Here are my top artificial intelligence (AI) stocks to buy right now (hint: it's not Nvidia)

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Nvidia is having great success with its adoption of AI chips, but the semiconductor company appears to be better positioned to make the most of AI opportunities.

Nvidia (NVDA 0.75%) Since the beginning of 2023, the stock market has had an unforgettable run. The graphics card specialist's shares have soared 727% in less than 18 months thanks to frenzied demand for chips needed to train and deploy artificial intelligence (AI) models. .

Both top and bottom lines have been growing at an unprecedented pace since AI began to gain mainstream adoption. Revenue jumped 126% to $60.9 billion in fiscal 2024 (which ended last January), while adjusted earnings rose 288% year over year to $12.96 per share. More importantly, Nvidia is expected to continue growing at breakneck speed.

Analysts are forecasting revenue to nearly double to just under $120 billion this fiscal year. Nvidia's earnings, on the other hand, are expected to more than double to $27.03 per share. Because of its dominant position in the AI ​​chip market, the company can really deliver such impressive growth.

But if you've missed Nvidia's spectacular rally and want to take advantage of the booming market for AI chips — expected to grow 40% annually through 2032 and exceed $1.11 trillion in annual revenue — Nvidia Consider buying a foundry partner. Taiwan Semiconductor Manufacturing Co (TSM 2.29%)Known as TSMC.

Let's look at the reasons why TSMC might be one of the best AI stocks to buy right now.

TSMC is trading at an attractive valuation.

Shares of TSMC currently trade at 31 times trailing earnings, a steep discount to Nvidia's 71 times trailing earnings. Of course, due to the latter's phenomenal growth, its forward earnings multiple has come down to 45, but TSMC outperforms the graphics card giant on that front as well, with shares trading at 26 times estimated earnings.

Buying the Taiwan-based foundry giant at that price doesn't seem like much considering it makes AI chips that Nvidia designs. More specifically, Nvidia is said to be TSMC's second largest consumer of chips, accounting for 11% of its revenue in 2023.

Even better, TSMC looks like a smart AI investment because it produces chips for many of the top chipmakers looking to carve out a niche in the AI ​​market. both of them Intel And Advanced Micro Devices are using TSMC to develop AI chips, putting the company in a solid position to take advantage of the secular growth of the AI ​​semiconductor market.

For example, AMD's new AI chip, the MI325X, will be manufactured using TSMC's N5 and N6 process nodes. Looking ahead, AMD's MI350X chip, expected next year, will be based on TSMC's 3-nanometer (nm) process node.

Intel has tapped TSMC to develop its Lunar Lake chips aimed at AI-powered PCs. Nvidia is already using TSMC's process nodes to develop its latest AI chips and is expected to use TSMC's 3nm node for its Rubin chips, which are slated for release in 2026. .

The Foundry dev can benefit from AI development in a number of ways.

We've already seen TSMC play a mission-critical role in helping the likes of Intel, AMD, and Nvidia develop the hardware necessary for AI training and inference. But at the same time, it is also well-positioned to take advantage of the growing adoption of AI on PCs and smartphones.

appleFor example, it is reportedly trying to secure TSMC's 2nm chip production capacity for deploying AI features in devices like the iPhone and iPad. Furthermore, Qualcomm TSMC has reportedly tapped TSMC to help build chips to power AI-enabled PCs, using its 4nm manufacturing process. Qualcomm also uses TSMC to make its AI-focused Snapdragon 8 Gen 3 smartphone chips.

Gartner Global shipments of AI-enabled PCs and smartphones are predicted to grow from 29 million units last year to 295 million units in 2024. Only 22 percent of PCs and smartphones shipped this year are expected to be AI-enabled.

So, while Nvidia's AI opportunity is primarily in the data center market right now, TSMC stands to benefit from the technology's proliferation on multiple fronts.

TSMC is poised to deliver strong growth.

TSMC's 2023 revenue fell 9% to $69.3 billion thanks to broader weakness in the semiconductor market. However, industry conditions are changing for the better — its Q1 2024 revenue grew 13% year-over-year to $18.9 billion. What's more, TSMC's revenue for April rose nearly 60% year-over-year, a nice acceleration from the 34% growth in March.

Analysts are forecasting TSMC's revenue to grow about 23 percent to just under $85 billion in 2024, which would be a big improvement from last year's performance. Even better, TSMC is expected to grow revenue by more than 20% again in 2025, and there's a good chance it can maintain these healthy levels of growth thanks to the various AI-related catalysts discussed above. Will be able to maintain.

Investors who couldn't buy shares of Nvidia before they started buying will now buy TSMC. It is playing a key role in the spread of this technology, which looks poised for impressive revenue and earnings growth.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner and Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a Disclosure Policy.

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