These Technologically Advanced Stocks Continue to Offer Affordable Pricing Points
The surge in demand for artificial intelligence (AI) is leading to significant advancements for major chip companies. These companies are playing a pivotal role in the integration of this technology, and there remain opportunities for investors to reap rewards. Statista predicts that the AI chip market will increase by over 30% in 2024, far surpassing the 16% growth expected for the broader semiconductor sector.
Here are two stocks that can help capitalize on this market opportunity.
1. Nvidia
Nvidia's shares (NVDA -2.55%) have soared 186% throughout the year, as of now, but this impressive growth doesn't mean investors have missed their chance. The company's latest financial report indicates that demand trends for its leading position in graphics processing units (GPUs) are robust, and this momentum is expected to carry over to 2025.
As CEO Jensen Huang stated, "The era of AI is in full swing, driving a global transition to Nvidia computing." For its fiscal Q3, the company surpassed its own projections, with revenue soaring 94% year over year, reaching $35 billion.
While investors await the release of Blackwell, Nvidia's new AI computing platform currently in production, it's noteworthy that demand for its Hopper chips remains high. Nvidia reported that H200 chip sales saw a significant increase in the quarter, setting a record for the company's fastest product launch to date.
Blackwell is projected to be a major catalyst for growth in the coming year. CFO Colette Kress stated, "The demand for Blackwell is overwhelming, and we are working tirelessly to ramp up production to meet the intense demand from our customers." Blackwell isn't just a chip, but a versatile computing platform that combines various types of chips to provide the computing power required for generative AI workloads – a major trend in high-performance computing as of now. Based on benchmark tests, Blackwell is expected to deliver up to 2.2 times the performance of Hopper-based chips.
Some investors may consider the stock's $3.5 trillion market cap as expensive, yet comparing the share price to Wall Street's earnings estimates, the company's valuation appears reasonable. Over the next few years, the consensus analyst estimate suggests that the company's earnings will grow annually by 37%. With the stock trading at 34 times next year's earnings estimate, investors can still expect market-beating returns.
2. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing's shares (TSM -1.90%) have increased by 91% over the last year. It manufactures chips for companies like Nvidia, and as a result, it benefits from the same trends in high-performance computing.
Revenue increased by 36% year over year in Q3, and the company's high profit margins are fueling further growth in the bottom line, with earnings boosting by 54%. TSMC attributes its strong quarter to high demand for AI-related projects, which may exceed investors' expectations. The company forecasts that the revenue contribution from AI server chips will triple for the full year.
CFO Wendell Huang stated, "As the strong structural AI-related demand continues, we continue to invest to support our customers' growth." As TSMC invests today for demand that will emerge in the future, it's a positive sign that it anticipates raising capital expenditures beyond $30 billion for the full year.
TSMC plays a vital role in the global supply of chips, holding 62% of the global foundry market in Q2 2024, according to Counterpoint Research. Its market share has risen slightly over the past two years. With investment in AI servers anticipated to surge significantly over the next decade, TSMC has a promising future ahead.
The shares trade at a forward price-to-earnings ratio of 27 based on 2024 estimates and 21.5 on next year's consensus. With analysts predicting an annualized earnings growth rate of 31%, TSMC stock remains an attractive investment option.
- For those considering expanding their investment portfolio, it's worth noting that Nvidia's projected earnings growth of 37% annually over the next few years makes its stock a potential source of market-beating returns, despite its high market cap.
- As a strategic move, some investors might consider diversifying their finance portfolio by investing in Taiwan Semiconductor Manufacturing, given its strong annualized earnings growth rate of 31%, its high market share in the global foundry market, and its anticipated investment in AI servers for future demand.
