Comparing AI Stock Giants: Is Taiwan Semiconductor or Nvidia the Better Investment?
If you’re keeping an eye on the artificial intelligence market, you’re probably familiar with Taiwan Semiconductor Manufacturing (NYSE: TSM) and Nvidia (NASDAQ: NVDA). These companies lead the AI sector, showing remarkable growth in their share prices over the past year. But which one stands out as the better AI stock right now? Let’s explore.
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Taiwan Semiconductor: A Strong Player in the AI Market
Investing in the growth of AI can take many forms, but semiconductor manufacturing is one unique approach. Although it may lack the glamor of developing advanced AI chatbots, the impact is significant.
For the third quarter ending September 30, Taiwan Semiconductor reported a 36% sales increase, reaching $23.5 billion. Earnings rose by 54% to $1.94 per American depository receipt, fueled by substantial investments from major tech companies focusing on AI chip production. CEO C. C. Wei noted during the earnings call that “Almost every AI innovator [is] working with us.”
With advanced capabilities, Taiwan Semiconductor produces 3-nanometer chips and plans to start making 2nm semiconductors in 2025. The company leads the market, holding a 90% share in producing the world’s most advanced processors.
The rising investment in AI from the largest tech companies is driving Taiwan Semiconductor’s growth. Goldman Sachs estimates AI spending could reach $1 trillion in the coming years, likely boosting the company even further.
Nvidia: Dominating AI Data Center Solutions
In contrast to Taiwan Semiconductor, Nvidia concentrates on designing semiconductors for AI data centers rather than manufacturing them. Their GPUs are a top choice for tech companies seeking powerful AI infrastructure, resulting in soaring demand.
Nvidia’s sales jumped 94% in the third quarter, totaling $35.1 billion, with non-GAAP earnings increasing 103% to $0.81 per share. A significant factor in this growth was a 112% rise in data center revenue, reaching $30.8 billion year-over-year.
Similar to Taiwan Semiconductor, Nvidia is capitalizing on the surge of investments as companies enhance their AI capabilities. CEO Jensen Huang predicts that spending in this area may reach $2 trillion over the next five years, presenting a major opportunity for the company.
While competitors will also capture some of this spending, Nvidia is positioned to be the frontrunner, with its chips estimated to be present in 70% to 95% of AI data centers.
Final Thoughts: Why Taiwan Semiconductor is the Preferred AI Stock
Investing in either Taiwan Semiconductor or Nvidia is likely a smart choice, as both have established themselves well before the AI boom began.
Nonetheless, in this analysis, I lean towards Taiwan Semiconductor as the better option because its stock currently trades at a more favorable price. With a forward price-to-earnings ratio of 23.0 compared to Nvidia’s 32.7, it offers a more attractive entry point.
Both companies have significant growth potential in the expanding AI market. However, for those seeking a more budget-friendly investment, Taiwan Semiconductor represents the stronger choice.
Should You Invest $1,000 in Taiwan Semiconductor Manufacturing Now?
Before purchasing shares of Taiwan Semiconductor, keep this in mind:
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Chris Neiger does not own stock in any of the companies mentioned. The Motley Fool recommends and holds positions in Goldman Sachs Group, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.
