If you’ve been following the artificial intelligence market closely, you probably already know a thing or two about chip manufacturing company Taiwan Semiconductor Manufacturing. (TSM -0.70%) and chip designer Nvidia. (NVDA -2.09%).
These two companies are AI leaders in their respective fields, and their share price gains over the past year have overwhelmed the market. But which companies are the best artificial intelligence stocks right now? Let’s dive in and find out.
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In the case of Taiwan Semiconductor
There are many ways to invest in AI growth, but one of the most unique is semiconductor manufacturing. It may not be as flashy as companies that develop advanced AI chatbots, but the results speak for themselves.
Taiwan Semiconductor’s third-quarter sales (ending Sept. 30) rose 36% to $23.5 billion, and profits jumped 54% to $1.94 per American Depositary Receipt. This growth was driven by major technology companies investing heavily in the production of new AI chips. “Almost every AI innovator is collaborating with us,” CC Wei, CEO of Taiwan Semiconductor, said during the company’s latest earnings call.
The company’s unique opportunity stems from its advanced manufacturing technology, which includes the production of 3-nanometer chips and plans to expand production of 2-nm semiconductors starting in 2025. The company’s lead in semiconductor manufacturing gives it a 90% share of the world’s most prolific market. Advanced processor.
Taiwan Semiconductor is benefiting as the world’s biggest technology companies increase spending on AI infrastructure and race to release cutting-edge artificial intelligence services. Goldman Sachs estimates that spending on AI will reach $1 trillion over the next few years, which should further fuel Taiwan Semiconductor’s growth.
For Nvidia
Unlike Taiwan Semiconductor, Nvidia focuses on designing rather than manufacturing the semiconductors that power AI data centers. Nvidia’s GPUs have long been a favorite among technology companies needing high-performance AI data centers, but demand has recently surged.
Nvidia’s third-quarter sales (ending Oct. 27) increased 94% to $35.1 billion, and non-GAAP earnings rose 103% to $0.81 per share. Driving these impressive results was a 112% year-over-year increase in the company’s data center revenue to $30.8 billion.
Like Taiwan Semiconductor, Nvidia is also riding a wave of major investments as companies build out new AI infrastructure. Nvidia CEO Jensen Huang estimates that spending in this area will reach $2 trillion over the next five years, giving the company an opportunity to generate unprecedented profits.
While Nvidia’s rivals will no doubt capture some of this AI spending, the company is well-positioned to be the biggest winner. Nvidia’s chips power an estimated 70% to 95% of AI data centers, giving NVIDIA a significant advantage as spending on AI infrastructure increases.
Verdict: Taiwan Semiconductor is the better AI stock
You probably can’t go wrong investing in any of these stocks. Nvidia and Taiwan Semiconductor established leads in their respective markets years before the AI boom began.
However, since this is a comparison of the best AI stocks, we choose Taiwan Semiconductor for this matchup, as its stock price is technically cheaper than Nvidia at the moment. Taiwan Semiconductor’s forward price/earnings ratio is 23.0 times, while Nvidia’s forward price/earnings ratio is 32.7 times.
Both stocks have great potential going forward as AI grows, but if you’re looking for something a little cheaper, Taiwan Semiconductor is a better choice.
Chris Neiger has no position in any stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
