1 Stock That’s Just as Hot as Nvidia (Without All the Hype)

Nvidia is an AI stock that has crushed market returns in the past decade. Here’s another AI stock that is flying under the radar.

Aditya Raghunath

Aditya Raghunath joined the Motley Fool Canada team in 2019 and has close to seven years of experience in covering publicly-listed companies. With a post-graduate degree in finance, Aditya aims to educate and engage Canadians by writing extensively about growth, dividend, and value stocks. If you are considering investing in the stock market, he recommends reading The Intelligent Investor by Benjamin Graham before taking the plunge.

Published May 15, 2024 4:10 pm EDT

Nvidia (NASDAQ: NVDA) has been among the hottest tech stocks globally in the last 18 months. The semiconductor giant is selling shovels amid the artificial intelligence (AI) gold rush as demand for its graphics processing units (GPUs) has exploded over the past year. Since the start of 2023, NVDA stock has returned over 500% and is up a staggering 20,000% in the last decade.

Valued at US$2.2 trillion by market cap, Nvidia is among the largest companies on the planet and remains a top investment choice for long-term shareholders.

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Nvidia is growing rapidly

Despite its massive size, Nvidia grew sales in the fiscal fourth quarter (Q4) of 2024 (ended in January) by 265% to US$22.1 billion, while net income rose by 769% to US$12.3 billion. Nvidia’s data centre segment now accounts for 83% of total sales, while the gaming business brought in “just” US$2.8 billion in revenue in the last quarter.

Nvidia’s GPUs are path-breaking and vital to developing AI models such as ChatGPT, providing the tech giant with a wide competitive moat.

Priced at 37 times forward earnings, NVDA stock might seem expensive. However, analysts expect adjusted earnings to almost double in fiscal 2025. In fact, Nvidia stock is forecast to end fiscal 2029 with adjusted earnings of US$63. So, if NVDA stock is priced at 30 times forward earnings, it should touch US$1,890 in May 2028, indicating an upside potential of over 100% from current levels.

Is TSM stock a better AI stock to buy?

While Nvidia stock remains a compelling investment, you can consider diversifying your AI portfolio by holding other blue-chip stocks, such as Taiwan Semiconductor (NYSE: TSM). With a market cap of US$788 billion, TSMC recently emphasized that demand for AI-related products is “insatiable.”

In fact, the company expects AI sales to rise by 50% annually and account for 20% of its total sales by 2028. The AI gold rush should also help Taiwan Semiconductor grow its sales between 15% and 20% annually through 2025.

TSM recently disclosed revenue in April rose almost 60% to US$7.3 billion, pushing its top-line growth to over 26% in the first four months of 2024.

TSM is the largest contactor chip manufacturer globally. It uses its facilities to manufacture chips for other tech giants, including Apple and Nvidia, who design their chips but outsource the production to TSM.

Over the years, TSM has established itself as an industry-leading chip manufacturer and is expected to produce the next generation (two-nanometre wafers) in 2025.

Wall Street expects TSM to grow revenue from US$69.4 billion in 2023 to US$84.6 billion in 2024 and US$103 billion in 2025. Comparatively, adjusted earnings are forecast to expand from US$5.19 per share in 2023 to US$6.26 per share in 2024 and US$7.86 per share in 2025.

So, priced at 24 times forward earnings, TSM stock trades at a reasonable valuation. The tech stock should end 2028 with adjusted earnings of US$14 per share. If the stock is priced at 20 times forward earnings, TSM should trade around US$280, indicating an upside potential of almost 90%.