Better Artificial Intelligence (AI) Stock to Buy in March: Nvidia vs. Taiwan Semiconductor Manufacturing Co.

Artificial intelligence (AI) investing is still a huge theme in the market, but some investors are less bullish on the space than they once were. But I don't see how you can look at what's going on and not be bullish. The AI hyperscalers are spending huge sums of money on data centers, and there are several companies that are benefiting from this spending right now. Two of the biggest are Nvidia (NASDAQ: NVDA) and Taiwan Semiconductor Manufacturing Co. (NYSE: TSM).

Both of these stocks have been huge winners over the past few years, but none of that matters now. What matters is which is the best buy now, this month, and both of them look pretty promising.

Image source: Getty Images.

Nvidia's and Taiwan Semiconductor's success are tied together

Nvidia makes graphics processing units (GPUs), which have become the computing unit of choice for anyone involved in the AI field. While there are other viable options, none offer the flexibility, full-stack capabilities, or raw power of the Nvidia ecosystem. As a result, it can charge a premium price that clients are willing to pay.

Furthermore, demand for AI computing products is at an all-time high. In 2026, the big four AI hyperscalers are planning on spending around $650 billion on data centers. A large chunk of that will be heading Nvidia's way, and that's not even all of the companies that are aggressively spending in the AI realm. This bodes well for Nvidia, but it is also great for Taiwan Semiconductor.

Nvidia doesn't actually produce any of its chips; it just designs them. While there are several companies in Nvidia's production supply chain, none is more important than Taiwan Semiconductor, which manufactures the logic chips that go into Nvidia's GPUs. It was chosen because TSMC has the most advanced and consistent production results. When you hear about all of the money being spent on Nvidia GPUs, you can also assume Taiwan Semiconductor is getting a healthy cut. Furthermore, Taiwan Semiconductor also supplies chips to many of Nvidia's competitors, so as long as there is increased AI spending, there's a good chance that Taiwan Semiconductor will also continue growing.

On the other hand, if there is a cheaper alternative that is launched that can deliver most of the performance of Nvidia's products at a cheaper cost, Nvidia may lose its premium price tag or market share in general, which would harm the stock.

As a result, Taiwan Semiconductor -- which has an array of customers it manufactures for -- is the far safer bet of the two.

Nvidia's growth rate is faster

Taiwan Semiconductor's growth rate is going to be naturally slower than Nvidia's because it's supplying several different sectors with chips in addition to what it's doing in AI. It's also making chips for some of Nvidia's competitors that aren't growing as quickly, so this makes its growth rate slower. However, its growth rate is nothing to be disappointed in; it's just not Nvidia's rate.

NVDA Revenue (Quarterly YoY Growth) data by YCharts

Nvidia clearly takes the win here, as it's growing much faster. But what about the cost to own each stock?

Nvidia is cheaper from one perspective

Valuing these stocks is tricky. Each of them expects monster growth over the next year, so using the forward earnings ratio makes a lot of sense. Trailing earnings are a far more concrete way to value a stock, but there can be one-time effects that skew these numbers as well.

NVDA PE Ratio (Forward) data by YCharts

From a forward earnings perspective, Nvidia is actually cheaper than Taiwan Semiconductor due to the rapid growth it's expecting this year. From the trailing earnings perspective, they aren't too far off in price, although Nvidia is slightly more expensive.

Overall, I'm going to lean toward Nvidia as being the cheaper stock due to its faster growth rate.

As for which is the best buy, I think it's a pretty simple summary. Nvidia offers higher potential upside with higher risk, while Taiwan Semiconductor is a bit safer, although it should still beat the market. I think each of these stocks has its merits, but if I had to choose one, I'd choose Nvidia for March.

Keithen Drury has positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.