Wall Street’s darling semiconductor stock NVIDIA Corporation NVDA has witnessed a meteoric rise in the last few years, banking on the growing interest in cryptocurrency and the advent of artificial intelligence (AI).
NVIDIA’s graphic processing units (GPUs) are applied to train large language models, the mainstay of generative AI. Big cloud providers are thus grabbing several of NVIDIA’s chips, which helped its market cap jump from around $424 billion to $3.1 trillion in the past two years.
In 2023, NVIDIA stock rallied more than 200%. NVIDIA’s shares have already outperformed the Semiconductor - General industry this year (+159.1% vs +109.1%).
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Such a steep rise in share prices has led NVIDIA to announce a 10-for-1 stock split. After all, $1,000 invested at the beginning of the year would be worth $1,591 today.
The launch of the next-generation Blackwell AI chips scheduled later this year, and the growing gaming and industrial metaverse market are expected to help the NVIDIA stock scale further upward. The company’s expected earnings growth rate for the current year is 106.9% (read more: Should You Buy, Sell, or Hold NVIDIA Stock Before Q2 Earnings?).
NVIDIA is now the second largest company worldwide, behind Apple Inc. AAPL. Investors have set their sights on finding the next NVIDIA stock that has a growing interest in AI and offers a highly scalable business. Two of the prominent names are Super Micro Computer, Inc. SMCI and Taiwan Semiconductor Manufacturing Company Limited TSM. Here’s why –
SMCI Stock – A Dominant Player in the AI Server Market
Super Micro is giving stiff competition to established players in the AI server market like Dell Technologies Inc. DELL. The company has been able to make the most of the unquenchable demand for AI servers, a market that is expected to witness a CAGR of more than 18% from the current year to 2032, per Global Market Insights.
Super Micro manufactures unfaltering AI servers required to mount AI chips that semiconductor companies sell. Super Micro recorded $14.94 billion in sales in fiscal 2024, up 110% year over year.
Super Micro accounts for only 10% of the AI server market share, a tell-tale sign that it has more room to expand its business. Bank of America Corporation BAC has already projected Super Micro’s share in the AI server market to jump to 17% in the next three years.
Super Micro’s expected earnings growth rate for the current quarter and year is 117.2% and 51.7%, respectively. Eminent brokerage companies have also increased the average short-term price target of SMCI by 65% from the stock’s last closing price of $562.51. Brokers have set the highest price target at $1,500, an upside of 166.7%.
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TSM Stock – Exploiting the Growing Demand in AI Applications
Based in Taiwan’s “Silicon Valley,” Taiwan Semiconductor Manufacturing, or TSMC is a semiconductor manufacturing foundry that has seen huge gains from the global AI boom.
TSMC expects a growing demand for its cutting-edge chips as more companies, such as Apple, begin to install AI features in smartphones. TSMC’s manufacturing competence is needed for GPUs to be operative. These GPUs form an integral part of data centers where huge data are stored. These data are required for AI applications like Open AI’s ChatGPT, whose demand has skyrocketed. So, in a way, TSMC’s business is expected to scale up from the increase in demand for AI applications.
TSMC’s estimated earnings growth rate for the current quarter and year is 33.3% and 24.5%, respectively. Also, notable brokerage firms have jacked up the average short-term price target of TSM by 21.1% from the stock’s last closing price of $169.07. Brokers’ highest price target is $250, an upside of 47.9%.
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SMCI, TSM Stock Less Pricey Than NVDA Stock
Super Micro and TSMC’s shares have soared this year, gaining 92% and 63.3%, respectively.
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However, both SMCI and TSM’s stock are less expensive than the NVDA stock, which has given them a competitive edge over the largest semiconductor player. This is because, per the price/earnings ratio, SMCI and TSM stock presently trades at 16.3X and 26.4X forward earnings, respectively. But, NVDA’s forward earnings multiple is 47.6X.
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SMCI and TSM stock currently has a Zacks Rank #2 (Buy) each. NVDA has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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