There is no doubt that Nvidia (NASDAQ: NVDA) has been one of the hottest stocks on the market over the past year thanks to huge demand for artificial intelligence (AI) chips the company sells. But this is precisely the reason why investors may be looking for other ways to tap the AI boom.
After all, Nvidia stock’s 239% surge in 2023 made the stock expensive. It now sports a price-to-sales ratio of about 27 and a trailing earnings multiple of 65. Nvidia seems capable of justifying those multiples with impressive growth.
The company is expected to finish the current fiscal year with a 118% jump in revenue to $59 billion, followed by another jump of 56% in the next one. It may even grow at a faster pace than what consensus estimates are projecting. But still, some investors may be on the hunt for cheaper alternatives.
This is where Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly known as TSMC, steps in. The chip stock is expected to deliver solid growth in 2024, and is trading at significantly cheaper multiples than Nvidia. Let’s look at the reasons why investors might want to consider buying TSMC right now.
TSMC is playing a vital role in the AI chip market
The AI chips that Nvidia sells are manufactured by its foundry partner TSMC, which is why TSMC seems a solid bet for investors seeking an alternative AI chip play. Shares of the Taiwan-based company jumped 40% in 2023, underperforming the PHLX Semiconductor Sector index, which clocked much stronger growth of 66%. However, that’s good news for opportunistic investors, as TSMC stock is trading at a much cheaper valuation than Nvidia’s.
TSMC sports a price-to-earnings (P/E) ratio of 19, which is lower than the company’s five-year average P/E ratio of 22. Investors can consider buying TSMC stock hand over fist at its current valuation, as revenue and earnings growth are expected to pick up impressively in 2024. More specifically, TSMC’s revenue was predicted to decline almost 9% in 2023 to $69 billion thanks to the weak demand for smartphones and personal computers (PCs). AI, however, is likely to change the…
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