TSMC emerges as better buy than NVIDIA due to stable performance and growth potential.

From Nasdaq: 2024-09-05 14:45:00

Artificial intelligence has propelled semiconductor stock NVIDIA Corporation to great heights in recent years. NVIDIA designs chips and outsources manufacturing to companies like Taiwan Semiconductor Manufacturing Company. Both stocks have seen gains this year, but recent factors have affected NVIDIA’s shares. Is TSMC now more appealing than NVIDIA? Let’s explore the possibilities.

The bullish case for NVIDIA lies in the enduring demand for AI models used in various sectors like cloud computing. NVIDIA’s chips are essential for AI models, making the company a top player in the AI chip market. The upcoming Blackwell AI chips promise increased AI throughput, while ventures into gaming and industrial metaverse spaces add to NVIDIA’s strengths.

NVIDIA’s CEO predicts a migration of data centers from central processing units to graphic processing units (GPUs), an area where NVIDIA excels. Second-quarter revenues from the data center business increased by 154% year over year, indicating strong performance. NVIDIA also announced a $50 billion share repurchase plan to further support its growth.

Despite positive developments, NVIDIA’s stock has been volatile in September due to an antitrust investigation by the Department of Justice. Historically, September has been a weak month for NVIDIA shares. High expectations following promising quarterly results failed to boost the stock further, even though it has been a top performer on the S&P 500 this year.

In contrast to NVIDIA’s volatility, TSMC stock has remained relatively stable in September with positive outlooks for the future. Growing demand for AI features in smartphones and applications like Open AI’s ChatGPT and Alphabet’s Gemini are expected to drive TSMC’s chip sales higher. Diversification across industries and strong earnings forecasts make TSMC stock a less risky investment.

TSMC holds a dominant position in the global semiconductor market with 90% share of high-end chips. This position grants TSMC significant pricing power, allowing for increased profitability. Strategic partnerships, such as being the exclusive manufacturer of Apple’s AI chips, secure higher volumes and revenue for TSMC. Diversified customer base insulates TSMC from industry-specific downturns.

Compared to NVIDIA, TSMC stock is priced more attractively and holds advantages in terms of valuation. TSMC’s lower price/earnings ratio indicates a more affordable investment choice than NVIDIA. Strong fundamentals, pricing power, and strategic partnerships position TSMC as a compelling long-term investment opportunity.

Scoring well on various factors like reasonable valuations and strong partnerships, TSMC stock emerges as a better buy than NVIDIA stock. Analysts have raised the short-term price target for TSMC stock, with a Zacks Rank #1 (Strong Buy) indicating bullish sentiment. TSMC’s growth potential and strategic advantages make it a solid choice for investors looking to capitalize on the AI market’s expansion.



Read more at Nasdaq: Which Chip Stock to Buy in a Murky September? NVDA or TSM