Nvidia's results lifted these semiconductor stocks.
Pioneer of Artificial Intelligence (AI). Nvidia delivered a stellar quarterly report that crushed Wall Street expectations, sending the chipmaker's shares soaring as it became clear that AI will be a major growth driver for the company. However, Nvidia wasn't the only semiconductor stock to benefit from its impressive showing.
Shares of Advanced Micro Devices (AMD 0.09%) And Taiwan Semiconductor Manufacturing (TSM -1.25%)TSMC, better known as TSMC, also enjoyed a bounce after Nvidia's report. Let's take a look at why that was and check out why these two names might be worth buying right away.
1. Taiwan Semiconductor Manufacturing
TSMC stock rose more than 3% after Nvidia released its earnings. This was not surprising since Nvidia relies on TSMC's foundries to produce its AI chips. Nvidia is a non-core semiconductor company, meaning it only designs chips. Manufacturing is done by foundries such as TSMC.
Nvidia is gradually becoming one of TSMC's top customers. Although TSMC doesn't disclose details of its business with individual customers, Nvidia reportedly generated 11% of its top line last year, according to financial analyst Dan Nested (via Tom's Hardware ). There's a good chance that Nvidia is poised to make a more significant contribution to TSMC's top line for a few simple reasons.
Nvidia management pointed out on the company's latest earnings conference call that it has already brought its next-generation Blackwell chips into full production. The company will continue to ramp up production of its new chips in the fiscal third quarter. According to third-party estimates, Nvidia may ship 420,000 units of its GB200 Blackwell Superchip, which includes two of the company's latest-generation B200 AI graphics processing units (GPUs).
Even better, Nvidia is expected to ship between 1.5 million and 2 million GB200 Superchips next year, paving the way for impressive growth at TSMC. The initial production ramp-up of Nvidia's new chips is already leading to solid growth for TSMC, as its revenue for April rose nearly 60% year-over-year, up from its 34% growth in March. There is speed.
More importantly, TSMC is aggressively ramping up its production capacity to meet increasing demand for Nvidia's chips. The company recently announced that it is ready to expand its advanced chip packaging — formally known as chip-on-wafer-on-substrate (CoWoS) — capacity. At least at an annual rate of 60 percent from 2026. This rapid improvement will allow TSMC to produce more AI chips for Nvidia, which explains why analysts are raising their earnings expectations.
TSM revenue estimates for the current fiscal year; Data by YCharts.
With TSMC currently trading at 29 times trailing earnings, compared to the US technology sector average of 42, investors are getting a good deal on this AI stock, considering grabbing it with both hands before it flies higher. Should.
2. Advanced micro devices
Nvidia is the dominant force in AI chips with an estimated market share of over 90%. As a result, the company has left little money for peers like AMD, who are still struggling to gain a foothold in this lucrative market.
For example, Nvidia's data center business generated $22.6 billion in revenue, a 427% year-over-year increase, thanks to strong demand for its AI GPUs.
AMD, on the other hand, is forecasting just $4 billion in revenue from AI GPUs for 2024. That's less than Nvidia's revenue in just one quarter, but don't be surprised to see AMD finish the year with strong AI. Earnings are higher than what is currently expected. That's because just like Nvidia, even AMD is a key customer for TSMC — reportedly accounting for 7% of TSMC's top line in 2023.
So the Taiwanese foundry's capacity expansion is likely to boost AMD's AI chip sales as well, especially considering that demand for its AI GPUs is strengthening, as CEO Lisa Su said. pointed out on the company's April earnings conference call.
Based in Taiwan Economic daily news, Nvidia and AMD have fully booked TSMC's advanced packaging capacity for 2024 and 2025. Add in additional catalysts like growing demand for AI-powered personal computers and server CPUs, and it's not surprising to see why AMD's growth is expected to remain healthy over the next few years.
AMD revenue estimates for the current fiscal year; Data by YCharts.
Even better, analysts are expecting AMD's revenue to grow at an annual rate of 33% over the next five years. And it could deliver strong growth if it manages to capture a larger share of the AI chip market.
Analyst Harsh Kumar Piper Sandler points out that AMD has historically played second fiddle to Nvidia in markets such as PC graphics cards, with a 20% to 30% share.
A similar share in AI chips could be a big deal for AMD in the long run, considering the space is expected to generate $384 billion in 2032, growing at an annual rate of 38 percent. Yes, that's why it might be a good idea to buy one. This is before tech stocks go on an AI-driven rally.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a Disclosure Policy.