Nvidia (NASDAQ: NVDA) could possibly be about to do the unthinkable. The company was price lower than $100 billion five years ago. And now, it’s lower than 5% away from surpassing each Alphabet and Amazon in market cap, and around 15% away from reaching a $2 trillion valuation.
The market is in forward-looking mode, as evidenced by the willingness to pay a fairly penny for results that are still likely years down the road. But when artificial intelligence (AI) is a sustained game changer, then investors buying red-hot stocks at all-time highs could possibly be making the right move over the long run.
Here’s why Nvidia, Taiwan Semiconductor Manufacturing (NYSE: TSM), and Microsoft (NASDAQ: MSFT) are three top growth stocks to buy now.
Nvidia is an actual intelligent solution to place money into artificial intelligence
Scott Levine (Nvidia): It’s hard to assume that a company with a market capitalization that exceeds $1.7 trillion continues to be in growth mode, but that appears to be the case with Nvidia. Due to skyrocketing demand for artificial intelligence — and the many computing requirements of deep learning and analytics — the company’s data center business is booming. And it shows no signs of slowing down as AI continues to pervade increasingly areas of our lives.
Nvidia achieved record financial results in its fiscal third quarter of 2024, ended Oct. 29, 2023, smashing its guidance of $16 million in revenue and reporting $18.1 billion on the best line. To what does the company attribute this stellar performance? Its data center business. Up 279% yr over yr, Nvidia’s data center business drove the strong quarterly performance, and it’s expected to extend into the fourth quarter. Nvidia expects to interrupt one other record and report quarterly revenue of $20 billion throughout the fiscal fourth quarter of 2024.
It isn’t solely on the income statement where Nvidia is seeing explosive growth. The cash-flow statement can be prospering attributable to the strong data center business. Through the first three quarters of fiscal 2023, Nvidia reported free money flow of over $2 billion. In fiscal 2024, nonetheless, Nvidia has reported a whopping $15.7 billion in free money flow.
Nvidia is continually innovating to stay on the vanguard of the AI industry. This week, for example, it announced a partnership with Cisco Systems that may even further enhance its data center business. Using Nvidia’s Tensor Core GPUs in Cisco’s servers, Nvidia believes it might “enable optimal performance across a broad array of AI and data-intensive workloads in the knowledge center and on the sting.”
Taiwan Semiconductor is a backdoor solution to play the AI revolution
Lee Samaha (Taiwan Semiconductor): The explosion of interest in AI and global 5G rollouts is translating into unprecedented demand for energy-efficient computing power. As such, data centers and communication firms need to take a position in high-performance computing (HPC) solutions, and which implies chips manufactured by semiconductor foundries like Taiwan Semiconductor. For reference, Nvidia, Qualcomm, and Apple are all clients of Taiwan Semiconductor.
As a foundry, the company neither designs nor markets semiconductors under its name. Instead, it focuses on manufacturing for its customers.
In accordance with CEO C.C. Wei on the recent earnings call, “nearly all of the AI innovators are working with TSMC,” and management’s projection of low- to mid-20% revenue growth (in U.S. dollar terms) for 2024 is built on “robust AI-related demand.”
Taiwan Semiconductor’s management is very excited by its 2 nanometer, or N2, technology (a modern generation of chips), with Wei noting, “We’re observing a much higher level of customer interest and engagement at N2 as compared with N3 at the identical stage from each HPC and the smartphone applications.”
Provided that its N2 technology shall be introduced in 2025, and management is forecasting strong revenue growth for 2024 already, it’s clear the company has favorable AI-driven tailwinds behind it. It adds as much as make Taiwan Semiconductor a beautiful play on AI and a cyclical return to growth throughout the economy.
Microsoft is a greater value than it looks at first glance
Daniel Foelber (Microsoft): Nvidia is top of mind by way of investing in leading AI firms. At this rate, it could soon turn into the third most precious U.S.-based company. Nevertheless it’s still distant from surpassing Microsoft or Apple.
I feel Microsoft can turn into the first $4 trillion company, and the reason is beautifully easy. Microsoft has direct ways to implement AI solutions across its consumer and (more importantly) enterprise customers. That is identical market opportunity to Nvidia, which is principally selling to businesses, not consumers. And I feel that’s the way in which more lucrative and easier path toward AI, as a minimum for now, than the client market (similar to the Apple Vision Pro).
AI-powered enterprise solutions have a straightforward purpose — making the duty easier, higher, and fewer time-consuming. Microsoft has real results from its “regularly AI companion” Microsoft Copilot. This generative AI solution matches into several Microsoft software products, like its flagship Microsoft 365.
Microsoft’s cloud business is one other sandbox for AI to thrive. Microsoft reported 53,000 Azure AI customers last quarter, with over one-third joining Azure over the past 12 months.
GitHub, Microsoft’s developer program, is one other place where AI is having an instantaneous impact. Microsoft grew GitHub revenue by 40% throughout the fiscal second quarter of 2024, ended Dec. 30, 2023, as compared with the similar quarter last fiscal yr. The company attributed the expansion to GitHub Copilot, which has over 1.3 million paid subscribers, a 30% increase in just one quarter.
The expansion is there for Microsoft. It has many levers it’d pull and is showing traction across multiple AI solutions. Microsoft also trades for a 37.3 price-to-earnings ratio, significantly below Nvidia’s 92.6 ratio. Neither stock is cheap by any means. But given Microsoft’s unique combination of name power, diversification, money flow, legacy businesses, and growth potential, the stock continues to be an excellent value and has room to run from here.
Do you’ve to take a position $1,000 in Nvidia right away?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Alphabet, Amazon, Apple, Cisco Systems, Microsoft, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Idiot has a disclosure policy.
If You Like Nvidia, Then You Will Love These 2 Hot AI Stocks was originally published by The Motley Idiot