1 Clear AI Winner Investors Should Load Up On
Key Points
Taiwan Semiconductor makes chips for all of the major computing unit providers.
Management expects huge AI chip growth to continue over the next few years.
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Finding a clear long-term winner in the artificial intelligence (AI) buildout isn't as simple as one may think. It's still unknown which company will be declared the winner of the generative AI model realm, and there may be multiple winners. Another possibility is that models become commoditized, and there's really no benefit to being a winner. There are also cloud infrastructure companies, but they have to spend a fortune building out their footprint to meet demand.
One category I circle back to as clear winners is the chip companies. While there is still a ton of competition in the computing hardware space, there's really one winner that has emerged in chip fabrication: Taiwan Semiconductor Manufacturing (NYSE: TSM). TSMC, as it's also known, is by far the leader in this realm, and I think it is a clear AI winner that investors shouldn't hesitate to buy right now.
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Image source: Getty Images.
Taiwan Semiconductor is a neutral business
Taiwan Semiconductor is a clear winner in AI because of its neutral position. In the computing unit space, the biggest names are Nvidia, Advanced Micro Devices, and Broadcom. All three of these companies source at least some, if not most, of their logic chips from Taiwan Semiconductor.
This is because Taiwan Semiconductor has established itself as the most technologically advanced and top manufacturer of chips in the world. It doesn't matter whose computing unit is being used in AI, as Taiwan Semiconductor is likely supplying the chips being used within them. All that matters to TSMC is that there is increased AI spending, and all signs point to rising spending over the next few years.
McKinsey & Company believes it will take $7 trillion in cumulative spending to build out AI demand by 2030. Nvidia believes that data center capital expenditures will reach $3 trillion to $4 trillion by 2030. Taiwan Semiconductor itself believes that its AI chip revenue will grow at nearly a 60% compound annual growth rate (CAGR) between 2024 and 2029. That's a clear sign that Taiwan Semiconductor is going to benefit tremendously over the next few years, but is the stock a buy today?
While the chipmaker's shares used to trade at a massive discount to its big tech peers, that's no longer the case. At 25 times forward earnings, the stock is no longer a bargain, but for the growth it's expected to put up, I think it's a fair price to pay.
TSM PE Ratio (Forward) data by YCharts
Taiwan Semiconductor is a top stock to buy in today's market. If you're looking to invest in AI without needing to pick a winner in a particular industry, I can think of few better options than Taiwan Semiconductor.
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Keithen Drury has positions in Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
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