure TSMC's 2nm chip production capacity to deploy AI features in devices like the iPhone and iPad. in addition to, Qualcomm TSMC has reportedly turned to TSMC to help it manufacture chips to power AI-enabled computers, using the 4nm manufacturing process. Qualcomm is also using TSMC to manufacture its AI-focused Snapdragon 8 Gen 3 smartphone chips.
Gartner It predicts that global shipments of AI-enabled computers and smartphones could grow from 29 million units last year to 295 million units in 2024. Even then, there will be a long growth trajectory for sales of these devices in the long term – and it is expected that Only 22% of computers and smartphones shipped this year are capable of using AI.
So, while Nvidia's AI opportunity lies primarily in the data center market right now, TSMC will benefit from the spread of this technology on multiple fronts.
TSMC is set for stronger growth
TSMC's 2023 revenue fell 9% to $69.3 billion thanks to broader weakness in the semiconductor market. However, industry conditions are changing for the better, with its revenue in the first quarter of 2024 rising 13% year over year to $18.9 billion. Furthermore, TSMC's April revenue rose nearly 60% year over year, a nice acceleration from the 34% growth it recorded in March.
Analysts expect TSMC's revenue to increase approximately 23% in 2024 to just over $85 billion, which would be a significant improvement from its performance last year. Better yet, TSMC is expected to achieve revenue growth of over 20% again in 2025, and there's a good chance it will be able to maintain these healthy levels of growth thanks to the multiple AI-related catalysts discussed above.
Investors who couldn't buy Nvidia stock before it started taking off would be better off buying TSMC now. It plays a major role in the spread of this technology, which looks set to translate into impressive growth in revenues and profits.
Should you invest $1000 in semiconductor manufacturing in Taiwan now?
Before you buy shares in a Taiwan Semiconductor Manufacturing Company, consider the following:
the Motley Fool stock advisor The analyst team has just defined what they think it is Top 10 stocks Investors buy it now… and Taiwan semiconductor manufacturing wasn't one of them. The 10 stocks that were discounted could deliver huge returns in the coming years.
Think when Nvidia I prepared this list on April 15, 2005… If you invested $1,000 at the time of our recommendation, You will have $740,690!*
Stock advisor It provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. the Stock advisor The service has More than four times The return of the S&P 500 since 2002*.
*Stock Advisor returns as of June 10, 2024
Harsh Chauhan He has no position in any of the stocks mentioned. The Motley Fool has positions in 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 Motley Fool has Disclosure policy.
Here are the best artificial intelligence (AI) stocks to buy now (hint: it's not Nvidia) Originally published by The Motley Fool
