NVIDIA (NASDAQ:NVDA) is one of the hottest things on the stock market today. Up 2,600% in just a few short years, it has really got people talking. If you check out financial publications any day of the week, you’ll likely see several articles about NVIDIA on the front page. And the hype is mostly deserved: the company has a near-monopoly on AI graphics cards, and AI is the hottest industry on the planet right now.
However, there comes a point where ‘hot’ gets a little too hot – when a company is so popular it gets overhyped. When this happens to a stock, it often has to take a breather for a little while before regaining its footing. While I can’t say for sure that NVIDIA is overhyped just yet, I can say it’s getting there. In this article, I will explore an AI chip stock that’s just as hot as NVIDIA, but without the hype.
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TSMC
Taiwan Semiconductor Manufacturing (NYSE:TSM), otherwise known as ‘TSMC,’ is a Taiwanese semiconductor company that – you guessed it – manufactures semiconductors. “Semiconductors” are metals used in the manufacture of computer chips. The term has become a shorthand way of referring to the computer chips themselves.
TSMC is, among other things, NVIDIA’s contract manufacturer. It shares in that company’s success. At the same time, it works with other companies. For example, TSMC manufactures Apple’s CPUs, which are being used in that company’s on-device AI processing. NVIDIA largely missed out on that part of the AI market.
TSMC has seen its revenue growth accelerate this year due to increased demand from customers like NVIDIA and Apple. In its most recent quarter, TSM’s revenue growth rate was 36%. TSMC’s growth rate has been rising in recent months, too, and the company is planning to increase production next year. So the growth looks likely to continue in 2025. Despite this, TSM stock trades at 26 times earnings, which is low by the standards of AI stocks.
A Canadian company that’s doing big things in semiconductors
You don’t need to look abroad to Taiwan to find companies doing exciting things in semiconductors. To the contrary, we have some right here in Canada!
Take Poet Technologies (TSXV:POET) for example. It’s a semiconductor/computer chip component company whose products are mainly used in photonics and image processing. It won the 2024 Global Tech Award for “Best in Artificial Intelligence.” Its products are used in AI accelerator and chip-to-chip applications.
Poet Technologies is not profitable yet, and its stock remains a very speculative one. Nevertheless, the company is doing work that’s getting noticed far beyond Canada. That alone merits giving POET a mention in this article as one of Canada’s AI chip success stories.
Foolish takeaway
When a stock gets hot, it’s hard not to take notice. NVIDIA is one such stock. At times, it can seem like everybody and their dog is talking about it. It risks getting overhyped. This makes looking for cheaper alternatives to it a worthwhile exercise. Taiwan Semiconductor Manufacturing is one such company. Maybe someday POET Technologies will be one, too.
