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 has 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 have already seen…
