2 Artificial Intelligence (AI) Chip Stocks to Watch That Aren’t Nvidia

Investors can diversify their AI portfolios by holding chip stocks such as Nvidia, AMD, and TSM right now.

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Chip stocks such as Nvidia (NASDAQ:NVDA) have been on an absolute tear over the last 18 months. After falling over 60% from all-time highs in 2022, NVDA stock has returned over 700% in the last year and a half, primarily due to the artificial intelligence (AI) megatrend.

Nvidia is a semiconductor company that designs and sells GPUs, or graphics processing units, used to run several AI applications. The robust demand from AI companies allowed Nvidia to report revenue of US$60.9 billion in fiscal 2024 (ended in January), up from US$26.9 billion in fiscal 2023. Its operating income more than quadrupled from US$5.57 billion to US$33 billion in this period.

Valued at a market cap of US$2.26 trillion, Nvidia is currently the third-largest company globally and has returned an astonishing 19,720% to shareholders in the last decade. Despite its outsized gains, Nvidia’s growth story is far from over.

For instance, Wall Street expects Nvidia’s earnings to rise by 35% annually in the next five years. It suggests Nvidia should end fiscal 2029 with adjusted earnings of US$55 per share. So, if NVDA stock is priced at 35 times its forward earnings, it should trade at US$1,925 at the start of CY 2028, indicating an upside potential of more than 100% from current levels. This gain would propel Nvidia stock to a market cap of over US$4.5 trillion, possibly making it the largest company in the world.

While Nvidia remains a compelling bet, here are two other AI chip stocks you can consider right now.

The bull case for AMD stock

While Advanced Micro Devices (NASDAQ:AMD) has trailed Nvidia in recent months, it has still returned 72% in the last year and is up close to 4,000% since May 2014. However, the chip stock also trades 27% below all-time highs, allowing you to buy the dip.

Similar to Nvidia, AMD is bullish on data centre segment sales, which rose by 80% to US$2.3 billion. This growth in revenue was attributed to sales of its MI300 AI chips, which are used by giants such as Meta, Oracle, and Microsoft. AMD sold more than $1 billion on these chips in the first quarter (Q1) and expects 2024 sales at US$4 billion just for this product.

Priced at 36 times forward earnings, AMD stock is positioned to grow earnings by 23% annually in the next five years.

The bull case for Taiwan Semiconductor stock

The final chip stock on the list is Taiwan Semiconductor (NYSE:TSM), the largest manufacturer of advanced producers. The company accounts for 61% of global foundry sales, which allows it to benefit from moats such as pricing power. Its net margin stood at 40%, much higher than the industry average of 14%.

During its recent earnings call, company chief executive officer C.C. Wei emphasized, “Almost all the AI innovators are working with TSM to address an insatiable AI-related demand for energy-efficient computing power.” The chip leader now expects AI processor sales to more than double year over year in 2024.

Valued at US$734 billion by market cap, the tech stock has already returned close to 600% in the last decade. Priced at 22.5 times forward earnings, TSM stock is really cheap as earnings are on track to expand by 21.5% annually in the next five years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

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