Artificial intelligence (AI) has played a central role in lifting semiconductor stocks over the past couple of years, which is evident from the tremendous 131% spike inside the PHLX Semiconductor Sector index during this era. The good part is that the proliferation of this technology is able to drive stronger growth on this market, as AI adoption moves from data centers to edge devices paying homage to smartphones, personal computers (PCs), and automotive applications, amongst others.
For instance, the marketplace for chips utilized in smartphones is predicted to leap from $104 billion in 2023 to $146 billion next yr. PC semiconductor spending, alternatively, could jump to $107 billion in 2025 from $89 billion last yr, while automotive market chip spending is forecast to leap to $104 billion next yr from $79 billion last yr. Meanwhile, spending on semiconductors deployed in AI servers and data centers is able to leap from $78 billion in 2023 to $136 billion next yr.
For investors attempting to capitalize on all these fast-growing semiconductor end markets which have received an infinite boost due to AI, Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly often referred to as TSMC, looks like a wonderful bet.
The foundry giant serves all the verticals discussed, and probably the most recent news from the company reinforces the proven incontrovertible fact that AI is coming out to be a solid growth driver for the company. Allow us to take a take a look at the reason why.
TSMC is heading in the proper direction to deliver yet another terrific quarterly report
TSMC has just released its sales data for September, and the company has reported a formidable year-over-year increase of virtually 40% in its monthly revenue to 251.8 billion Recent Taiwan (NT) Dollars. If we add the monthly revenue for July, August, and September, TSMC’s Q3 revenue would can be found at almost 760 billion NT Dollars, a formidable jump of 39% from the similar period last yr.
That number is higher than analysts’ Q3 revenue estimates of 748 billion NT Dollars. So, TSMC seems set to exceed Wall Street’s expectations when it releases its third-quarter results on Oct. 17. Analysts have been forecasting $1.80 per share in earnings from the company, a jump of 40% from the similar period last yr, nevertheless the better-than-expected revenue growth is vulnerable to translate into stronger bottom-line gains.
One other thing value noting is that TSMC’s revenue in the first nine months of 2024 increased by 32% from the similar period last yr. This means TSMC is well on the right track to outpace the 26% revenue growth to $87.2 billion that analysts predict the company to deliver in 2024. More importantly, TSMC is predicted to sustain healthy growth levels over the next couple of years as well.
Nonetheless, don’t be surprised to see TSMC’s revenue growth outpacing Wall Street’s expectations. That’s because the company is certainly one of the essential pick-and-shovel plays in the large AI space. It manufactures and fabricates chips for a wide range of fabless chipmakers paying homage to Nvidia, AMD, Qualcomm, Broadcom, and Marvell Technology.
Even higher, chipmakers with fabrication plants of their very own, paying homage to Intel, are also turning to TSMC to capitalize on the latter’s advanced chip manufacturing processes to offer more efficient, powerful chips. But that shouldn’t be where TSMC’s AI-related opportunity ends. The company also manufactures chips for Apple, putting it in position to profit from the expansion in AI smartphone sales.
Now, a greater take a take a look at the patrons discussed will make it clear that TSMC is probably the most effective ways to play the AI chip boom in several sectors. Nvidia, AMD, and Intel, for instance, are attempting to make probably probably the most of the opportunities available in AI accelerators. Nvidia is running away with this market immediately, making chips using TSMC’s process nodes to deliver faster performance and lower power consumption than rivals.
Qualcomm, AMD, and Intel are present inside the AI-enabled PC market. Similarly, Qualcomm and Apple present avenues through which TSMC can tap the smartphone space. And eventually, Marvell and Broadcom allow TSMC to tap into one other fast-growing area of interest of AI semiconductors in the form of custom AI chips. Simply stated, it doesn’t matter which of those corporations wins more market share and at last finally ends up dominating their respective niches — TSMC is likely going to be the ultimate word winner.
That’s the reason TSMC’s advanced packaging technology that’s used for producing AI chips is sold out until 2025. In consequence, the company is expanding its capability to offer AI chips a yr ahead of the unique schedule, in accordance with Morgan Stanley. This might ideally allow TSMC to make more chips, fulfill more orders, and deliver stronger growth in revenue and earnings.
Buying the stock before Oct. 17 is a no brainer
This discussion makes it clear that TSMC is carrying terrific momentum going into its Q3 earnings report that’s due on Oct. 17. There could also be a sturdy probability that it’ll beat consensus estimates and likewise deliver stronger-than-expected guidance for Q4, all of which could give the stock a pleasing shot inside the arm.
TSMC stock has jumped 77% this yr already, and it looks all set to complete the yr on a sturdy note. Given that this AI stock is trading at a beautiful 22 times forward earnings even after its outstanding run this yr, buying it looks like a no brainer immediately considering that it seems built for more upside.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Advanced Micro Devices, Apple, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Broadcom, Intel, and Marvell Technology and recommends the subsequent options: short November 2024 $24 calls on Intel. The Motley Idiot has a disclosure policy.
1 Top Artificial Intelligence (AI) Semiconductor Stock to Buy Hand Over Fist Before Oct. 17 was originally published by The Motley Idiot