When it comes to investing in artificial intelligence (AI), Nvidia often takes the spotlight as a primary focus for investors. The company has established a strong presence in the AI chip market, claiming between 80% and 95% market share.
However, with Nvidia’s price-to-sales (P/S) ratio now at 36, some investors question whether the stock may be overvalued. As a result, investors may want to explore other AI stocks, two of which show promising potential for delivering significant returns.
1. Taiwan Semiconductor
Investors may find a compelling option in Taiwan Semiconductor Manufacturing (TSMC) (NYSE: TSM), which serves as Nvidia’s manufacturer. TSMC is a leading producer of advanced chips, enabling the success of companies like Nvidia, Apple, AMD, and even Intel.
With a 61% market share in the third-party foundry market in the fourth quarter of 2023, as reported by TrendForce, TSMC has established a strong position. Despite geopolitical concerns in Taiwan, TSMC has expanded its production facilities outside the country to mitigate risks.
Revenue for TSMC fell 5% to $69 billion compared to the previous year, resulting in a net income of $27 billion, down 22%. However, analysts project a 22% revenue increase this year and a further 20% rise next year, driving the stock price up by 55% over the past year.
Currently trading at a P/E ratio of around 26, TSMC’s valuation remains competitive compared to other chip stocks. As demand for chips continues to rise, particularly from companies like Nvidia, TSMC is poised to sustain its growth trajectory.
2. Micron
Another player in the AI chip industry, Micron Technologies (NASDAQ: MU), specializes in memory chips critical for AI applications. Historically, the memory chip sector has experienced volatility, but the AI chip market’s growth has fueled demand for Micron’s products.
In the first quarter of fiscal 2024, Micron reported a 16% annual revenue increase to $4.7 billion, signaling a recovery in the memory market. Analysts anticipate a 34% revenue growth in fiscal 2024 and a 42% rise in the following fiscal year, potentially driving profitability.
Micron’s stock has gained 140% over the past five years, outperforming the S&P 500. Despite a high P/S ratio of around 7, indicating optimism among investors, the rising demand for memory chips is expected to sustain Micron’s growth trajectory.
As the AI revolution continues, the demand for memory chips is set to increase, positioning Micron for further growth in the future.
Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?
Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
See the 10 stocks
*Stock Advisor returns as of March 21, 2024
Will Healy has positions in Advanced Micro Devices and Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Forget Nvidia: 2 Artificial Intelligence (AI) Stocks to Buy Instead was originally published by The Motley Fool
