It may seem intimidating to buy stocks like the S&P500 And Nasdaq Composite hovering near their all-time highs. After all, Warren Buffett told investors to “be afraid when others are greedy” – and many high-growth stocks trade at greedy valuations.
So if you plan to invest at least $50,000 in this frothy market, you should carefully look for the market leaders that are still growing, have wide moats, and appear undervalued relative to their growth potential. I believe these three resilient stocks tick the right boxes: Broadcom (NASDAQ:AVGO), Advanced micro devices (NASDAQ: AMD)And Taiwanese semiconductor manufacturing (NYSE: TSM).
Broadcom, which was known as Avago Technologies before acquiring the original Broadcom eight years ago, is one of the world’s largest chip and infrastructure software companies. The chip manufacturing business supplies a wide range of chips for the mobile, wireless, networking, data storage and industrial markets. The infrastructure software company, which it has expanded through several major acquisitions, offers cloud and security services.
The company’s chip manufacturing and software businesses are both growing, and the company has benefited from the rapid expansion of the artificial intelligence (AI) market over the past two years. In fiscal 2024 (which ended in October), sales of AI-oriented networking and optical chips more than tripled to $12.2 billion, accounting for 24% of total sales. That growth offset declining sales of non-AI chips, which face more cyclical and macroeconomic challenges.
For fiscal 2025, analysts expect revenue and adjusted earnings per share (EPS) to grow by 18% and 27%, respectively, as the company continues to grow its AI-oriented business. The stock is still fairly valued at 29 times forward earnings, and it could rise much higher as the other non-AI chip and software companies thrive in a warmer macro environment.
Advanced Micro Devices, or AMD, is the world’s second-largest producer of x86 CPUs and discrete GPUs. It’s lagging behind Intel And Nvidia in these two markets respectively, but it continues to grow by selling similar chips at lower prices.
Unlike Intel, which produces most of its own chips, AMD is a fabulous chipmaker that outsources its production to Taiwan Semiconductor and other foundries. That strategy allowed the company to work around the industry’s supply chain limitations while staying ahead of Intel in the “process race” to produce smaller and denser chips.
AMD’s growth slowed last year as the PC market cooled. However, year-over-year revenue growth accelerated again over the past two quarters as the PC market stabilized and sales of AI-oriented data center chips (including the EPYC CPUs for servers and Instinct GPUs for AI applications) soared. Data center revenue accounted for more than half of revenue in the last quarter, and that percentage is likely to continue to rise as the generative AI market grows.
Analysts expect AMD’s revenue and adjusted earnings per share to grow 13% and 25%, respectively, this year as the company recovers from the PC market slowdown. For 2025, they expect revenue and adjusted earnings per share to rise 27% and 54%, respectively, as headwinds disappear and AI tailwinds emerge. Those are impressive growth numbers for a stock that trades at just 26 times forward earnings.
Taiwan Semiconductor, also known as TSMC, is the world’s largest and most advanced contract chipmaker. It produces chips for fabulous chip giants such as Nvidia, AMD, AppleAnd Qualcomm. TSMC’s revenue fell 9% in 2023 as PC shipments fell and the 5G smartphone upgrade cycle ended.
By 2024, the company expects its revenue to grow by almost 30% as the PC and smartphone markets stabilize and the AI market grows. The AI market’s explosive growth should generate strong long-term tailwinds for TSMC’s high-performance computing (HPC) segment, which produces the high-performance AI data center GPUs for Nvidia and AMD. Analysts expect revenue and earnings per share to grow 33% and 36%, respectively, for the year.
In 2025, TSMC plans to ramp up production of its smallest and densest 2nm chips. These chips should give the company an edge over its closest competitors, Intel and Samsung, and maintain its position at the heart of the global semiconductor market. Analysts expect revenue and earnings per share to grow by 25% and 26%, respectively, this year. TSMC’s growth is cyclical, but it trades at just 21 times forward earnings and is one of the easiest ways to profit from the growth of the chip manufacturing and AI markets.
Consider the following before buying shares in Broadcom:
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Leo Sun has positions at Apple. The Motley Fool holds positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
The Best Stocks to Invest $50,000 In Right Now was originally published by The Motley Fool
