You may have heard that semiconductor stocks such as Nvidia have increased enormously in value in recent years, and do you know why? The answer is actually very simple. Nvidia develops chipsets known as graphics processing units (GPUs), which are a crucial part of the infrastructure used in generative AI. Nvidia is widely considered one of the most influential players in AI, with an estimated 88% of the GPU market.
However, the GPU landscape offers many more possibilities than Nvidia. Below I will explain why I see a specialist in chip production Taiwanese semiconductor manufacturing (NYSE: TSM) as the best chip opportunity for the coming decade.
Why the next decade could be huge for Taiwan Semiconductor
According to Precedence Research, the global GPU market is currently valued at $75.8 billion. Precedence predicts that the GPU market will grow at a compound annual growth rate (CAGR) of 13.8% between 2024 and 2034, eventually reaching $1.4 trillion by early next decade.
Wait a minute! Why is a growing GPU market more of a tailwind for Taiwan Semiconductor than for Nvidia? Well, the answer is related to increasing competition. Although Nvidia owns the GPU empire for now, the company faces direct competition from Advanced micro devices as well as peripheral competition from its own customers – including Microsoft, Tesla, Alphabet, AmazonAnd Metaplatforms.
It’s entirely possible (and in my opinion, very likely) that the chips introduced by big tech peers won’t be as robust as Nvidia’s. The idea here, however, is that as companies have more options, price will play a bigger role in future AI budgeting processes. As a result, Nvidia may have no choice but to cut prices, which should hinder the company’s revenue and profit growth.
On the other hand, more variety in the GPU market could better serve Taiwan Semiconductor, which already works with many different chip designers. In a sense, Taiwan Semiconductor represents an agnostic view of the chip market. It shouldn’t really matter which company’s chips are in higher demand than comparable chips. As long as GPUs remain an integral part of AI development, Taiwan Semiconductor should continue to experience strong tailwinds in its manufacturing and manufacturing operations.
Should You Invest in Taiwan Semiconductor Stock Now?
Currently, Taiwan Semiconductor is trading at a price-to-earnings (P/E) ratio of 32.2. As you can see in the chart below, the company’s valuation has risen dramatically over the past twelve months and its price-to-earnings ratio is hovering around a 52-week high.
I definitely think Taiwan Semiconductor’s valuation has gotten a little frothy. While the shares aren’t dirt cheap, I still think there’s room for the argument that the long-term upside potential hasn’t been priced in yet.
The company’s price-to-earnings ratio of 29 lags significantly behind that of Nvidia and AMD (both above 40). To me, Taiwan Semiconductor’s valuation trends suggest that investors are quite optimistic about the company’s short-term prospects, but have yet to really consider the long-term picture.
As I mentioned above, the GPU market is expected to grow significantly over the next decade. And during this period, more products will be introduced to the market – a potential speed bump for Nvidia but a catalyst for Taiwan Semiconductor.
I see Taiwan Semiconductor as one of the most attractive opportunities in the broader chip space. Its specialized manufacturing operations, combined with a diverse customer base that could well expand, should contribute to sustainable growth in the coming years as the GPU market continues to evolve.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
A Once-in-a-Decade Investment Opportunity: Meet My Favorite Artificial Intelligence (AI) Semiconductor Stocks (Hint: Not Nvidia) was originally published by The Motley Fool
