Taiwan Semiconductor's AI-Driven Growth Propels It to $1 Trillion Market Cap

Taiwan Semiconductor Just Surged 10%. Here's Why It's Still a Buy Right Now.

Taiwan Semiconductor Manufacturing (TSM 2.78%) has been on fire recently. After the company reported Q3 results on Oct. 17, the stock jumped 10% on the strength of the business. A pop like this may discourage some investors from buying Taiwan Semi stock because they think they've missed the boat. However, that's far from the case, as there are still multiple strong reasons to buy the stock, even after the market's reaction to earnings. New technology will sustain TSMC's growth for many years Taiwan Semiconductor is the world's leading chip manufacturing company. It makes chips that go into Apple's iPhones, Nvidia's graphics processing units (GPUs), and basically any other technologically advanced device. Because Taiwan Semi is a chip fabricator, it isn't choosing sides in any of the current technological races. Instead, an investment in Taiwan Semiconductor is essentially a bet that consumers will use more advanced digital devices in the future. This seems like a no-brainer investment, and the company's results back that up. In Q3, Taiwan Semi's revenue rose 36% year over year to $23.5 billion. Twenty percent of that revenue came from 3-nanometer (nm) chip technology, the company's most advanced product. It's quite impressive to ramp up this quickly because 3nm chips only started contributing to Taiwan Semi's revenue in Q3 of last year. That also should get investors excited for TSMC's next launch, 2nm chips. N2 chips are expected to launch in 2025 and ramp up in 2026, and this technology is expected to provide massive efficiency gains. While these chips will only provide a 10% to 15% power boost when configured to consume the same amount of energy, they provide a 25% to 30% efficiency boost when configured at the same power level as 3nm chips. With power consumption (especially with artificial intelligence (AI)-related chips) becoming a big deal, these 2nm chips and the products they go into may become must-have upgrades as they could pay for themselves from energy savings. Preliminary 2nm chip demand is already outpacing its predecessors (3nm and 5nm technology), so it's clear its customers are also excited about this launch. Although this isn't set to launch until 2025 (with a ramp up in 2026), it lets investors know that a 10% one-day movement in TSMC stock isn't a reason to avoid buying the stock. New products are bringing massive tailwinds, and TSMC hasn't begun to scratch the surface of how AI-related chips will boost its business. AI chips are in high demand In Q1, management guided that AI-related chip sales would expand at a 50% compound annual growth rate (CAGR) for the next five years. After that growth, they expected it would make up more than 20% of the company's total revenue. However, that projection may have been a tad slow. Just two quarters later, management raised its forecast that AI chips would make up a mid-teens percentage of its revenue in 2024 because revenue has more than tripled year over year. This shows how huge AI is becoming for the company, and it's fairly evident it will become more than 20% of Taiwan Semi's business much faster than they expected. All of this AI-related enthusiasm has inflated TSMC's valuation, pushing its valuation up to 32 times trailing earnings and 23 times 2025 earnings. TSM Price-to-Earnings Ratio data by YCharts. Historically, this is a pricey valuation. However, Taiwan Semi is also ramping up to some of the fastest growth it has experienced in the past decade. With Wall Street analysts projecting 25% growth in 2025, the valuation resembles 2021 and 2022, when it grew rapidly for multiple years. TSM Operating Revenue (Quarterly YoY Growth) data by YCharts. COVID-related chip demand drove TSMC's sales during those years, but its revenue cratered when that demand was filled. I don't expect AI demand to experience that same drop for some time, so paying a slightly elevated price tag for Taiwan Semi's stock is OK with me. Taiwan Semiconductor isn't quite a value play but has a ton of growth ahead. As a result, I'm not worried about a one-day or one-month run as I'm focused on the long term. With TSMC's long-term prospects looking great, I'm a confident buyer of the stock.

Is Taiwan Semiconductor Stock a Buy Now? | The Motley Fool

The chip manufacturing giant's potent technology is capturing AI demand. Among the world's largest semiconductor makers, Taiwan Semiconductor Manufacturing (TSM -1.72%) -- popularly known as TSMC -- stands second only to Nvidia. While artificial intelligence (AI) darling Nvidia outsources the manufacturing of its chip designs, TSMC is the one doing the building. Nvidia is far from the only one. TSMC's other customers include several tech titans, such as Advanced Micro Devices and Apple. With the explosion in customer demand for semiconductor chips to power artificial intelligence, TSMC's business is booming. This also means the chip manufacturer's shares have soared. Last October, TSMC stock was at a 52-week low of $84.95 before beginning a steady climb. After reporting third-quarter results on Oct. 17, the stock hit an all-time high of $212.60. Does this mean the opportunity to buy has passed? Or is there more upside for TSMC shares? Let's find out. TSMC holds an enviable position amid the demand for leading-edge logic chips, used in advanced computing technologies such as AI and 5G mobile networks. TSMC is the world leader in manufacturing these specialized semiconductor chips, with an estimated 90% share of this market. A key factor in TSMC's market dominance is customer demand for chips using its three-nanometer (nm) semiconductor manufacturing process. Referred to as 3nm, this technology creates chips with greater microprocessor speed, lower energy consumption, and exceptional computational power without increasing chip size. This 3nm tech looks like a game-changer for TSMC. The process produces better chips than its older 7nm technology, which was once responsible for over a third of the company's revenue a mere three years ago. Just last year, TSMC's 3nm-related revenue was a tiny 6% of Q3 sales. But the rapid rise of AI drove 3nm income to reach 20% of Q3 revenue this year. As 3nm-manufactured chips become more widely adopted, TSMC's market share in this sector is expected to grow. This is because TSMC's 3nm process generates higher yields and power efficiencies compared to those made by such competitors as Samsung. TSMC's 3nm strengths position the firm for revenue growth in the coming years. The market for the technology is forecast to skyrocket from $1.4 billion in 2023 to $26.5 billion by 2032. With its 3nm process taking off, TSMC experienced strong sales in the third quarter as revenue rose 36% year over year to $23.5 billion. CFO Wendell Huang noted: "Our business in the third quarter was supported by strong smartphone and AI-related demand." Along with rising revenue, Q3 gross margin increased to 58% from 54% in the prior year, indicating TSMC's business is managing costs more efficiently compared to last year. As a result, its profits surged 54% to $10.1 billion. The company expects robust revenue growth to continue into its fourth quarter. TSMC management anticipates Q4 revenue of at least $26.1 billion, up from the prior year's $19.6 billion. TSMC's long-term sales potential looks to get a boost from the expansion of its chip fabrication facilities. Because leading-edge logic chips are needed for advanced computing, the U.S. government is incentivizing TSMC to build semiconductor factories in the United States. The U.S. currently does not manufacture leading-edge logic chips. To change that, it provided TSMC with up to a $6.6 billion government award as part of the CHIPS Act. Leading-edge logic chips are so important to the evolution of computing that some industry experts suggest these chips rival the economic significance of oil. If so, even though TSMC shares hover near an all-time high, the firm could still be a valuable investment opportunity. A look at TSMC's price-to-earnings (P/E) ratio, a widely used metric for assessing stock valuation, tells you how much investors are willing to pay for a dollar's worth of earnings. While TSMC's P/E multiple has increased, it's still not at the elevated levels seen in the past. This suggests that its share price is not unreasonably high although you could wait for a dip before grabbing the stock. Wall Street believes shares can go higher. The consensus among Wall Street analysts is a "buy" rating with a median price target of $235.89 for TSMC stock. AI is perhaps the biggest technology shift since the advent of the internet. TSMC's leadership position in leading-edge logic chip production makes it a critical player in the AI ecosystem, and in turn, its stock is a no-brainer investment for the long term.

Up 100% This Year, This Tech Stock Just Joined the Trillion-Dollar Club. Should You Invest Now? | The Motley Fool

TSMC's stock is trading at an all-time high, but the room for growth remains large. Plenty of notable companies have had a good 2024, but few have had as good a year as Taiwan Semiconductor Manufacturing Company (TSM -1.72%) (TSMC). The world's leading semiconductor company has seen its stock price double this year, with plenty of momentum on its side. Going from a $500 billion company to a $1 trillion company is no small feat, but that's exactly what TSMC has managed to do this year. It joins an elite club consisting of only eight other companies. Given TSMC's success this year and recent surge, it's fair for investors to wonder if they've missed the train and should wait for a potential pullback. That said, if you're looking to invest in TSMC, there's no better time than now. Let's take a look at why. Few, if any, topics have commanded as much attention in the business world over the past couple of years as artificial intelligence (AI). The success of ChatGPT and other generative AI tools have brought it to the mainstream, but companies from virtually all industries have been figuring out how to use it for their businesses. TSMC probably isn't at the top of your mind when you think about AI stocks, but it plays just as important a role in the ecosystem as virtually any other company. Its semiconductors are vital parts of graphics processing units (GPUs), data centers, and AI accelerators, all of which are critical to training and powering AI applications. That's why companies like Nvidia (the most important GPU maker) rely so heavily on TSMC. Its advanced chipmaking abilities and production scale are unmatched. TSMC's third quarter (ended Sept. 30) confirmed that the AI hype is real and having tangible effects on its financials. The company's revenue increased 36% year over year to $23.5 billion, and its operating income increased by over 47% year over year to $11.1 billion. Both those figures cap off an impressive five-year run, where both have more than doubled. TSMC's high-performance computing segment -- which includes AI chips -- made up more than half of its third-quarter revenue. It expects revenue from its semiconductors used in AI processors and servers to triple this year, accounting for around a "mid-teen percent" of its total revenue. That's a big deal. The semiconductor giant isn't just making more money, either; it's doing so more efficiently. Its 57.8% gross margin is up 3.5% from 54.3% in Q3 2023. According to its chief financial officer, this is due to its "higher capacity utilization rate and cost improvement efforts." In other words, it's using more of its production capabilities. TSMC expects its fourth-quarter revenue to come in between $26.1 billion and $26.9 billion, with gross profit margins between 57% and 59%. With TSMC's stock price growth this year, it's no surprise that the company is now priced at a premium. It's trading at just more than 32 times earnings, noticeably more than its average over the past five years. It's not quite the 41 times earnings it was trading at in early 2021, but it's far from cheap, that's for sure. The valuation shouldn't deter investors, though. World-class companies often come with premium pricing, especially those with a spotlight on them, like TSMC. It could possibly limit some of the short-term growth potential, but TSMC is still well-positioned to be a force for the long haul. With around a 90% market share of the advanced semiconductor market, TSMC is in a league of its own, and the company likely won't be legitimately challenged in the foreseeable future. If you're worried about investing in the stock while it's at its all-time high, consider dollar-cost averaging your way into a stake.

This AI Giant Just Broke Through the $1 Trillion Market Cap Barrier: Here's What Comes Next | The Motley Fool

The dominant manufacturer is extending its lead over rivals. Taiwan Semiconductor Manufacturing (TSM 1.20%) just reached rarified air. The semiconductor giant -- known as TSMC -- just surpassed a market cap of $1 trillion after reporting phenomenal growth for the third quarter. Excluding state-owned enterprises, this is the ninth company in the world to reach a market value above $1 trillion. Benefitting directly from growing spending on artificial intelligence (AI) computer chips, TSMC is dominating the semiconductor foundry market and is showing no signs of slowing down. Here's what might come next for the stock. TSMC is the only company in the world that can manufacture ultrafast computer chips with the smallest transistor length. These 3- and 5-nanometer "nodes" made up around half of the company's revenue in the third quarter, which shows the high prices and surging demand computer chip companies have for these products. Due to this demand, TSMC is now forecasting 30% revenue growth in U.S. dollar terms for 2024. Let's break down this growth from the high-performance compute (HPC) segment, which is where TSMC classifies spending for AI computer chips. In Q3 of 2024, revenue for HPC chips made up 51% of overall revenue. In the same quarter last year, it made up 42% of revenue. This means there was $12 billion in HPC revenue last quarter compared to $7.26 billion in 2023 (in U.S. dollar terms), or approximately 65% year-over-year revenue growth. This is astounding growth for a company so large. Management sees growth continuing through 2025. The company lays out capital expenditures on new factories in anticipation of demand in future years. As of the latest update, it is planning on spending $30 billion on capital expenditures in 2024. In turn, this should lead to revenue growth in 2025 and 2026 as long as these new factories are utilized. A big change for TSMC in the next few years will be diversifying outside of its home market in Taiwan. The company and its customers want to stop Taiwan from becoming a chokepoint for semiconductor supply because of the Chinese government's military rhetoric around the island. The good news is these new factories are in the process of being built. Three fabrication facilities are being built in Arizona, with high-volume production expected to come at the start of 2025 for the first facility. It has advanced process nodes, meaning it can serve customers for the all-important HPC segment. The second and third facilities will hopefully be ready by the end of this decade. TSMC also has facilities being built in Japan and Europe to further its geographic diversification. Management is planning to spend tens of billions and perhaps over $100 billion on new factories outside of Taiwan in the next five to 10 years. Investors should track these developments, as they will be important to help alleviate geopolitical risk while also testing whether the same profit margins can be replicated outside of Taiwan. TSMC's financial statements look solid, and the company looks poised for growth over the next few years. Net revenue was up 36% year over year last quarter in U.S. dollar terms, with operating margin expanding to 47.5%. This led to monstrous 54.2% net income growth in the quarter. While 50% earnings growth is not going to happen forever, I think it is plausible that TSMC can grow net income at a double-digit rate -- on average -- each year for the next five years due to the AI boom. But does that make the stock a buy? I'm not so sure. Since the start of 2023, TSMC stock is up 170%. Its current price-to-earnings ratio (P/E) is well over 30, which is above the S&P 500 index average. Yes, TSMC is a better business than the average one on the index and should grow earnings faster than the average publicly traded stock. However, the stock is trading at one of its highest P/Es in history. That makes it ripe for multiple compression risk and reversion to the mean. I wouldn't fault an investor for buying TSMC after it surpassed a trillion dollars in market value. In five years, I think it is more likely than not that its market cap is larger than it is today. I just don't think the stock is a can't-miss opportunity after rising 170% in less than two years.

A Once-in-a-Decade Investment Opportunity: Meet My Favorite Artificial Intelligence (AI) Semiconductor Stock (Hint: Not Nvidia) | The Motley Fool

The GPU market is projected to eclipse $1 trillion by the next decade, according to Precedence Research. You may have heard that semiconductor stocks such as Nvidia have ballooned in value over the last couple of years, and do you know why? The answer is actually quite simple. Nvidia develops chipsets known as graphics processing units (GPUs), which are a critical piece of infrastructure used in generative AI. Nvidia is widely regarded as one of AI's most influential players, and has amassed an estimated 88% command of the GPU market. However, the GPU landscape includes far more opportunities than Nvidia. Below, I'm going to break down why I see chip manufacturing specialist Taiwan Semiconductor Manufacturing (TSM -1.52%) as the best opportunity in the chip space over the next decade. According to Precedence Research, the global GPU market is currently valued at $75.8 billion. Precedence forecasts that the GPU market will expand at a compound annual growth rate (CAGR) of 13.8% between 2024 and 2034 -- ultimately reaching a size of $1.4 trillion by early next decade. Hold up! Why is an expanding GPU market more of a tailwind for Taiwan Semiconductor than Nvidia? Well, the answer is connected to rising competition. While Nvidia owns the GPU realm for now, the company faces direct competition from Advanced Micro Devices as well as peripheral competition from its own customers -- including Microsoft, Tesla, Alphabet, Amazon, and Meta Platforms. It's entirely possible (and in my opinion, highly likely), that the chips introduced by big tech peers are not as robust as Nvidia's. However, the idea here is that as companies have more optionality to choose from, pricing is going to play a larger factor in future AI budgeting processes. As a result, Nvidia may not have a choice but to lower its prices, which should hinder the company's revenue and profit growth. On the flip side, more variety in the GPU market should better serve Taiwan Semiconductor, which already works with many different chip designers. In a way, Taiwan Semiconductor represents an agnostic view of the chip market. It shouldn't really matter which company's chips are experiencing higher demand levels compared to peers. As long as GPUs remain an integral part of AI development, Taiwan Semiconductor should continue to see strong tailwinds in its manufacturing and fabrication operations. Right now, Taiwan Semiconductor trades at a price-to-earnings (P/E) multiple of 32.2. As seen in the chart below, the company's valuation has surged dramatically over the last 12 months and its P/E is hovering near 52-week highs. I definitely think Taiwan Semiconductor's valuation has gotten a little frothy. While the stock isn't dirt cheap, I still think there's a case to be made that long-run upside isn't priced in yet. The company's forward P/E multiple of 29 trails that of Nvidia and AMD by a considerable margin (both of which are over 40). To me, Taiwan Semiconductor's valuation trends suggest that investors are quite bullish on the company's near-term prospects, but have yet to really consider the long-term picture. As I alluded to above, the GPU market is expected to grow considerably over the next decade. And during this time period, more products will be introduced to the market -- a potential road bump for Nvidia but a catalyst for Taiwan Semiconductor. I see Taiwan Semiconductor as one of the most compelling opportunities in the broader chip space. Its specialty manufacturing business, combined with a diverse customer roster that could very well expand, should help spur sustained growth for years to come as the GPU market continues to evolve.

Meet the Newest Artificial Intelligence (AI) Chip Stock to Join Nvidia in the $1 Trillion Club | The Motley Fool

$1 trillion may be just a milestone in this company's continued growth amid the AI boom. Nvidia (NVDA 0.78%) flew into the $1 trillion club in May 2023 as it capitalized on growing spending on artificial intelligence. The chipmaker has gone on to increase more than three-fold in value since, becoming the second most valuable company in the world, behind only Apple. The rest of the $1 trillion club is full of some of Nvidia's biggest customers, the "hyperscalers" building out massive data centers for training and running generative AI. But the newest member of the club is actually a key part of Nvidia's supply chain. It's not just Nvidia, though. This semiconductor company works closely with almost every tech company in the $1 trillion club, and now, it's finally a member itself. The newest artificial intelligence (AI) chip stock in the $1 trillion club is Taiwan Semiconductor Manufacturing Company (TSM -2.46%). Here's why $1 trillion may be just a milestone in the stock's continued ascension into the ranks of the mega-caps. Taiwan Semiconductor, or TSMC, is a chip manufacturer, also known as a foundry or fab. It's the top choice for many chip designers, attracting over 60% of spending in the industry. There's good reason for that. TSMC's technology is much further ahead than that of nearly every competitor. At an investor conference last month, Nvidia CEO Jensen Huang said: "We're fabbing out of TSMC because it's the world's best. And it's the world's best not by a small margin, it's the world's best by an incredible margin." That's evidenced in TSMC's recent financial results for the third quarter. The company reported 39% year-over-year revenue growth. Its gross margin expanded to 57.8% from 54.3% last year, and net income grew 54.2% as a result. The driving force behind those stellar results is TSMC's technology lead. That makes it the must-have partner for anyone wanting to print advanced chips for AI (like Nvidia's GPUs) or smartphones (like Apple's iPhone). "Our business in the third quarter was supported by strong smartphone and AI-related demand for our industry-leading 3nm and 5nm technologies," CFO Wendell Huang wrote in the earnings release. Management expects revenue from AI chips to more than triple in 2024, but the segment will only account for a mid-teen percentage of TSMC's total for the year. There's a long runway for growth for TSMC in AI, and it's investing to take advantage of the opportunities presented. Nvidia works with TSMC to print its chips, but it's not the only AI chipmaker taking advantage of the leading fab's advanced technology. Microsoft, Alphabet, Meta, Broadcom, and Advanced Micro Devices are all contracting with TSMC to develop AI accelerator chips. Apple has been using TSMC for years to develop its chips for the iPhone and iPad, and more recently, the Mac. In other words, no matter how the future of AI data centers, large language model training, and AI inference plays out, TSMC stands to be a big winner. Management increased its capital expenditure expectations for 2024 to more than $30 billion, and it expects to spend even more in 2025. It's also spending on research and development, which increased 11.4% year over year last quarter. Both are keys to TSMC's ongoing success. As the largest foundry in the world by a wide margin, it's capable of spending more on machinery and technology while advancing its technological capabilities than any other competitor. That ensures it maintains its position as the technology leader, which in turn leads to continued relationships with the biggest customers in the world. That virtuous cycle is a tremendous competitive advantage for TSMC that's hard to overcome. While shares of TSMC more than doubled in 2024, there's still room for the stock to climb higher. At its current share price, it trades for just over 25 times analysts' estimates for 2025 earnings. And that's before they've had a chance to update their models with the most recent results and guidance from management. Over the next five years, TSMC is capable of growing its bottom line at a rate in the 20% range. AI spending remains robust, and the company is able to maintain its high gross margin from strong utilization even as it brings the next generation of technology online. That level of growth more than justifies the current earnings multiple. What's most attractive about the company is that it's protected from future changes in the industry. No matter who's designing the chips needed for data centers and smartphones, TSMC is sure to grab the vast majority of that business, thanks to the virtuous cycle described above. Given the excellent execution of management over the last few years amid the AI boom, the future continues to look bright for the newest member of the $1 trillion club.

2 Surefire Chip Stocks to Buy and Hold for the Next Decade | The Motley Fool

The chip industry has been growing for decades, and the investment in artificial intelligence (AI) technology could keep the industry growing for years to come. While the semiconductor industry can experience cyclical demand, the increasing quantity of chips used in consumer devices, cars, and data centers bodes well for the industry's long-term prospects. Statista projects the industry will grow 10% per year through 2029 to reach $980 billion. To profit off this opportunity, here are two outstanding chip companies to hold for the next 10 years. Taiwan Semiconductor Manufacturing (TSM -2.46%) is close to joining the $1 trillion club. The share price has doubled since 2022, bringing its market cap to about $971 billion. TSMC is in a lucrative position as the leading semiconductor foundry, which refers to its business of making chips for other companies, including Nvidia, Broadcom, Advanced Micro Devices, and Intel, among others. The company has delivered market-beating returns for years, and it continues to show strong growth. Analysts expect revenue to be up 26% this year before increasing 24% in 2025, according to YCharts. Investing in Taiwan Semiconductor is making a bet on the long-term advances in chip technology and increasing chip quantities in smartphones, data centers, and cars. Because its chips are used in a variety of end markets, TSMC is a relatively safe way to invest in the growth of the chip industry. TSMC is in a great position to benefit from growing demand for chips used for AI workloads. The company's revenue from high-performance chips makes up half of the business, and TSMC controls 61% of the global foundry market. Its long-standing customer relationships, advanced manufacturing processes, and large capacity to meet demand are advantages that position the company to deliver profitable growth for shareholders. The stock offers excellent return prospects in the near term, too, as it trades at a very attractive price-to-earnings ratio relative to forward earnings estimates. Analysts expect the company's earnings to grow at an annualized rate of 26%. Assuming TSMC meets those estimates, the stock could double within three years if it's still trading at the same price-to-earnings multiple. Arm Holdings (ARM -1.02%) potentially has even greater long-term upside than TSMC. It currently has a market cap of about $159 billion, but could join the $1 trillion club one day. It is gaining share in several markets where its chips are used, including cloud computing, networking equipment, consumer electronics, automotive, and the Internet of Things. Arm's revenue grew 39% year over year in the most recent quarter, but it's important to know that Arm doesn't make money by manufacturing chips. Instead, Arm focuses on chip design, and then it licenses those designs to other semiconductor companies and manufacturers. It earns a royalty on nearly all processors shipped using its products, which allows Arm to earn very high margins. Arm-based processors are in high demand because they deliver exceptional performance with lower energy consumption. The latter is becoming increasingly important, since more powerful chips run hotter and drive up energy costs. For large data centers, this can be a problem, but Arm is offering solutions that address this challenge. For example, U.K.-based Avantek has developed an Arm-based server that consumes up to 90% less electricity. Arm-based products play such an important role in the industry that Nvidia tried to acquire it four years ago, which ultimately failed to gain the approval of regulators. But Nvidia's Grace processor included in its upcoming Blackwell platform for AI workloads is based on Arm. This positions the chip designer to benefit from the growing demand for AI chips in data centers. Arm stock has been volatile, but patient investors should do well. Analysts expect the company's earnings to grow at an annualized rate of 27% over the next several years. The company should continue to grow faster than the chip industry and deliver excellent returns to investors over the next decade.

Prediction: 1 Stock That Will Be Worth More Than Alphabet 5 Years From Now | The Motley Fool

This company has just joined the trillion-dollar club, and it seems built for impressive long-term gains. Alphabet (GOOG 0.61%) (GOOGL 0.65%) is currently the fourth-largest company in the world, with a market capitalization of just over $2 trillion, and it achieved this stellar valuation thanks to its dominant position in the search engine and the digital advertising markets. Despite the high market cap, Alphabet's growth hasn't been all that steady in recent years. The company faces growing competition in the digital ad space, while its artificial intelligence (AI) efforts have run into challenges. This is probably why analysts expect Alphabet's earnings to increase at a relatively slower pace of 20% a year for the next five years as compared to the 24% seen in the last five years. There are other technology stocks that are clocking faster growth by making the most of the lucrative AI opportunity. In this article, we will take a closer look at one such name that could eclipse Alphabet's market cap in the next five years. Taiwan Semiconductor Manufacturing (TSM -1.72%), known popularly as TSMC, is a recent addition to the trillion-dollar market cap club. It is now the eighth-largest company in the world by market cap, and its valuation is just above $1 trillion. TSMC's latest results have played a key role in helping it become a trillion-dollar company. The stock surged 10% following the release of its third-quarter results on Oct. 17, with better-than-expected numbers and improved guidance. The semiconductor foundry specialist reported a 36% year-over-year increase in revenue to $23.5 billion, while earnings shot up 50% year over year in U.S. dollar terms to $1.94 per share. TSMC now expects to end 2024 with a 30% spike in revenue, up from the earlier expectation of mid-20% growth. More importantly, its status as the largest semiconductor foundry in the world puts it in a position to make the most of the secular growth of the industry it serves. TSMC fabricates chips for Nvidia, Intel, Advanced Micro Devices, Broadcom, Apple, and Qualcomm, among others. This diverse customer base means that TSMC is set to benefit from multiple fast-growing end markets such as AI data center chips, generative AI smartphones, and personal computers. For instance, the size of the AI semiconductor market could grow to $846 billion in 2035. All the major players tap TSMC's foundries to manufacture their chips, including market leaders Nvidia and Broadcom. Apple and Qualcomm booked out TSMC's advanced chip production capacity until 2026 because both companies want to make the most of the growing demand for AI-enabled smartphones and PCs. So analysts bumped up their growth expectations from TSMC for 2024, 2025, and 2026. TSMC dominates the foundry market, with Counterpoint Research estimating that it has a 62% share of the global foundry market as compared to the 13% share controlled by second-place Samsung. This gives TSMC strong pricing power: It is expected to increase the cost of its semiconductor wafers by 10% next year, and customers have reportedly agreed to the increases, according to Morgan Stanley. So TSMC should enjoy fatter margins, and it already has a stronger margin profile when compared to Alphabet, which should ideally pave the way for stronger earnings growth. The following chart shows that TSMC's earnings are expected to grow slightly faster than Alphabet's in two of the next three years. In 2026, TSMC is expected to generate $10.15 in earnings per share (EPS); Alphabet's reading is expected to be just a shade under $10. Analysts expect TSMC's earnings to increase by 21.5% annually over the next five years, slightly higher than Alphabet's estimates as mentioned above. And TSMC's stronger margins and its leading position in a foundry market that's benefiting from the booming demand for AI chips could eventually lead to much stronger earnings growth in the long run. Assuming its bottom line increases by 20% in both 2027 and 2028, its earnings could jump to $14.62 per share after five years (using 2026 earnings of $10.15 per share as the base). Assuming the stock trades at 35 times earnings at that time (in line with its current earnings multiple but at a discount to the U.S. technology sector index's price-to-earnings ratio of 47), share prices could hit $512. That would be a 156% jump from where the stock is right now, which would send its market cap to $2.66 trillion after five years. That will be enough to easily surpass Alphabet's current market cap and may be enough to top Alphabet's market cap in five years, especially if Alphabet continues to underperform the broader stock market over concerns about how it is managing stiff competition in the digital ad and AI markets.

Looking to Buy Your First AI Stock? This Is the Best Choice (Hint: It's Not Nvidia). | The Motley Fool

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 new Blackwell platform is already sold out for the next 12 months, as Nvidia CEO Jensen Huang described demand for the new chips as "insane." Nvidia delivered monster returns since the 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%. However, Nvidia faces a number of risks such as incoming competition. Advanced Micro Devices, for example, just launched its new MI325X accelerator, which is aiming to challenge Nvidia's Blackwell platform. Its top customers, like Amazon, Microsoft, and Meta Platforms, are also developing their own chips that could relieve some of their need for Nvidia's components. Additionally, 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 profit from the new technology. Nvidia's business is cyclical and prices can change quickly according to supply and demand for its components, and its results have changed quickly in the past. Finally, the stock is expensive at a price-to-earnings ratio of 64, meaning that if its results come up short, the stock could fall substantially. If you're looking for a lower-risk way to get exposure to artificial intelligence, especially if you're buying your first AI stock, there's another dominant chip company that presents a better alternative. That's Taiwan Semiconductor Manufacturing Corporation (TSM -2.46%), or TSMC, as it's also known. Taiwan Semiconductor is the world's biggest manufacturer of semiconductors, and it handles more than half of all contract chip manufacturing in the world, serving customers like Apple, Nvidia, Broadcom, and AMD. It's even more dominant when it comes to advanced chips, with a market share of around 90% of all third-party foundries. TSMC is a linchpin in the semiconductor industry and the global economy as the chips it produces go in everything from smartphones to computers, data centers, automobiles, and appliances. Its expertise in advanced chip manufacturing and its dominant market share give it a significant competitive advantage in its industry, and that was on display in its third-quarter earnings report out Thursday. Revenue in the quarter jumped 39% to $23.5 billion, and profits rose even faster as gross margin expanded from 54.3% in the quarter a year ago to 57.8%, showing that its pricing power improved as it benefited from the spoils of the AI boom and a rebound in consumer electronics. That's also an outstanding gross margin for any manufacturer, and explains its monopoly-like operating margin of 47.5%. On the bottom line, net income jumped 54% to $10.1 billion, or $1.94 a share. TSMC beat estimates on both the top 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% year over year at 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 would last for many years. In addition to its booming growth and wide economic moat, TSMC also looks like a great AI stock to own right now because of two of its closest rivals, Intel and Samsung, are faltering. Intel announced a massive restructuring back in August and said it would 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 affordable, especially at its current growth rate, as the stock trades at a P/E of 36, similar to big tech companies like Microsoft and Apple, even though it's growing much faster. Nvidia is an excellent company and still looks like a great stock to own, but TSMC has less downside risk, a cheaper price tag, and more entrenched competitive advantages due to the high barriers to entry in the foundry business. If you're looking for a no-brainer stock to start your AI portfolio, TSMC looks like a great choice.

Down 34%, This AI Stock Is a No-Brainer Buy Stock Right Now | The Motley Fool

As almost every investor knows by now, artificial intelligence (AI) has been driving the current bull market since its start in 2023. The launch of OpenAI's ChatGPT has set off a new arms race in the industry, and generative AI technology could be as transformative as the internet. While stocks with exposure to artificial intelligence, like the semiconductor sector, have generally done well, some stocks have done better than others. Nvidia, for example, just set another all-time high on soaring demand for its new Blackwell platform, but not every AI stock has kept up with the Nasdaq Composite, which nearly set an all-time high earlier this week. In fact, ASML (ASML 3.23%) is now down 34% from its peak earlier this year after the industry bellwether gave a disappointing forecast in its third-quarter earnings report on Tuesday. The stock fell 16.3% on the news. ASML occupies a unique position in the semiconductor industry as the only maker of extreme ultraviolet (EUV) lithography machines, which are used to make the most advanced, smallest-node chips. Investors have been looking forward to a recovery in ASML's business after an earlier slowdown due to macrochallenges like high interest rates and inflation. ASML is expected to benefit from the expansion of chip fabs around the world as governments and industries prepare for the AI era. The U.S., for example, is planning to invest tens of billions of dollars through the CHIPS Act to build foundries, and Taiwan Semiconductor, the world's biggest foundry operator, is looking to diversify away from Taiwan and move closer to its customers. While that should be a tailwind for ASML, the company just told customers that recovery would take longer than expected. Citing weakness in both the logic and memory segments, which make up two of its three business segments, CEO Christophe Fouquet said, "It now appears the recovery is more gradual than previously expected." He also noted customer cautiousness. ASML dialed back the 2025 revenue forecast it gave at its 2022 Investor Day from 30 billion euros to 40 billion euros ($33 billion dollars to $43 billion dollars) to 30 billion euros to 35 billion euros ($33 billion dollars to $38 billion dollars). Not surprisingly, investors were disappointed with the news. Companies tend to give disappointing earnings reports and forecasts for one of two reasons: Either there are challenging market conditions at the macrolevel or sector level, or the company itself isn't executing well and is falling behind the competition. ASML's case looks to be safely in the first category. While there's plenty of excitement about AI, which management nodded to, there are still some challenges in the legacy-chip business, reflected in key customers like Intel and Samsung, both of which are struggling. Samsung is reportedly delaying mass production at a fab in Texas due to weak yields in its 3-nanometer process, and Intel just announced a massive restructuring, calling into question its foundry expansion. In recent quarters, half of ASML company's revenue has also come from China, where the economy has been weak since the end of the pandemic. For comparison, a good recent example of a company that struggled with similar headwinds was Alphabet as digital advertising slowed in 2022 on fears of a recession, as you can see from the chart below. As you can see, revenue growth dropped to just 1% in 2022's Q4, but if you had bought the stock then, you'd be up more than 80% now. ASML retains a significant competitive advantage as the only producer of EUV lithography machines, and it should eventually benefit from the coming boom in chip production due to AI. Even with its dialed-down guidance, the company is still calling for 16.1% growth at the midpoint and expects expanding gross margins and operating margins. As profits recover, the stock looks like a good bet to bounce back now that the weak forecast is priced in. With its unique EUV technology, strong margins, and ramping AI demand, ASML looks like a great bet to be a winner over the long term.

Demand Is "Crazy" for This Spectacular New AI Chip. Should You Buy Nvidia Stock Now Before It Launches? | The Motley Fool

Is it the right time to invest in this tech giant given its much anticipated Blackwell AI chips will soon hit the market? Artificial intelligence (AI) has the power to transform society and revolutionize the economy, at least according to its evangelists. Whether it lives up to its full potential is yet to be seen, but the technology's impact is already being felt, and with firms like PwC -- one of the "big four" accountants -- claiming the technology could add $15.7 trillion to the global economy by 2030, its revolutionary power looks to be more than just hype. Shares of Nvidia (NVDA 0.78%), the de facto leader of AI, are back trading at all-time highs. And with good reason -- the company's chips are the lynchpin of the industry. Without them, the data-hungry AI models would not be able to run, or at least their power would be greatly diminished. Thus far, no one has been able to match Nvidia's chips in power or efficiency and it may be a while before they do. Nvidia's newest line of chips, Grace Blackwell, is set to begin rolling out soon. Nvidia's own CEO, Jensen Huang, described demand for the chips as "insane" while the CEO of Foxconn, one of the world's chief semiconductor manufacturing partners, called it "crazy." With the rollout imminent, is now the time to buy? In an effort to maintain the near stranglehold Nvidia has on the AI chip market, the company has committed itself to a yearly update cadence for its chip architecture, an incredibly ambitious pace goal. Each iteration is much more powerful than the last. The company claims the new Blackwell will be at least 400% as powerful as Hopper. This pace, if the company can keep it up, will work as a sort of innovation moat: a defense that competitors like AMD will struggle to overcome as they play catch-up with only about half the research and development budget of Nvidia. It's a tall order, however, and Nvidia already slipped up. Blackwell was originally set to already be hitting the market by now, but an issue was discovered in the manufacturing process and Nvidia announced its release would be delayed. Luckily, the flaw had to do with the fabrication process rather than the chips themselves or their functioning, but it still was not a good look for the company. Any fears of a major snafu, however, were put to bed fairly quickly: Blackwell will begin rolling out soon. The delay will only amount to six weeks or so and any loss in the short term is more than made up for by the still strong demand for Hopper chips. It should make you pause, however. Is this update cadence really sustainable over the long term? It's important to maintain some healthy skepticism. That being said, Nvidia handled the situation well and the company looks to be moving forward, full steam ahead. Nvidia is partnering with Foxconn to build a new production facility in Mexico dedicated solely to producing Blackwell chips. Once complete, it will be the largest in the world. It's a very smart move as it diversifies Nvidia's production away from Taiwan and the geopolitical concerns of the region. And, of course, it will greatly boost manufacturing capacity for the chips. That's great news because according to management, Nvidia is already sold out of Blackwell for a whole year. Its production can't keep up with the incredible demand for the new chip. That's certainly a good position to be in. Given the advanced sales, investors seem to have found a renewed faith in the company and its stock is trading as high as it's been. I think it could still get a boost once deliveries of Blackwell are actually made. However, proceed with caution. If you are retirement planning or otherwise have a shorter investing time horizon, I suggest holding off at the moment. While Nvidia seems to be doing everything right, its valuation is still quite high with a forward price-to-earnings ratio (P/E) of 46. That's high even for tech, as you can see below.

If I Could Only Buy 1 Stock Right Now, This Stock-Split Stock Would Be It. | The Motley Fool

There are plenty of reasons to buy this technology stalwart, and only one reason not to. The past few years have marked a renaissance in the popularity of stock splits. The practice was commonplace during the 1990s but had fallen out of favor, only to be discovered by a new generation of investors over the past few years. Companies will generally make the decision to split their shares after years of strong growth and solid financial results that fuel a surging stock price. This year provides a few excellent examples: The common thread that weaves these disparate companies together is years, if not decades, of market-beating returns. If I could buy only one stock right now, Nvidia tops my list. Here's why. Most investors (myself included) would point to the massive opportunity represented by artificial intelligence (AI) as the primary reason to own Nvidia stock. That's certainly one of the most important factors (more on that in a bit). However, one of the more intriguing aspects of the company is CEO Jensen Huang's uncanny ability to anticipate the next big thing and design solutions to meet that need. Nvidia pioneered the graphics processing unit (GPU) that revolutionized gaming in 1999, but the company was already looking ahead and by 2006, had adapted the technology to accelerate supercomputing. The humble GPU is now the gold standard for cloud computing and data centers everywhere, with a dominant 98% of the data-center GPU market last year, according to data provided by TechInsights. There's more. Investors might be surprised to learn that Huang positioned Nvidia to tackle the oncoming AI revolution all the way back in 2013, betting the company's future on technology that had not yet come into its own. When AI went viral early last year, Nvidia was able to reap the seeds Huang had sown a decade earlier. "A picture paints a thousand words," or so the old saying goes. In this case, however, it's Nvidia's financial results that tell the tale. For the fiscal 2025 second quarter (ended July 28), Nvidia generated record revenue of $30 billion, which surged 122% year over year and 15% sequentially. The results were driven by record data-center revenue of $26.3 billion, which jumped 154%. Profits also soared, as evidenced by diluted earnings per share (EPS) of $0.67, an increase of 168%. Management expects Nvidia's winning streak to continue, albeit at a slower pace. Nvidia's forecast is guiding for revenue of $32.5 billion, which would represent year-over-year growth of 79%, with a corresponding bump in profitability. While that's slower than the triple-digit growth the company had delivered for five consecutive quarters, it's a remarkable accomplishment nonetheless. I can guess what you're thinking. Sure, Nvidia has been a rocket ship since early last year, but the low-hanging fruit has already been picked. After all, the stock has surged 837% since the start of last year (as of market close on Thursday ) and hit a new record high just this week. Here's the thing. We're still in the early stages of AI, and new-use cases are still being developed. Some will point to the early fumbles as proof that the technology isn't yet ready for prime time. While that's partially true, it won't be long before the bugs are worked out and AI comes into its own. With that in mind, I'd argue that the best AI-related gains are yet to come. Estimates regarding the size of the generative AI market abound, yet there's no consensus. The market is estimated to be worth $1.3 trillion by 2032, according to Bloomberg Intelligence. A more bullish estimate comes courtesy of Ark Invest's Big Ideas 2024 report, where Cathie Wood posits that the AI software market alone could generate incremental spending of $13 trillion by the end of the decade. Her bull case is even more eye-catching at $37 trillion. The truth is that we don't know how big generative AI will be, yet estimates continue to ratchet higher. Furthermore, bears would say the stock is exorbitantly expensive and "priced to perfection," and they'd have a point. Nvidia stock is currently selling for 64 times earnings and 35 times sales, which in most cases would be outrageous. And if the situation were different, I might be tempted to agree. However, analysts' consensus estimates, which have proven to be conservative over the past year, expect Nvidia to generate EPS of $4.05 for its fiscal 2026, which kicks off in January. Based on the stock's closing price on Thursday, that works out to about 33 times forward earnings, which isn't much more expensive than the multiple of 30 for the S&P 500. Wall Street also expects Nvidia to grow its profits by 52% annually over the coming five years, which illustrates why the stock is worthy of a premium. Taken in its entirety, this lays out a compelling case that Nvidia's growth is far from over, the addressable market for AI continues to grow, and the stock isn't as expensive as it might seem. There's one more thing: I'm counting on Huang to predict the next big thing and pivot Nvidia's technology to provide solutions -- and profit handsomely. It doesn't get much better than that, which is why if I could only buy one stock right now, it would be Nvidia.

Jensen Huang Just Gave Nvidia Stock Investors Billion-Dollar News. | The Motley Fool

Nvidia (NVDA 0.78%) has been delivering outsized growth throughout the artificial intelligence (AI) boom, with earnings soaring in the triple digits quarter after quarter. The company dominates the AI chip market, holding an 80% share, but its success isn't only due to this one element. Instead, Nvidia's earnings have taken off thanks to its development of an entire suite of AI products and services, making Nvidia the go-to destination for any company launching an AI project. This has helped the stock advance a mind-boggling 2,700% over the past five years -- and the momentum continues, with the stock heading for a gain of more than 170% so far this year. In spite of this fantastic earnings and stock performance, though, investors have worried about whether Nvidia can keep the pace of growth going -- or whether its highest-growth days are in the past. CEO Jensen Huang recently offered reason to be optimistic, as he gave Nvidia stock investors billion-dollar news. Let's check out the details. Nvidia, as mentioned, began its ascent to AI fame through its graphics processing units (GPUs). These powerful chips originally served the video game market, but the company realized that the GPU's ability to process multiple tasks simultaneously made it ideal for plenty of other uses -- including AI. Of course, Nvidia still sells its GPUs to the gaming industry, and revenue there even climbed 16% in the most recent quarter, but AI has jumped ahead to become the company's biggest business. In the quarter, data center revenue -- which includes AI products and services -- made up 87% of total revenue and soared to a record $26.3 billion. And total quarterly revenue now is more than what the company generated in annual revenue as recently as the 2023 fiscal year. Today, though, investors may question the ability of Nvidia to keep delivering triple-digit revenue growth. After all, earnings growth generally doesn't continue at this rate forever, even for a highly innovative company. And Nvidia's forecast for revenue in the coming quarter calls for a double-digit increase over last year's level. Now, let's get to the billion-dollar news that CEO Jensen Huang recently delivered. It has to do with a big movement in the world of computers and AI right now, and that's updating older computer systems and data centers. Huang, speaking during an interview with the BG2Pod podcast, said the world has $1 trillion of older systems to update -- and we're only $150 billion into that task so far. That suggests billions of dollars of business lies ahead for Nvidia, and this should translate into significant earnings growth -- and potentially explosive stock performance, too. As mentioned, this doesn't necessarily mean earnings will rise in the triple digits every quarter. But that's OK, and here's why: Comparison periods are becoming more difficult, with Nvidia's earnings numbers already very strong this year, for example. So it's important to consider the actual level of earnings as well as the company's gross margin -- Nvidia's is extremely wide, at more than 70% -- along with the growth figures. And when we do this, Nvidia's present situation, as well as long-term prospects, look incredibly bright. On top of this, it's important to remember that Nvidia's current dominance in the field of AI, along with the company's focus on innovation, with a pledge to update its GPUs annually, should put it in the perfect position to benefit as the world updates computing systems. All this means Nvidia's best days aren't in the past, and instead, the best days actually may span a long period of time well into the future. As a result, now is a fantastic time to get in on Nvidia stock, which looks reasonably priced at 47x forward earnings estimates, considering the company's track record, potential, and market position.

3 Things About Nvidia That Naysayers May Be Ignoring | The Motley Fool

Nvidia (NVDA 0.78%) stock has climbed to a record high in recent days, thanks to the company's solid track record of triple-digit earnings growth. The tech giant has emerged as the leading player in today's artificial intelligence (AI) boom, selling customers everything from the world's top-performing chips to software and other services. In spite of this showstopping performance, though, some investors have worried about the company's ability to continue at this pace over time. The risk is other chipmakers, selling less-expensive products, could erode Nvidia's market share and therefore weigh on earnings -- or pressure Nvidia into lowering prices, which could hurt margins. Nvidia stock is heading for a 176% gain this year, but these concerns have weighed on performance from time to time in recent months. Here are three things about Nvidia the naysayers may be ignoring -- and these elements could ensure the company's long-term growth story. Before diving in, though, let's take a look at Nvidia's path so far. The company started off selling its graphics processing units (GPUs) primarily to gaming customers, but after realizing the power of these chips to revolutionize other areas, Nvidia broadened its reach into other sectors. And the Nvidia story truly blossomed as the AI boom gathered momentum. This is because the GPU, which processes many tasks simultaneously, is the ideal tool to power key AI tasks, such as training and inferencing models. Nvidia took the lead here in the chip market, gaining 80% share, but the company went even further by developing an entire range of products and services to power AI from start to finish and from any angle. So, customers building an AI project are likely to find all that they need at Nvidia. As mentioned, the big concern now is whether Nvidia will be able to maintain its leadership and keep growth and the share price climbing. Now, let's consider the three elements naysayers may be ignoring, and when combined, they could result in outsized growth for Nvidia for years to come. These are the company's gross margin level, growth rate, and focus on innovation. First, Nvidia's gross margin has remained above 60% for most of the past five years, and in recent quarters, it's topped 70%. The company recently said it's on track for gross margin of 75% in the third quarter and in the mid-70s for the full year, a mind-boggling level in ordinary times, but even more impressive right now. That's because Nvidia is preparing to ramp up production of its new Blackwell architecture and launch the platform -- and launches and early days of a product generally involve higher costs. This is coupled with revenue growth in the triple digits in recent quarters, and even if this dips to double-digit growth, the growth and profitability picture remain extremely bright. Now that's positive, but one more element is necessary to solidify potential for long-term success, and that's innovation, the third factor to consider. So far, customers have been willing to pay for Nvidia's innovation and even wait for it -- Blackwell demand has surpassed supply, for example, yet that hasn't scared customers away. Moving forward, Nvidia has pledged to update its GPUs annually, so it will be difficult for other companies to come up with a faster chip more quickly. Nvidia may be too far ahead for others to catch up. Meanwhile, the chip giant continues to invent algorithms to keep its current infrastructure -- such as the Hopper architecture -- improving over time. This means customers can add to and build upon what they already have, as well as integrate new Nvidia products into their systems. So, Nvidia, through its older and brand-new products, may keep customers coming back, and this should keep the growth rate high. Finally, the more the company scales its processes, the more cost-efficient it should become, helping to keep margins wide. This combination of solid margins and high growth is something that should calm the worries of naysayers -- and support the idea that Nvidia stock has much more room to run over the long term.

Prediction: Nvidia Could Be Headed to $175 in 2025 | The Motley Fool

This high-flying AI stock's momentum could continue into next year. Bloomberg recently reported the U.S. could impose caps on exports of advanced artificial intelligence (AI) chips to some Middle Eastern countries. Semiconductor fabrication equipment maker ASML lowered its 2025 guidance. Both were widely viewed as bad news for Nvidia (NVDA 0.78%). Is Nvidia's huge multiyear run nearly over? I don't think so. Instead, I predict that Nvidia's share price could be headed to $175 in 2025. Nvidia's stock would have to jump 30% to reach $175 next year. I believe this gain is achievable for three key reasons. First, the shift to accelerated computing appears to be unstoppable. This trend should easily offset any negative impact on Nvidia from restrictions on shipping advanced AI chips to some Middle Eastern countries. During the first half of 2024, only 6.5% of the company's total revenue came from countries other than the U.S., Singapore, Taiwan, and China. Middle Eastern revenue is only a portion of that percentage. But what about ASML's weaker outlook? I suspect it's more related to overcapacity at factories that manufacture chips than anything else. Just because the demand for chipmaking equipment declines doesn't necessarily mean that the demand for chips will fall, too. Second, Blackwell is coming. Nvidia CEO Jensen Huang told CNBC the demand for its new GPU platform is "insane." Morgan Stanley learned in a meeting with Nvidia's management that Blackwell GPUs are already sold out for the next 12 months. Huang has said in the past that Blackwell could be the most successful product in Nvidia's history. I think he could be right. As Nvidia begins to report sales numbers for Blackwell in the next few quarters, I expect the stock to rise. Third, look for Nvidia to announce its next generation of AI chips sometime next year. Even if the company doesn't begin shipping these chips until the end of 2025 (or even early 2026), investors' excitement about the next big GPU advance could provide a catalyst for the stock. Granted, many Wall Street analysts aren't nearly as bullish. The average 12-month price target reflects an upside potential for Nvidia of around 10%. Of the 38 analysts surveyed by financial data provider LSEG in October, 15 rated Nvidia as a "hold." Another recommended selling the stock. That's a marked change from September, when 55 of 60 analysts rated Nvidia as a "buy" or a "strong buy." However, I've noticed a pattern with Wall Street recommendations and price targets for Nvidia. The consensus tends to be modestly optimistic until the company reports its next quarterly results. Then, analysts frantically scramble to revise their estimates upward. I fully expect that history will repeat itself as we move into 2025. As Nvidia reveals its sales figures for Blackwell, my hunch is that the average price target for the stock will increase significantly -- and perhaps to my predicted level of $175. Of course, my prediction could fall flat on its face. What could go wrong? Several things. The U.S. economy could run into trouble. An escalation of tensions around the world could negatively impact Nvidia's business. Major cloud service providers could choose to scale back their investments in GPUs. They could also shift some of their spending to buy chips from Nvidia's rivals or rely more heavily on their own AI chips. While I acknowledge these risks, I stand by my prediction. Nvidia's share price could reach $175 next year. How long it stays at or above that level, though, is another question.

Where Will Nvidia Stock Be In 3 Years? | The Motley Fool

Nvidia stock has made massive gains, but will that undermine growth for the next few years? The extent of Nvidia's (NVDA 0.78%) growth over the last three years came as a surprise to most investors. The stock spent most of 2022 selling off along with its tech peers. However, the company once known best for gaming and graphics processing units (GPUs) experienced an unprecedented surge amid the spike in demand for its leading artificial intelligence (AI) chips. Even when including the 2022 pullback, Nvidia stock rose by around 560% over the last three years. Given that massive gain, the question now may be what will happen to the semiconductor stock over the next three years. Admittedly, it is often hard to imagine where a company can go next when it has climbed to the pinnacle of its industry like Nvidia has. For all the talk of AI accelerators from AMD, Qualcomm, and others, Nvidia is the dominant company, and competitor alternatives are unlikely to catch up to it anytime soon. Predicting how the AI accelerator market will look in three years is speculation. Still, observers know that the data center segment, which develops AI accelerators, now accounts for 88% of Nvidia's revenue. It wasn't even Nvidia's largest revenue source three years ago. Also, competition is rising. AMD plans to release its MI325X accelerator in the first quarter of 2025. That still lags behind the release of Nvidia's upcoming Blackwell accelerator, which is expected to come out in the current quarter. Still, Oracle chose AMD's chips to power the newest OCI Compute Supercluster instance. AMD has also indicated that Microsoft, Meta Platforms, and OpenAI have used its AI GPUs in some instances. Nonetheless, Nvidia still controls up to 90% of the AI chip market, according to some estimates. Additionally, Nvidia's CUDA programming language keeps more users in its ecosystem, a factor likely to reinforce its dominance as other companies compete for a place in the AI chip industry. That knowledge has taken Nvidia stock into the stratosphere. Indeed, revenue for the first half of fiscal 2025 (ended July 28) was $56 billion, a 171% increase compared to the same period in fiscal 2024. However, such growth rates are unlikely to be sustainable, meaning growth will be significantly less, assuming sales are still rising. Nvidia has other challenges if one looks below the surface. Its recent price-to-earnings (P/E) ratio of 62 may appear cheap, considering that Nvidia's net income surged 284% higher in the first half of fiscal 2025 compared with the same period in the prior year. Even though analysts forecast only 43% profit growth in fiscal 2026, the earnings multiple could continue to appear low. Nonetheless, other valuation metrics might give the most risk-tolerant investors pause. The price-to-sales (P/S) ratio now stands at around 34, approximately triple AMD's sales multiple of less than 11. Moreover, Nvidia trades at an astounding 56 times its book value, far above AMD at a price-to-book value ratio of less than 5. Hence, as revenue growth slows, investors may start to question whether Nvidia stock is still worth its premium. That may place considerable pressure on Nvidia's stock, possibly more than it can recover from over the next three years. Nvidia's trajectory over the next three years is uncertain, and investors could struggle with this stock as business conditions force the market to come to terms with a very likely growth slowdown. Indeed, Nvidia will likely remain a dominant company in a very lucrative AI chip industry. This should mean that Nvidia will remain a winner for investors planning to hold the stock for five years or more. Unfortunately, rising competition will likely end its triple-digit revenue growth, and the company appears already on track for net income to slow to double-digit levels. Additionally, its sales multiple and price-to-book value ratio point to considerable overvaluation. Thus, Nvidia could face deceleration in the near term and possibly over three years as its stock adjusts to a coming slowdown.