The end of 2024 is in sight, and it looks like it’s going to be a very good year for the stock market, with the S&P 500 up about 24% year-to-date at the time of writing. Tech stocks have been particularly strong, with many benefiting from the emergence of artificial intelligence (AI).
Two companies that stand out in the semiconductor space this year are Nvidia. (NASDAQ:NVDA) and Taiwan Semiconductor Manufacturing (NYSE:TSM)TSMC for short. But despite the strong performance of these two stocks, there still seems to be a lot of upside potential.
Missing the scoop in the morning? Breakfast News brings you everything in a quick, silly, free daily newsletter. Sign up for free »
Let’s take a look at why Nvidia and TSMC seem like easy buys despite their recent surges.
Nvidia is undoubtedly the biggest winner in building AI infrastructure, as its graphics processing units (GPUs) are the backbone of the computing power needed to train large-scale language models (LLMs). there is no. There is an insatiable appetite for Nvidia’s AI chips as cloud computing companies, AI startups, and other technology leaders rush to advance their AI models.
This has led to impressive revenue growth for the company this year, with revenue up 135% year over year in the first nine months of the fiscal year. Meanwhile, earnings per share (EPS) nearly tripled over the same period.
While growth over the past year has been impressive, there’s reason to believe Nvidia will continue to grow strongly into the future. Customer demand remains strong, and as AI models advance, they require more computing power from Nvidia’s GPUs.
For example, Meta Platforms says that its Llama 4 LLM requires 10 times more computing power than the Llama 3 LLM, while xAI’s Grok-3 AI model claims that Grok-2 uses 20,000 GPUs. In contrast, xAI’s Grok-3 AI model was trained using 100,000 GPUs. Meanwhile, NVIDIA’s largest customers have generally signaled increased capital expenditure (Capex) spending next year as they pursue the once-in-a-lifetime opportunity of AI.
In addition to the AI training opportunities the company is seeing, Nvidia is also seeing a significant increase in GPUs used for AI inference, along with an increase in enterprise and industrial usage, adding to the company’s new growth potential. Shows the way. Nvidia isn’t the only company making GPUs, but its CUDA software platform long ago became the standard for developers to learn to program GPUs, creating a huge moat for the company. This is a big reason why the company holds such a dominant position in the market today.
story continues
Meanwhile, despite the stock’s strong price rise over the past few years, its price-to-earnings ratio (P/E) is still attractive at 33x next year’s analyst estimates. ) ratio is slightly above 1. A PEG ratio of less than 1 is typically considered undervalued, but growth stocks often have multiples well above 1.
NVDA PE Ratio (Forward 1y) Data by YCharts
Between the growth opportunity it still has in front of it, its wide moat, and attractive valuation, Nvidia stock is a great choice for investors going forward.
Image source: Getty Images.
Another chip stock riding the AI wave is TSMC, the world’s largest semiconductor contract manufacturing company. TSMC makes chips designed by semiconductor companies, and its biggest customers include Apple and Nvidia.
TSMC, like Nvidia, is not the only semiconductor contract manufacturing company in the world, but it has also been able to build a large market. The company has achieved this through advanced technology and advantages of scale. This led to growth for the company, as evidenced by a 36% increase in Q3 revenue and a 50% increase in revenue per ADR (which is similar to EPS). This is in contrast to Intel’s third-party foundry business, which suffered losses and saw revenue decline last quarter.
The company is benefiting from huge demand from AI chips, and will also benefit from increased demand for chips resulting from hardware and smartphone upgrade cycles, as more powerful devices are needed to run AI. It’s an outlook.
TSMC also has strong pricing power, which is driving up gross profit margins. Meanwhile, Morgan Stanley said it has already told customers it will increase prices in 2025, including a 10% price increase for AI semiconductors.
Also, like NVIDIA, TSMC has an attractive valuation even as its stock price has soared. The expected P/E ratio is approximately 21.5x and the PEG is approximately 1.1x based on next year’s analyst forecasts.
TSM PE Ratio (Forward 1y) Data by YCharts
Given the huge demand for semiconductors and TSMC’s increasing gross margins and pricing power, not to mention its attractive valuation, this is a strong option for investors to consider at current levels.
Before buying Nvidia stock, consider the following:
The Motley Fool Stock Advisor team of analysts identified the 10 best stocks for investors to buy right now…and Nvidia wasn’t one of them. These 10 stocks have the potential to generate impressive returns over the next few years.
Consider when Nvidia created this list on April 15, 2005… If you invested $1,000 at the time of recommendation, you would have earned $833,545.!*
Stock Advisor provides investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks each month. ofstock advisorFor the service more than 4 times The resurgence of the S&P 500 since 2002*.
See 10 stocks »
*Stock Advisor returns as of November 25, 2024
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Jeffrey Seiler has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple, Intel, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: February 2025 $27 short call on Intel. The Motley Fool has a disclosure policy.
2 Easy Semiconductor Stocks to Buy Right Now originally published by The Motley Fool
