Nvidia (NASDAQ:NVDA) This is one of the key levers of the artificial intelligence (AI) boom, and customers are investing in their powerful graphics cards to ensure they don't miss out on the adoption of this technology, which is expected to take off rapidly around the world. People are lining up to buy them. The economy will improve significantly.
According to PwC, AI could add as much as $15.7 trillion to global gross domestic product (GDP) by 2030. NVIDIA will play a central role in driving this AI-related economic growth thanks to its graphics processing units (GPUs). Role in large-scale language model (LLM) training and AI application development.
All of this explains why Nvidia has grown at a breathtaking pace, leading to an impressive jump in its stock price.
But NVIDIA's rise wouldn't have been possible without its foundry partners. taiwan semiconductor manufacturing (NYSE:TSM), commonly known as TSMC. This is because Nvidia is a fabless semiconductor company. In other words, he only designs the chips and leaves the manufacturing part to foundries like his TSMC.
So investors looking for an Nvidia agent for the AI ​​boom would do well to buy TSMC stock. That's because TSMC is likely to join the multi-trillion dollar market cap club, with the potential for impressive gains. Let's see why this is so.
TSMC's capacity expansion should help accelerate growth
TSMC is rapidly expanding its manufacturing capacity to help Nvidia meet the huge demand for its AI chips. The company is allocating an estimated 40% to 50% of its advanced chip packaging capacity to NVIDIA to increase the supply of AI chips, according to market research firm TrendForce.
More importantly, TSMC is increasing its production capacity for advanced chip packaging, formally known as chip-on-wafer and wafer-on-substrate (CoWoS), from 120,000 units last year to 24 units this year. It is reported that there are plans to increase the number to 10,000 units. TSMC plans to increase CoWoS packaging capacity from 26,000 to 28,000 wafers per month by the end of the year, suggesting that Nvidia may continue to increase AI chip production. ing.
Additionally, TSMC currently has a $6.6 billion grant and $5 billion line of credit from the U.S. government to help it build more factories in Arizona. TSMC has already built two facilities in Arizona, scheduled to open in 2025 and 2028, and is currently building a third facility with the latest grant funding. TSMC plans to invest a total of $65 billion in three U.S. factories.
The third factory will be established to manufacture advanced 2 nanometer (nm) chips that will be deployed in AI and military applications. It is worth noting that TSMC has begun prototyping 2nm chips for Nvidia and plans to be able to start mass production of these chips in 2025.
The transition to a 2nm process is likely to play a key role in helping Nvidia maintain its dominance in the AI ​​chip market. For example, Nvidia could achieve a 7x to 30x leap over its current flagship H100 processor by moving from its Hopper AI GPU's custom 5nm architecture to TSMC's custom 4nm process for its next Blackwell GPU. At the same time, they claim that it can also improve the performance of the processor. Power consumption is up to 25 times higher.
Therefore, TSMC appears poised to benefit from Nvidia's AI chip advantage, which should ideally help drive stronger revenue and profit growth for the company. That's probably why analysts have revised TSMC's earnings growth forecasts significantly higher.
The stock's valuation and potential upside suggest it's a no-brainer to buy
TSMC stock trades at a trailing P/E of 28x and a forward P/E of 23x.both multiples Nasdaq-100has an earnings multiple of 30x (using the index as a proxy for tech stocks). In the chart in the previous section, we saw that TSMC's bottom line could jump to just over $9 per share in 2026.
Assuming TSMC actually reaches that goal and trades at a P/E ratio of 30x in three years, in line with the price-to-earnings ratio of the Nasdaq 100, the company's stock price would reach $270, an 86% increase from current levels. there is a possibility. TSMC's market cap currently stands at $750 billion, meaning it has plenty of momentum to join the $1 trillion market cap club within the next three years.
All of this points to why investors looking for AI stocks trading at attractive valuations should consider buying TSMC. That's because TSMC appears to have impressive upside potential that could push it well beyond the $1 trillion market cap.
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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Do you regret missing out on Nvidia's incredible rise? 1 Incredible Artificial Intelligence (AI) Stocks to Buy Before the Company Is Worth $1 Trillion Originally published by The Motley Fool Published