Beyond Nvidia: The Rise of Taiwan Semiconductor in the AI Chip Race

Forget Nvidia: 1 Other Unstoppable Semiconductor Stock to Buy Instead | The Motley Fool

Artificial intelligence (AI) has captivated investors across the board. From large institutional financial services firms to smaller retail investors, AI is playing a big role in how money is moving nowadays. What's a little surprising, however, is that capital appears to be primarily concentrated in a small basket of mega-cap technology stocks. The "Magnificent Seven" is a term used to collectively describe the world's largest tech companies -- and unsurprisingly, all of them are disrupting AI in some form. Perhaps the most intriguing member of the Magnificent Seven is semiconductor leader Nvidia. While the company appears to have an edge over its peers, investors should understand that the chip realm has many different components. In other words, not all semiconductor businesses are developing products that compete with Nvidia. In fact, many chip companies are working alongside Nvidia and are benefiting as a result of the company's growth. One chip stock that I think is quietly hovering under the radar right now is Micron Technology (MU 2.55%). Let's dig into Micron's business and assess why now looks like a lucrative opportunity for long-term investors to scoop up some shares. Nvidia develops a series of sophisticated computer chips called graphics processing units (GPUs). These play a big role in generative AI applications such as machine learning, training large language models (LLMs), and quantum computing. While Nvidia faces competition from AMD and Intel, the company is estimated to have at least 80% of the AI-powered chip market. Nvidia has built its lead over the competition thanks to demand for its H100 and A100 products. The company has also already developed its next-generation line of GPUs, known as Blackwell and Rubin. Micron specializes in memory storage products that are integrated into chips. Micron isn't competing with Nvidia. Rather, the company actually works with Nvidia and is benefiting from the demand fueling chips right now. One of Micron's core products is called the High Bandwidth Memory (HBM) 3E, which is layered on Nvidia's GPUs. The company began shipping its HBM3E products during this past spring. While it's still a new product for Micron, the initial traction from HBM3E gives investors a lot to be excited about. For its fiscal 2024's third quarter (ended May 30), Micron generated $6.8 billion in revenue -- up 84% year over year. HBM contributed $100 million during the quarter as shipments began to ramp. Management stated: "We expect to generate several hundred million dollars of revenue from HBM in fiscal 2024 and multiple billions of dollars in revenue from HBM in fiscal 2025." Furthermore, management really shocked investors when they noted that "HBM is sold out for calendar 2024 and 2025, with pricing already contracted for the overwhelming majority of our 2025 supply." The chart below illustrates the price-to-free cash flow (P/FCF) multiple for Micron over the last three years. Although a P/FCF of 68.9 is pricey, the multiple is notably lower than in some prior periods. Admittedly, the valuation analysis above could be misleading. Part of the reason why Micron's P/FCF is normalizing is because, like many technology businesses, the company is experiencing abnormal demand right now. As a result, revenue and margins are accelerating. However, the blemish with Micron revolves around profitability. The company inconsistently reports positive operating income, free cash flow, and net income. This means that during some quarters, the company actually posts a net loss. Since the semiconductor space is highly cyclical, Micron's ebbs and flows regarding profits aren't entirely surprising. However, I'm optimistic that the success of the HBM solutions can help Micron attain some degree of pricing power as it looks to fulfill supply and demand. In theory, this should help smooth out the company's cash flow and profitability. For those reasons, I think Micron is well-positioned to continue benefiting from the AI boom and the specific demand trends surrounding chip businesses. Moreover, given that its latest innovation is already sold out through next year, I think it's obvious that the company's products are well-received. While shares of Micron aren't necessarily dirt cheap, I see the stock as a compelling buy for long-term investors looking for alternatives to Nvidia.

Forget Nvidia: 1 Other Unstoppable Semiconductor Stock to Buy Instead

Artificial intelligence (AI) has captivated investors across the board. From large institutional financial services firms to smaller retail investors, AI is playing a big role in how money is moving nowadays. What's a little surprising, however, is that capital appears to be primarily concentrated in a small basket of mega-cap technology stocks. The "Magnificent Seven" is a term used to collectively describe the world's largest tech companies -- and unsurprisingly, all of them are disrupting AI in some form. Perhaps the most intriguing member of the Magnificent Seven is semiconductor leader Nvidia. While the company appears to have an edge over its peers, investors should understand that the chip realm has many different components. In other words, not all semiconductor businesses are developing products that compete with Nvidia. In fact, many chip companies are working alongside Nvidia and are benefiting as a result of the company's growth. One chip stock that I think is quietly hovering under the radar right now is Micron Technology (NASDAQ: MU). Let's dig into Micron's business and assess why now looks like a lucrative opportunity for long-term investors to scoop up some shares. How does Micron benefit from Nvidia? Nvidia develops a series of sophisticated computer chips called graphics processing units (GPUs). These play a big role in generative AI applications such as machine learning, training large language models (LLMs), and quantum computing. While Nvidia faces competition from AMD and Intel, the company is estimated to have at least 80% of the AI-powered chip market. Nvidia has built its lead over the competition thanks to demand for its H100 and A100 products. The company has also already developed its next-generation line of GPUs, known as Blackwell and Rubin. Micron specializes in memory storage products that are integrated into chips. Micron isn't competing with Nvidia. Rather, the company actually works with Nvidia and is benefiting from the demand fueling chips right now. One of Micron's core products is called the High Bandwidth Memory (HBM) 3E, which is layered on Nvidia's GPUs. The company began shipping its HBM3E products during this past spring. While it's still a new product for Micron, the initial traction from HBM3E gives investors a lot to be excited about. For its fiscal 2024's third quarter (ended May 30), Micron generated $6.8 billion in revenue -- up 84% year over year. HBM contributed $100 million during the quarter as shipments began to ramp. Management stated: "We expect to generate several hundred million dollars of revenue from HBM in fiscal 2024 and multiple billions of dollars in revenue from HBM in fiscal 2025." Furthermore, management really shocked investors when they noted that "HBM is sold out for calendar 2024 and 2025, with pricing already contracted for the overwhelming majority of our 2025 supply." Is now a good time to buy Micron stock? The chart below illustrates the price-to-free cash flow (P/FCF) multiple for Micron over the last three years. Although a P/FCF of 68.9 is pricey, the multiple is notably lower than in some prior periods. MU Price to Free Cash Flow data by YCharts. Admittedly, the valuation analysis above could be misleading. Part of the reason why Micron's P/FCF is normalizing is because, like many technology businesses, the company is experiencing abnormal demand right now. As a result, revenue and margins are accelerating. However, the blemish with Micron revolves around profitability. The company inconsistently reports positive operating income, free cash flow, and net income. This means that during some quarters, the company actually posts a net loss. Since the semiconductor space is highly cyclical, Micron's ebbs and flows regarding profits aren't entirely surprising. However, I'm optimistic that the success of the HBM solutions can help Micron attain some degree of pricing power as it looks to fulfill supply and demand. In theory, this should help smooth out the company's cash flow and profitability. For those reasons, I think Micron is well-positioned to continue benefiting from the AI boom and the specific demand trends surrounding chip businesses. Moreover, given that its latest innovation is already sold out through next year, I think it's obvious that the company's products are well-received. While shares of Micron aren't necessarily dirt cheap, I see the stock as a compelling buy for long-term investors looking for alternatives to Nvidia. Should you invest $1,000 in Micron Technology right now? Before you buy stock in Micron Technology, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Micron Technology wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $791,929!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends 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. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Forget Nvidia: 3 Artificial Intelligence (AI) Stocks to Buy Now

Nvidia has been the artificial intelligence (AI) stock to own over the past year and a half. However, the expectations built into the stock are mind-boggling and could spell disaster in the future. Yet AI is here to stay, and if you're looking to invest in this sector, I'd consider these stocks before considering Nvidia. Taiwan Semiconductor Taiwan Semiconductor Manufacturing (NYSE: TSM) makes many of the chips that go inside all the devices that power the incredible AI technology being used today. With Nvidia's GPUs being packed full of TSMC products, it's also benefiting from its performance. Another huge customer is Apple, which recently announced its AI offering was only available on the latest generation of phones. This could ignite a large refresh wave, benefiting Taiwan Semi immensely. Regardless, management projects AI-related revenue to grow at a 50% compound annual rate for the next five years, when it expects this segment to make up more than 20% of overall sales. Over the long term, management expects overall revenue growth of 15% to 20%, which would result in massive market outperformance. Although Taiwan Semi's stock has had an excellent run this year (it's up over 75%), I believe that run can continue for years to come as its products are integrated into a world that has barely scratched the surface of AI capabilities. Alphabet Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is the parent company of Google, which has long been a proponent of AI. While it appeared caught off guard by the surge in generative AI popularity in late 2022, its recent launches corrected that blunder and its Gemini model emerged as a top pick. Alphabet has also integrated AI into various advertising products, allowing advertisers to create effective campaigns and ensuring that its internal models match the proper ad with viewers. While these releases haven't directly translated into a massive revenue increase, they solidified Alphabet's top place among the locations that advertisers must spend with. While Alphabet won't be as flashy an investment as Nvidia, it will steadily outperform the market by a couple of percentage points each year thanks to its dividend, aggressive share repurchase plan, and steady growth. The stock trades for around 25 times forward earnings, so it's not historically cheap, but it is substantially less pricey than many of its peers. Salesforce Salesforce (NYSE: CRM) is a bit of a backdoor pick, as it's a customer relationship management software company. However, it is heavily pushing its AI model to its customers as a way to improve their businesses. It can be integrated internally to equip employees with the best information possible when completing a sale, thanks to heavy reliance on internal customer data. It can also create AI chatbots that provide better customer service interaction than has historically been available. With Salesforce's market position, getting this AI offering right is key to maintaining its market dominance. It also provides another growth lever for the company, as its maturity is starting to show, with revenue only growing in the high single digits. However, it has recently initiated a dividend and still has a ways to go before achieving peak software company profit margins (the gold standard is Adobe's 30% margin). CRM Profit Margin (Quarterly) data by YCharts This all adds up to plenty of growth ahead for the stock and it could be a long-term market beater. All three companies are more steady than Nvidia, which has displayed a cyclical nature throughout its existence. Choosing Alphabet, Taiwan Semiconductor, and Salesforce is a smart idea if you're looking for more reasonably priced stocks with strong growth potential. Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now? Before you buy stock in Taiwan Semiconductor Manufacturing, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Taiwan Semiconductor Manufacturing wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $791,929!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Adobe, Alphabet, Salesforce, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Adobe, Alphabet, Apple, Nvidia, Salesforce, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Missed Out on Nvidia? Buy Taiwan Semiconductor Manufacturing Instead | The Motley Fool

Taiwan Semiconductor Manufacturing is powering many companies' AI innovations. Many investors have missed out on the incredible rise of Nvidia's (NVDA 1.44%) stock. While most don't own it individually, a larger cohort owns it through index fund exposure. Many investors might be looking for the next Nvidia, but rises like that don't happen often. If you've missed out on Nvidia, I'd propose another company worthy of an investment: Taiwan Semiconductor Manufacturing (TSM 1.54%). The company is benefiting from the same wave that Nvidia is, but it's also more diversified and will be protected in the event of GPU demand falling (which has happened quite often throughout Nvidia's history). Taiwan Semiconductor Manufacturing (TSMC) is the world's largest contract chip manufacturer. This means it takes designs from other businesses and manufactures them. This is no different than a standard machine shop or fabrication specialist; it just happens to be in the semiconductor realm. TSMC has stayed on top of the competition through its culture of continuous innovation, which has been evident by its consistent chip technology changes. Recently, 3nm (nanometer) chips quickly became a sizable chunk of TSMC's overall revenue (9% in the third quarter of 2024) despite entering production just in Q3 2023. These chips can be configured to be more powerful, more efficient, or both when compared to previous generations. Despite 3nm chips being relatively new to the market, TSMC is already working on its next generation: 2nm chips. These chips are expected to be available sometime in 2025, and the buzz surrounding them is already impressive. Management stated on its conference call that the demand for 2nm chips is already higher than that for 3nm or 5nm chip launches. This is likely because of the 2nm chips' focus on efficiency, which is a massive cost for companies creating artificial intelligence (AI) models with thousands of GPUs made by Nvidia. With this game-changing product in the pipeline, investors have a great reason to hold the stock for the long term. Additionally, management is seeing a huge demand for AI-related chips. Over the next five years, it forecasts this segment will grow revenue at a 50% compounded annual growth rate. When that growth is complete, AI chips will make up more than 20% of TSMC's revenue. That's massive growth and bodes well for its future. For a more short-term growth driver, TSMC should see a huge boost from its largest customer: Apple (NASDAQ: AAPL). Over the past three years, Apple has made up 26% (2021), 23% (2022), and 25% (2023) of its total revenue. However, Apple's smartphone sales have struggled because of its inability to launch a differentiating new feature. With the announcement of Apple Intelligence, that notion has changed. Because this feature will only be available on the latest generation of phones, it should ignite an upgrade cycle, which benefits TSMC immensely. Those compelling factors will drive TSMC's stock higher over the next few years; it should also see some financial improvement over the next few quarters. TSMC stock isn't nearly as cheap as it once was. Entering 2024, TSMC traded for a mere 15 times forward earnings. Its valuation has nearly doubled since then as investors have realized what a great price that was. Compared to Nvidia, which trades at 47 times forward earnings, TSMC does look like a bargain.However, that valuation should continue to come down as revenue rises over the next few quarters. TSMC has beaten analyst estimates over the past four quarters, so this forward multiple is likely a conservative valuation. Additionally, analysts expect earnings per share (EPS) to rise by 22% in 2024 and 26% in 2025, so its growth should support its valuation. Although it would be great to go back in time and buy Nvidia at the start of 2023, that isn't possible. Instead, I'd suggest investors pick up shares of Taiwan Semiconductor Manufacturing, as it benefits from similar trends yet trades at a more attractive valuation.

Forget Nvidia: 3 Artificial Intelligence (AI) Stocks to Buy Now | The Motley Fool

Nvidia has gotten quite expensive compared to many other successful companies. Nvidia has been the artificial intelligence (AI) stock to own over the past year and a half. However, the expectations built into the stock are mind-boggling and could spell disaster in the future. Yet AI is here to stay, and if you're looking to invest in this sector, I'd consider these stocks before considering Nvidia. Taiwan Semiconductor Manufacturing (TSM 1.54%) makes many of the chips that go inside all the devices that power the incredible AI technology being used today. With Nvidia's GPUs being packed full of TSMC products, it's also benefiting from its performance. Another huge customer is Apple, which recently announced its AI offering was only available on the latest generation of phones. This could ignite a large refresh wave, benefiting Taiwan Semi immensely. Regardless, management projects AI-related revenue to grow at a 50% compound annual rate for the next five years, when it expects this segment to make up more than 20% of overall sales. Over the long term, management expects overall revenue growth of 15% to 20%, which would result in massive market outperformance. Although Taiwan Semi's stock has had an excellent run this year (it's up over 75%), I believe that run can continue for years to come as its products are integrated into a world that has barely scratched the surface of AI capabilities. Alphabet (GOOG -0.28%) (GOOGL -0.27%) is the parent company of Google, which has long been a proponent of AI. While it appeared caught off guard by the surge in generative AI popularity in late 2022, its recent launches corrected that blunder and its Gemini model emerged as a top pick. Alphabet has also integrated AI into various advertising products, allowing advertisers to create effective campaigns and ensuring that its internal models match the proper ad with viewers. While these releases haven't directly translated into a massive revenue increase, they solidified Alphabet's top place among the locations that advertisers must spend with. While Alphabet won't be as flashy an investment as Nvidia, it will steadily outperform the market by a couple of percentage points each year thanks to its dividend, aggressive share repurchase plan, and steady growth. The stock trades for around 25 times forward earnings, so it's not historically cheap, but it is substantially less pricey than many of its peers. Salesforce (CRM 1.14%) is a bit of a backdoor pick, as it's a customer relationship management software company. However, it is heavily pushing its AI model to its customers as a way to improve their businesses. It can be integrated internally to equip employees with the best information possible when completing a sale, thanks to heavy reliance on internal customer data. It can also create AI chatbots that provide better customer service interaction than has historically been available. With Salesforce's market position, getting this AI offering right is key to maintaining its market dominance. It also provides another growth lever for the company, as its maturity is starting to show, with revenue only growing in the high single digits. However, it has recently initiated a dividend and still has a ways to go before achieving peak software company profit margins (the gold standard is Adobe's 30% margin). This all adds up to plenty of growth ahead for the stock and it could be a long-term market beater. All three companies are more steady than Nvidia, which has displayed a cyclical nature throughout its existence. Choosing Alphabet, Taiwan Semiconductor, and Salesforce is a smart idea if you're looking for more reasonably priced stocks with strong growth potential.

Missed Out on Nvidia? Buy Taiwan Semiconductor Manufacturing Instead

Many investors have missed out on the incredible rise of Nvidia's (NASDAQ: NVDA) stock. While most don't own it individually, a larger cohort owns it through index fund exposure. Many investors might be looking for the next Nvidia, but rises like that don't happen often. If you've missed out on Nvidia, I'd propose another company worthy of an investment: Taiwan Semiconductor Manufacturing (NYSE: TSM). The company is benefiting from the same wave that Nvidia is, but it's also more diversified and will be protected in the event of GPU demand falling (which has happened quite often throughout Nvidia's history). TSMC's investment case is ironclad Taiwan Semiconductor Manufacturing (TSMC) is the world's largest contract chip manufacturer. This means it takes designs from other businesses and manufactures them. This is no different than a standard machine shop or fabrication specialist; it just happens to be in the semiconductor realm. TSMC has stayed on top of the competition through its culture of continuous innovation, which has been evident by its consistent chip technology changes. Recently, 3nm (nanometer) chips quickly became a sizable chunk of TSMC's overall revenue (9% in the third quarter of 2024) despite entering production just in Q3 2023. These chips can be configured to be more powerful, more efficient, or both when compared to previous generations. Despite 3nm chips being relatively new to the market, TSMC is already working on its next generation: 2nm chips. These chips are expected to be available sometime in 2025, and the buzz surrounding them is already impressive. Management stated on its conference call that the demand for 2nm chips is already higher than that for 3nm or 5nm chip launches. This is likely because of the 2nm chips' focus on efficiency, which is a massive cost for companies creating artificial intelligence (AI) models with thousands of GPUs made by Nvidia. With this game-changing product in the pipeline, investors have a great reason to hold the stock for the long term. Additionally, management is seeing a huge demand for AI-related chips. Over the next five years, it forecasts this segment will grow revenue at a 50% compounded annual growth rate. When that growth is complete, AI chips will make up more than 20% of TSMC's revenue. That's massive growth and bodes well for its future. For a more short-term growth driver, TSMC should see a huge boost from its largest customer: Apple (NASDAQ: AAPL). Over the past three years, Apple has made up 26% (2021), 23% (2022), and 25% (2023) of its total revenue. However, Apple's smartphone sales have struggled because of its inability to launch a differentiating new feature. With the announcement of Apple Intelligence, that notion has changed. Because this feature will only be available on the latest generation of phones, it should ignite an upgrade cycle, which benefits TSMC immensely. Those compelling factors will drive TSMC's stock higher over the next few years; it should also see some financial improvement over the next few quarters. The stock may be a bit pricey, but its growth supports the valuation TSMC stock isn't nearly as cheap as it once was. Entering 2024, TSMC traded for a mere 15 times forward earnings. TSM PE Ratio (Forward) data by YCharts Its valuation has nearly doubled since then as investors have realized what a great price that was. Compared to Nvidia, which trades at 47 times forward earnings, TSMC does look like a bargain.However, that valuation should continue to come down as revenue rises over the next few quarters. TSMC has beaten analyst estimates over the past four quarters, so this forward multiple is likely a conservative valuation. Additionally, analysts expect earnings per share (EPS) to rise by 22% in 2024 and 26% in 2025, so its growth should support its valuation. Although it would be great to go back in time and buy Nvidia at the start of 2023, that isn't possible. Instead, I'd suggest investors pick up shares of Taiwan Semiconductor Manufacturing, as it benefits from similar trends yet trades at a more attractive valuation. Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now? Before you buy stock in Taiwan Semiconductor Manufacturing, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Taiwan Semiconductor Manufacturing wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $780,654!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.