Now, it could be a great opportunity to join AI chip stocks before AI chip stocks return to growth.
In January, China’s Deepseek AI sparked the sale of artificial intelligence (AI) stocks after sharing a breakthrough in developing highly efficient training and inference algorithms for large-scale language models. In other words, Deepseek’s AI model shows that large tech companies may not have to spend hundreds of billions of dollars on the most sophisticated GPUs available in their data centers.
The sale has recently accelerated after Nvidia (NVDA) 1.92%)) Reported revenues and President Donald Trump imposed additional tariffs on China with new tariffs on Mexico and Canada. Nvidia’s revenue results beat the analysts’ published expectations, but investors were not entirely reassuring that Deepseek’s efforts and an uncertain economic environment would not slow Nvidia’s rapid growth.
Many other semiconductor stocks have seen Nvidia’s share prices fall recently. Some of these strains look particularly attractive at these low prices. These are my top two semiconductor stocks to buy now.
Image source: Getty Images.
1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM) 0.71%))known as TSMC, is the world’s largest chip manufacturer. If Nvidia needs to print and package the latest and greatest GPUs, they signed with TSMC because, as Nvidia CEO Jensen Huang said, “It’s the best in the world with an incredible margin.”
In fact, TSMC’s technology leads are a major advantage that helps attract the world’s biggest customers, such as Nvidia and Apple. As a result, it captures more than 60% of its spending on semiconductor manufacturing, and its percentage is increasing as companies demand more high-end AI chips that can only generate TSMCs. With such a large revenue base, TSMC can reinvest far more than its research and development competitors, ensuring that it maintains and expands its technology leads.
TSMC can also invest ahead of the growth seen in the market. It announced a major step in capital investment in January in 2025, projecting spending between $38 billion and $42 billion this year. This has been an increase of 34% at the midpoint since 2024.
Management has historically been very good at predicting demand and investing appropriately to meet those expectations. However, semiconductor manufacturing is essentially a cyclical business. If demand drops significantly, TSMC still has a lot of overhead to maintain the operation of its manufacturing facilities.
The company recently announced plans to invest $100 billion in the United States. This, in addition to plans to expand its Arizona facility, initially gained mass production in the second half of 2024. The new facility will include TSMC’s most advanced technology. TSMC’s investment plans may help to avoid targeted tariffs that affect the business and the business of its customers.
Since the recent sale, the shares have been trading with less than 20 times the revenue. This is a great price for companies with a competitive moat in TSMC, which can benefit from strong growth in chip demand, whether from AI or other computing needs.
2. Advanced Micro Devices
Advanced Micro Devices (AMD) 1.48%)) It’s a long time for developing valuable GPUs for AI training. The majority of large tech spending goes to Nvidia for general purpose chips. In fact, it is possible that AMD has lost market share over the past year, as Nvidia increased its data center revenue significantly faster than AMD, despite operating from a much larger location.
AMD also disappointed investors with its current quarterly outlook, leading to a 7% decline in sales. CEO Lisa Su said that data center businesses will decline along that figure when asked to clarify the components of that decline during a revenue call. In comparison, Nvidia has led to a 10% increase in revenues for its data center business.
However, the likelihood of AMD remains very high. Management expects the total addressable market for AI accelerator chips to rise to $500 billion by 2028. Datacenter revenue will almost double from 2024, even if you only manage 10% of the market.
AMD could be a beneficiary of a large tech company that aims to keep NVIDIA prices down and optimize spending for performance using cheaper chips. The growing relationship with high-tech companies could also benefit the share of X86 CPU servers, which has been consistently gained in the market in recent years.
Importantly, AMD trades with just 21x revenue expectations after selling in chip stocks. Although future earnings expectations have fallen since the latest financial report, the decline in stock prices is severe enough that the stock is worth taking away at this point. Even after adjustment, analysts expect an average revenue growth rate of 38% over the next two years. Getting that growth at this price is a great opportunity.
Adam Levy holds roles for Apple and Taiwan Semiconductor Manufacturing. Motley Fool has appeared and recommended in semiconductor manufacturing in Advanced Micro Devices, Apple, Nvidia and Taiwan. Motley Fools have a disclosure policy.
