Consider it or not, semiconductor chips are used for applications well beyond powering smart devices and electronics. For that reason, it isn’t entirely surprising that semiconductor stocks have been particularly big winners as the synthetic intelligence (AI) revolution pushes forward.
Amongst leading chip corporations, Nvidia (NASDAQ: NVDA) stands out because the 800-pound gorilla straight away. But with shares up 651% since August 2022, investors will want to consider what opportunities exist within the chip realm besides Nvidia.
Let’s dig into how Nvidia propelled itself into being the world’s top chip business, and assess why one other stock would be the higher buy in the long term.
Nvidia is great, but …
Chips often known as graphics processing units (GPUs) are used for a number of AI-powered applications reminiscent of training large language models, developing autonomous driving software, and machine learning. Nvidia’s GPU roster includes its highly popular H100 and A100 chips, and the corporate’s latest Blackwell series is already forecast to be a smash hit (but more on that later).
Indeed, Nvidia looks downright unstoppable, with an almost 80% share of the AI-powered chip market.
Nevertheless, I caution investors about going all-in on one company — even whether it is the de facto leader. Below, I’ll break down intimately why Nvidia’s time at the highest could also be drawing to a detailed.
The competitive landscape is starting to accentuate
Lots of the world’s largest corporations are currently customers of Nvidia. In truth, many “Magnificent Seven” corporations, reminiscent of Microsoft, Tesla, Amazon, Meta, and Alphabet, have been touted as a few of Nvidia’s largest customers.
Although a customer roster of that caliber is impressive, I query whether it’s encouraging. Tesla CEO Elon Musk recently explained to investors that his electric vehicle company is exploring ways to compete with Nvidia more directly as Tesla looks to maneuver away from a heavy reliance on H100 chips.
Moreover, most of the Magnificent Seven corporations referenced above have made it clear that they too are investing significantly into capital expenditures (capex) to develop in-house chips.
For instance, I see Amazon’s $11 billion data center infrastructure project as a transparent sign that the corporate is seeking to increase investment in its Trainium and Inferentia chips.
What’s amazing is that every one of the competitors analyzed above are tangential to Nvidia. Designing semiconductors is not a core component of any of their businesses.
Perhaps Nvidia’s most direct competitor in the meanwhile is Advanced Micro Devices (NASDAQ: AMD). While AMD’s growth throughout the AI revolution hasn’t even been in the identical universe as Nvidia’s, I believe those dynamics may soon change.
Nvidia’s momentum has hit some turbulence following a recent announcement that the brand new Blackwell chips can be delayed on account of a design flaw. Although I believe Nvidia will still sell out of those chips after they finally do hit the market, I believe AMD has a possibility to capture some latest business straight away.
With all this said, I believe it’s only a matter of time before Nvidia’s growth begins to decelerate. Subsequently, I might not be surprised to see the stock give back a few of its record gains.
This company stands to win regardless
Given the sheer variety of competitors and the risks that include commercializing latest services and products, you are probably wondering which chip stock I actually do have full confidence in.
Enter chip manufacturing company Taiwan Semiconductor (NYSE: TSM). You see, Nvidia, AMD, and plenty of others do little or no of their very own manufacturing. As a substitute, after designing next-generation hardware, they outsource the actual manufacturing capability to Taiwan Semiconductor.
Taiwan Semiconductor makes products for Nvidia, AMD, Amazon, Broadcom, Intel, Qualcomm, Sony, and plenty of more.
In response to data from Market.us, the whole addressable market (TAM) for the worldwide AI chip market is predicted to grow at a compound annual growth rate (CAGR) of 31.2% between 2024 and 2033 — reaching a size of $341 billion.
To me, Taiwan Semiconductor stands to learn regardless of what company is selling out their chips. Furthermore, given the high likelihood of additional GPUs coming to market from big tech and the bullish forecast for the AI chip market more broadly, I see Taiwan Semiconductor as a transparent winner over the subsequent several years.
Investors with a long-term horizon who’re searching for alternatives to AI’s most blatant opportunities amongst mega-cap tech will want to seriously consider a position in Taiwan Semiconductor straight away.
Do you have to invest $1,000 in Taiwan Semiconductor Manufacturing straight away?
Before you purchase stock in Taiwan Semiconductor Manufacturing, consider this:
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Idiot has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Idiot recommends Broadcom and Intel and recommends the next options: long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
If I Could Only Buy 1 Artificial Intelligence (AI) Semiconductor Stock Over the Next Decade, This Would Be It (Hint: It’s Not Nvidia) was originally published by The Motley Idiot