Nvidia (NASDAQ: NVDA) dominated the unreal intelligence boom to this point, and it is simple to see why.
The company has a monopoly-like share of the data center GPU market with an estimated 98% in 2023. Those are the components that cloud hyperscalers like Amazon and Microsoft and AI start-ups like OpenAI depend on to run intensive generative AI applications like ChatGPT.
Demand continues to outstrip supply for its chips, and its latest Blackwell platform is already sold out for the next 12 months, as Nvidia CEO Jensen Huang described demand for the brand recent chips as “insane.”
Nvidia delivered monster returns for the explanation that start of 2023, shortly after the launch of ChatGPT, adding roughly $3 trillion in market cap since then, and the stock has increased by nearly 1,000%.
Nonetheless, Nvidia faces various risks reminiscent of incoming competition. Advanced Micro Devices, for example, just launched its latest MI325X accelerator, which is aiming to challenge Nvidia’s Blackwell platform. Its top customers, like Amazon, Microsoft, and Meta Platforms, are also developing their very own chips which may relieve a couple of of their need for Nvidia’s components.
Furthermore, some investors are skeptical of the AI boom, believing that the tech giants are overspending on AI as they still haven’t found a way to make a reap the benefits of the brand recent technology. Nvidia’s business is cyclical and costs can change quickly according to supply and demand for its components, and its results have modified quickly to this point.
Finally, the stock is costly at a price-to-earnings ratio of 64, meaning that if its results come up short, the stock could fall substantially.
Within the event you’re trying to find a lower-risk technique to get exposure to artificial intelligence, especially for many who’re buying your first AI stock, there’s one other dominant chip company that presents a greater alternative. That’s Taiwan Semiconductor Manufacturing Corporation (NYSE: TSM), or TSMC, as it’s also known.
What’s TSMC?
Taiwan Semiconductor is the world’s biggest manufacturer of semiconductors, and it handles greater than half of all contract chip manufacturing on the earth, serving customers like Apple, Nvidia, Broadcom, and AMD.
It’s way more dominant in relation to advanced chips, with a market share of around 90% of all third-party foundries.
TSMC is a linchpin inside the semiconductor industry and the worldwide economy since the chips it produces go in the whole thing from smartphones to computers, data centers, automobiles, and appliances. Its expertise in advanced chip manufacturing and its dominant market share give it an enormous competitive advantage in its industry, and that was on display in its third-quarter earnings report out Thursday.
Revenue inside the quarter jumped 39% to $23.5 billion, and profits rose even faster as gross margin expanded from 54.3% inside the quarter a 12 months ago to 57.8%, showing that its pricing power improved since it benefited from the spoils of the AI boom and a rebound in consumer electronics. That can be a formidable gross margin for any manufacturer, and explains its monopoly-like operating margin of 47.5%. On the underside line, net income jumped 54% to $10.1 billion, or $1.94 a share.
TSMC beat estimates on each the best and bottom lines and offered fourth-quarter revenue guidance that was well above the consensus, calling for revenue of $26.1 billion to $26.9 billion, up 35% 12 months over 12 months on the midpoint.
CFO Wendell Huang said third-quarter results were driven by “strong smartphone and AI-related demand for our industry-leading 3nm and 5nm technologies.” CEO C.C. Wei said on the earnings call, “The demand (for AI) is real,” and he predicted that it’ll last for a couple of years.
Why TSMC is a winner
Together with its booming growth and wide economic moat, TSMC also looks like a incredible AI stock to own instantly as a result of two of its closest rivals, Intel and Samsung, are faltering. Intel announced an unlimited restructuring back in August and said it’ll cut capital expenditures by about 17% in 2025, while Samsung, the world’s No. 2 foundry business, just took the rare step of apologizing to investors after reporting weak third-quarter results earlier this month, including problems with its high-bandwidth memory chip business.
Finally, TSMC stock is surprisingly inexpensive, especially at its current growth rate, since the stock trades at a P/E of 36, very like big tech corporations like Microsoft and Apple, despite the incontrovertible fact that it’s growing much faster.
Nvidia is a superb company and still looks like a incredible stock to own, but TSMC has less downside risk, a inexpensive price tag, and more entrenched competitive advantages due to the high barriers to entry inside the foundry business.
Within the event you’re trying to find a no brainer stock to start out out your AI portfolio, TSMC looks like a incredible selection.
Must you invest $1,000 in Taiwan Semiconductor Manufacturing instantly?
Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:
The Motley Idiot Stock Advisor analyst team just identified what they imagine are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one among them. The ten stocks that made the cut could produce monster returns within the approaching years.
Consider when Nvidia made this list on April 15, 2005… for many who invested $1,000 on the time of our suggestion, you’d have $839,122!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on constructing a portfolio, regular updates from analysts, and two latest stock picks every month. The Stock Advisor service has greater than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of October 14, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. 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. Jeremy Bowman has positions in Amazon, Broadcom, and Meta Platforms. The Motley Idiot has positions in and recommends Advanced Micro Devices, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Broadcom and Intel and recommends the subsequent options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Idiot has a disclosure policy.
In search of to Buy Your First AI Stock? This Is the Best Alternative (Hint: It’s Not Nvidia). was originally published by The Motley Idiot