In the past two years, semiconductor stocks have been a very surprising situation, and the PHLX semiconductor sector index has increased by 81% during this period. Artificial intelligence (AI) played a central role in this prominent increase.
Nvidia (Nasdaq: NVDA) Is one of the largest beneficiaries of the rally, and has made nearly 702 % profits in the past two years, as companies and governments have purchased and purchased the company’s AI chips. The company, which NVIDIA depends on the production of AI chips, has only recorded a relatively small profit of 142% in the past two years.
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Taiwan Semiconductor Manufacturing (NYSE: TSM)It is the world’s largest semiconductor foundry, widely known as TSMC. Fabeless chip manufacturers, such as NVIDIA, but do not manufacture them, use TSMC fabs for manufacturing. However, TSMC is not the only NVIDIA.
In the following, we will examine the outlook and valuation of these two companies, and in response to the remarkable profits of the past two years, we will check which semiconductor shares are suitable for buying now.
The biggest reason to buy NVIDIA shares now is the company’s dominant position in the AI chip market. The company has a status of almost monopoly in the AI chips, and its share is 90 % or more.
This advantage explains why NVIDIA’s rivals are less than anywhere in selling AI chips. For example, in the third quarter of fiscal 2025, we sold a 276 billion dollar computing chips -equivalent data center computing chips, which is a phenomenal increase of 132% year -on -year. In response, rival advanced Micro Debayes expects to sell a $ 5 billion data center GPU (graphics processing device) in 2024.
NVIDIA’s revenue from the sale of AI GPU was more than five times the amount expected that AMD would create from this segment throughout the year. Meanwhile, the earnings of Intel’s data center and AI in the previous quarter were $ 3.3 billion, an increase of only 9 % compared to the same period of the previous year. Therefore, NVIDIA is far ahead of rivals in the AI chip market.
This is not surprising, given that NVIDIA succeeded in hunting down the large part of TSMC’s advanced chip packaging ability. According to Taiwan -based daily paper Digitimes, NVIDIA has secured 60%of TSMC’s Chip -on -Waha -on -Subtress (COWOS) packaging technology in 2025. DigitimeS also reports that TSMC plans to increase its production capacity by more than twice next year.
There is a good chance that NVIDIA will grow even more in 2025. With the increase in TSMC production capacity, the company should ideally meet more demand from customers. According to reports, NVIDIA may have sold out Blackwell supply almost all over 2025. This should help the TSMC production capacity.
The story continues
The good thing is that NVIDIA is doing everything to greatly increase the production volume of Blackwell processors. Therefore, the profit margin will remain slightly limited in the short term. However, as the graph below shows the following graphs, NVIDIA is continuing smoothly for the significant increase in profits next year (scheduled to start for the end of January 2025).
Estimated the profit per share (EPS) of NVDA in the current fiscal year data by YCharts.
With the increase in the production of Blackwell processors, the interest rate of the profit margin, this estimation may continue to rise further, indicating that NVIDIA may be able to achieve a solid year in 2025.
As far as the market performance is in the market, TSMC shares may be delayed by NVIDIA, but if you look in detail about the company’s business model, you can see that TSMC shares are more diversified semiconductor. As mentioned earlier, fabeless chip manufacturers have requested TSMC to manufacture chips. This means that TSMC plays a bigger role in the AI chip market.
Because, TSMC not only manufactures chips for GPU companies such as NVIDIA, but also manufactures custom chips such as Broadcom and Marvel Technology, Qualcomm and Apple’s smartphone chips, AMD central disposal devices (CPUs) and GPUs. From. As a result, TSMC is in a position to use several long -term growth opportunities in the semiconductor field.
For example, the demand for custom AI chips, that is, integrated circuit (ASIC) for specific applications (ASIC) is expected to increase at 32% per year for the next six years. In the market, Broadcom and Marvel are dominant, and both companies have further increased orders to TSMC to meet the growing demand.
On the other hand, the demand for generated AI -compatible smartphones and computers will be stimulating for companies such as Quarcom, Apple, and AMD. For example, Qualcom has a rapid increase in sales of smartphone processors, and is expected to continue to be dominant players in the generated AI market. Similarly, the sales of Apple’s smartphone are also improving, and it should grow further next year.
Given that Apple is the biggest customer of TSMC, the company has a solid position in the smartphone field and is in a very advantageous position to make the most of the growth of the generated AI smartphone field. These catalysts are the reason that analysts expect TSMC’s profits to increase by 36 % this year and will continue to be remarkable for several years.
TSM EPS estimation of this year’s data by YCharts.
TSMC looks like a more rounded semiconductor stock, but in consideration of multiple fields that the company provides services, it cannot be denied that NVIDIA is growing at a much faster pace. However, investors will have to pay even higher magnification to buy NVIDIA now. This is clear from the next graph.
NVDA P/E Ratio data by YCharts.
Of course, more risk -like investors can also consider purchasing NVIDIA because they seem to be able to justify the evaluation of NVIDIA. However, those who are looking for a relatively inexpensive semiconductor company that are growing at a healthy pace should help TSMC’s important roles in the industry to maintain remarkable growth for a long time. Can be considered.
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Hersche Chohan has no position to any of the brands mentioned. Motley Fool’s Day has a role in Advanced Micro Devices, Apple, Intel, NVIDIA, Qualcomm, and Taiwan Semiconducturing and recommend these companies. Motley Fool’s US Headquarters recommends Broadcom and Marvel Technology and recommend the following options: $ 27 in February 2025 for Intel. Motley Fool’s Day has a disclosure policy.
The original text of “better semiconductor: TSMC vs. NVIDIA” was published by Motley Fools.
