Artificial Intelligence (AI) Pioneer NVIDIA Nvidia released a stellar quarterly report that far surpassed Wall Street expectations, sending the chipmaker's shares soaring as it became clear that AI will continue to be a big growth driver for the company. But Nvidia isn't the only semiconductor stock to benefit from Nvidia's stellar performance.
of stocks Advanced Micro Devices (NASDAQ: AMD) and Taiwan Semiconductor Manufacturing (NYSE:TSM)The company, popularly known as TSMC, also rallied following the Nvidia report. Let's take a look at why that was and why these two stocks could be worth buying right now.
1. Taiwan Semiconductor Manufacturing
TSMC shares rose more than 3% after Nvidia reported its earnings, which isn't surprising since Nvidia relies on TSMC foundries to mass-produce its AI chips. Nvidia is a fabless semiconductor company, meaning it only designs its chips, which are then manufactured by foundries like TSMC.
Nvidia is slowly becoming one of TSMC's major customers. While TSMC doesn't disclose details of its deals with individual customers, financial analyst Dan Nystedt (via Tom's Hardware) reported that Nvidia generated 11% of TSMC's revenue last year. It's likely that Nvidia will become an even bigger contributor to TSMC's revenues for a few simple reasons.
Nvidia executives noted during the company's latest earnings call that its next-generation Blackwell chips are already in full production, and the company plans to continue ramping up production of the new chips in the third quarter. According to third-party estimates, Nvidia could ship 420,000 units of the GB200 Blackwell Superchip, which contains two of the company's latest-generation B200 AI graphics processing units (GPUs).
Even better, Nvidia is expected to ship 1.5 million to 2 million GB200 superchips next year, which should pave the way for phenomenal growth for TSMC. The initial production ramp of Nvidia's new chips already appears to be fueling robust growth for TSMC, with April revenue up nearly 60% year over year, accelerating 34% growth in March.
More importantly, TSMC is aggressively ramping up production capacity to meet surging demand for Nvidia's chips: The company recently announced that it plans to ramp up its advanced chip packaging capacity — formally known as CoWoS, or chip-on-wafer-on-substrate — at a 60% annual rate through at least 2026. This rapid improvement will allow TSMC to produce more AI chips for Nvidia, which explains why analysts are raising expectations for revenue growth.
TSMC shares are currently trading at 29 times trailing earnings, compared with the U.S. tech sector average of 42. Investors are getting this AI stock at a bargain price and should consider grabbing it with both hands before the stock price rises further.
2. Advanced Micro Devices
Nvidia dominates the AI chip space, with market share estimated at more than 90%, leaving the company with little to offer to peers such as AMD, which are still struggling to gain a foothold in this lucrative market.
For example, Nvidia's data center business generated $22.6 billion in revenue, up 427% year over year, thanks to robust demand for its AI GPUs.
Meanwhile, AMD is forecasting just $4 billion in revenue from AI GPUs in 2024. While this pales in comparison to what Nvidia generated in just one quarter, it wouldn't be surprising to see AMD finish the year with stronger AI revenue than currently expected, since like Nvidia, AMD is also a major customer of TSMC, reportedly accounting for 7% of TSMC's sales in 2023.
As such, expanding Taiwanese foundry capacity is likely to boost AMD's AI chip sales as well, especially given rising demand for AI GPUs, CEO Lisa Su noted during the company's April earnings call.
Taiwan's Economic Daily NewsNvidia and AMD have fully booked TSMC's advanced packaging capacity for 2024 and 2025. With TSMC aggressively ramping up production capacity, AMD should be able to source and sell more AI chips from TSMC. Add in additional catalysts such as growing demand for AI-enabled personal computers and server CPUs, and it's no surprise that AMD's growth is expected to remain healthy for the next few years.
Even better, analysts expect AMD's profits to grow 33% annually over the next five years, and the company could see even stronger growth if it can grab a bigger share of the AI chip market.
Analyst Harsh Kumar Piper Sandler He noted that AMD has historically been second to Nvidia in markets like PC graphics cards, with a market share of between 20% and 30%.
A similar share in AI chips could mean a lot for AMD in the long term, considering the sector is expected to generate $384 billion in 2032, growing 38% annually, so buying this tech stock before the AI-driven surge starts might be a good idea.
Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?
Before buying Taiwan Semiconductor Manufacturing shares, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy right now: Taiwan Semiconductor Manufacturing Co. Ltd. was not included. The 10 stocks selected have the potential to generate huge profits over the next few years.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
The post 2 Top Artificial Intelligence (AI) Stocks to Buy After Nvidia's Strong Performance was originally published by The Motley Fool.
