AMD Emerges as Potential AI Powerhouse, Challenging NVIDIA's Dominance

This Undervalued Stock Could Join Nvidia in the Trillion-Dollar Club | The Motley Fool

This could be the next semiconductor giant to attain a trillion-dollar market cap. Semiconductor stocks have been in fine form on the stock market since the beginning of 2023, thanks to the terrific demand for chips used to power artificial intelligence (AI) servers, smartphones, and personal computers, among other things. The PHLX Semiconductor Sector index has shot up a terrific 115% since the beginning of last year, driven by the outstanding gains that the likes of Nvidia have clocked during this period. More specifically, Nvidia stock has multiplied 8x since the start of 2023, and its market cap now stands at $3.0 trillion. However, the stunning rally in Nvidia stock has made it expensive with a price-to-earnings (P/E) ratio of 73, significantly more expensive than the Nasdaq 100's average P/E ratio of 32. But Nvidia may be able to justify its valuation in the long run thanks to the huge opportunity in the AI chip market, where it is the dominant player. However, there is another semiconductor stock that is much cheaper and also enjoying healthy growth in this industry: Taiwan Semiconductor Manufacturing (TSM 0.30%). Popularly known as TSMC, the foundry giant could soon join Nvidia in the trillion-dollar market cap club. Let's look at the reasons why TSMC is on the path to becoming a trillion-dollar company. TSMC released its second-quarter results on July 18. The foundry giant's revenue increased 33% year over year to $20.8 billion, exceeding management's guidance. It reported adjusted earnings of $1.48 per share for the quarter, up 30% year over year. It is worth noting that TSMC's operating margin of 42.5% was also above the forecast range of 40% to 42%. More importantly, TSMC's outlook also exceeded expectations. The company is expecting third-quarter revenue to land between $22.4 billion and $23.2 billion. The midpoint of this range represents 45% year-over-year growth, a marked acceleration from last quarter. TSMC credits "strong smartphone and AI-related demand for our leading-edge process technologies" as the reason behind its bullish outlook. A closer look at TSMC's revenue breakdown indicates advanced chip nodes produced 67% of its wafer revenue, up from 53% in the same quarter last year. Advanced chip nodes are defined as process technologies that are 7 nanometers or lower in size. TSMC currently has three such advanced chip nodes in the form of 7nm, 5nm, and 3nm processes. The 5nm node was the biggest seller last quarter with its revenue share climbing five percentage points to 35%. It is worth noting that the smaller the process node, the more powerful the chip. TSMC introduced a 3nm node in the past year, and it already accounted for 15% of second-quarter revenue, further illustrating how the demand for TSMC's advanced chip technologies is increasing. Moreover, chipmakers are using advanced process nodes to design AI chips. Nvidia's popular H100, for instance, is based on a 5nm process node. Even Intel and AMD are deploying 5nm chips to manufacture their AI accelerators, while these chipmakers are also looking to move to the more advanced 3nm process node in the near future. The market for AI chips is forecast to expand at a compound annual growth rate of 26% over the next decade, generating $287 billion in revenue at the end of the forecast period, according to a report from Future Market Insights. As the leading foundry services provider in the world with a market share of 62% in Q1, TSMC seems to have a bright future ahead of it. TSMC has a market cap of $885 billion as of this writing, which means it needs just 13% share price growth to hit the $1 trillion milestone. The stock has a 12-month median price target of $200 per the 41 analysts covering the stock, implying an 18% jump from current levels. Following its latest quarterly report, TSMC could reach $1 trillion sooner rather than later. What's more, TSMC's earnings are expected to grow at an annual rate of 21% for the next five years, but it trades at just 30 times trailing earnings, a discount to Nasdaq 100 index. Its price/earnings-to-growth ratio (PEG ratio), which factors in a company's growth prospects, is less than 1, a common indicator of an undervalued stock. In TSMC, investors get a rare combination of value and growth, and they should take a closer look at this top AI stock before it adds to the 65% gain it has already clocked in 2024.

Meet the New Nasdaq 100 and S&P 500 Artificial Intelligence Stock That Topped Nvidia in the First Half

Could this exciting AI growth player soar past Nvidia in the second half? The stock market soared in the first half, but the movement wasn't exactly broad-based. A certain type of company led the S&P 500 to its increase of more than 14%. I'm talking about technology players, especially those with a focus on artificial intelligence (AI). In fact, just four of these stocks -- Nvidia, Microsoft, Alphabet, and Amazon -- accounted for more than half of the index's first-half gain, according to JP Morgan Wealth Management. Among those four, Nvidia registered the best performance by far, soaring nearly 150%. But another AI stock actually topped the AI chip giant in the period, advancing 188%. Thanks to this company's rising earnings and excellent performance, it recently was invited to join the S&P 500 and the Nasdaq 100. It entered the S&P 500 in March and the Nasdaq 100 index this month. Let's meet this new index member that topped Nvidia in the first half, and find out whether it could do the same in the second half. Joining the S&P 500 First, it's important to note that joining these indexes is a big deal as they include companies that power today's economy. The S&P 500 tracks the performance of the 500 largest listed companies, while the Nasdaq 100 includes the biggest non-financial companies on the Nasdaq. If a company is invited to join these indexes, it suggests it's done well -- and should continue to play a key role in growth moving forward. What stock am I talking about? Top performer Super Micro Computer (SMCI -2.24%), an equipment maker that sells servers, workstations, and full rack scale solutions needed in AI data centers. Demand for Supermicro's equipment has soared in recent years as companies launch AI projects and build out their platforms. Just to illustrate how far Supermicro has come, we should take a look at quarterly earnings. A few months ago, the company reported its first $3 billion quarter -- as recently as 2021, this was the revenue level for an entire year. This revenue momentum isn't likely to stop as it's the early days of the AI boom, and Supermicro has what it takes to keep customers coming back. Analysts predict that today's $200 billion AI market may surpass $1 trillion by the end of the decade. In addition, Supermicro has delivered a growth rate that's five times faster than the industry average over the past 12 months, thanks to its ability to quickly serve its customers' needs. Working closely with Nvidia Supermicro's products share many similar parts, making it easy to customize a specific piece of equipment for a particular customer. The company also works closely with the world's top chip designers -- including Nvidia -- to immediately integrate its latest releases into its equipment. Meanwhile, Supermicro is ramping up its production capabilities by, for example, adding a new facility in Malaysia to focus on lower costs and higher volume. The company says the Malaysia factory should help boost both operating margin and net income over time, metrics that already have grown over the past few years. SMCI Operating Margin (Quarterly) data by YCharts. All of this could keep Supermicro ahead of its rivals. On top of this, its expertise in the cooling of computational systems should serve as a new growth driver. Supermicro makes a direct liquid cooling (DLC) system that can be added to its equipment. This technology wasn't sought after a few years ago, but today, with AI workloads producing tremendous heat in data centers, the company's DLC is set to take off. The company predicts liquid-cooled data centers will grow from less than 1% in the recent past to as much as 30% of all data centers within the coming two years. Could Super Micro soar in the second half? Let's get back to our question: Could Supermicro repeat its performance and beat Nvidia in the second half of the year? It's possible. After all, the stock is considerably cheaper than Nvidia from a forward price-to-earnings perspective, so investors looking for a bargain AI bet could favor Supermicro. SMCI PE Ratio (Forward) data by YCharts. It's impossible to accurately predict near-term share movement, and the good news for long-term investors is that it's OK. What's most important is a particular stock's performance over time, such as the coming five to 10 years. And here, whether Supermicro beats Nvidia or not, it's likely the company's earnings will continue to climb -- and that could lead to a victory for investors who buy the stock now and hold on to watch the growth story unfold.