Here's My Top Artificial Intelligence (AI) Stock to Buy Now (hint: It's Not Nvidia) - Latest Global News

Here’s My Top Artificial Intelligence (AI) Stock to Buy Now (hint: It’s Not Nvidia)

NVIDIA (NASDAQ: NVDA) has had an unforgettable run on the stock market since the beginning of 2023. The graphics card specialist’s shares have risen a whopping 727% in less than 18 months, thanks to crazy demand for chips needed to train and deploy artificial intelligence (AI) models.

Since AI entered the mainstream, revenue and profits have grown at an unprecedented pace. Revenue in fiscal 2024 (which ended last January) rose 126% to $60.9 billion, while adjusted earnings rose 288% year over year to $12.96 per share. More importantly, Nvidia is expected to continue growing at a staggering pace.

Analysts predict that the company’s revenue will almost double again in the current fiscal year, reaching just over $120 billion. Nvidia’s profit, on the other hand, is expected to more than double, reaching $27.03 per share. The company can actually achieve such outstanding growth due to its dominant position in the AI ​​chip market.

However, if you missed Nvidia’s stunning rally and want to capitalize on the booming AI chip market – which is expected to grow 40% annually and generate over $1.11 trillion in annual revenue by 2032 – you should consider buying Nvidia’s foundry partner. Taiwanese semiconductor manufacturing company (NYSE:TSM)popularly known as TSMC.

Let’s look at the reasons why TSMC could be one of the best AI stocks to buy right now.

TSMC is trading at an attractive valuation

TSMC shares currently trade at 31 times earnings, which is a huge discount compared to Nvidia’s 71 times earnings. Of course, Nvidia’s phenomenal growth brings the earnings multiple down to 45, but TSMC still outperforms the graphics card giant in this regard, with shares trading at 26 times estimated earnings.

Buying the Taiwan-based foundry giant at this valuation seems like a no-brainer considering it makes the AI ​​chips developed by Nvidia. More specifically, Nvidia is expected to be the second-largest customer of TSMC’s chips, accounting for 11% of its revenue in 2023.

Even better, TSMC appears to be a smart investment in AI, as the company makes chips for many of the leading chipmakers looking to enter the AI ​​market. Both Intel And modern micro devices use TSMC to produce AI chips, giving the company a solid starting 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 process nodes. AMD’s MI350X chip, expected next year, will be based on TSMC’s 3-nanometer (nm) process node.

Intel has tapped TSMC to manufacture its Lunar Lake chips, which are intended for AI-enabled PCs. Nvidia already uses TSMC’s process nodes to manufacture its latest AI chips and is expected to use TSMC’s 3nm node for its Ruby chips, which are scheduled to launch in 2026.

The foundry giant can benefit from AI growth in many ways

We’ve already seen that TSMC plays a critical role in helping Intel, AMD, and Nvidia produce the hardware needed for AI training and inference, but at the same time, the company is well positioned to benefit from the increasing adoption of AI PCs and smartphones.

Applefor example, is reportedly trying 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 hired TSMC to make chips for AI-enabled PCs, using its 4nm manufacturing process. Qualcomm also uses TSMC to make its AI-focused Snapdragon 8 Gen 3 smartphone chips.

gardener predicts that global shipments of AI-enabled PCs and smartphones could grow from 29 million units last year to a whopping 295 million units in 2024. Even then, there will be a long growth period for sales of these devices in the long run – only 22% of PCs and smartphones shipped this year are expected to be AI-enabled.

While Nvidia’s AI opportunity currently lies primarily in the data center market, TSMC can benefit from the proliferation of this technology on several fronts.

TSMC will grow stronger

TSMC’s revenue fell 9% to $69.3 billion in 2023, reflecting overall weakness in the semiconductor market. However, conditions in the industry are changing for the better – first-quarter 2024 revenue rose 13% year-over-year to $18.9 billion. In addition, TSMC’s revenue in April grew nearly 60% year-over-year, a nice acceleration from March’s 34% growth.

Analysts forecast TSMC’s revenue to grow nearly 23% to just over $85 billion in 2024, which would be a big improvement from last year. Even better, TSMC is expected to deliver over 20% revenue growth again in 2025, and there’s a good chance the company can sustain that healthy level of growth thanks to the numerous AI-related catalysts discussed above.

Investors who were unable to buy Nvidia stock before the breakthrough would do well to invest in TSMC now. The company is playing a key role in the proliferation of this technology, which is expected to translate into impressive revenue and profit growth.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing now?

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Harsh Chauhan does not own any of the stocks mentioned. The Motley Fool owns 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 a disclosure policy.

Here’s My Top Artificial Intelligence (AI) Stock to Buy Now (Hint: It’s Not Nvidia) was originally published by The Motley Fool

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