Palantir Technologies (PLTR 2.09%) The stock has seen a dizzying rise in the market in 2024, posting remarkable gains of 370% as of this writing. The rapid adoption of artificial intelligence (AI) software solutions by organizations and governments has played a central role in this tremendous evolution.
So if someone purchased just $100 worth of Palantir stock at the end of 2023, their investment would now be worth $470. However, if you are one of those who missed out on buying Palantir before its 2024 surge begins and are skeptical about investing in the stock now due to its high valuation, there is an alternative interesting to consider in the form of Semiconductor manufacturing in Taiwan (TSM -0.50%).
Popularly known as TSMC, shares of this Taiwan-based foundry giant have nearly doubled in 2024. The good news is that this semiconductor giant can still be purchased at a reasonable valuation, and investors may want to -be doing it right away, as the crucial role it plays in the chip industry could also cause it to skyrocket in 2025.
Let’s take a look at why TSMC is one of the best AI stocks you can buy and hold right now.
Multiple AI-related catalysts should help TSMC sustain its stock rally
The proliferation of AI is driving high demand for chips deployed in data centers for training and inference, which has proven to be a boon for TSMC. Fabless chipmakers, such as Nvidia, Advanced microdevices, Broadcom (AVGO 3.15%)And Marvell Technologywhich design graphics processing units (GPUs) and application-specific integrated circuits (ASICs) for use in AI data centers, use TSMC manufacturing plants to make their chips.
This is why the Taiwan-based company has seen a big increase in revenue so far in 2024. In the first 11 months of the year, TSMC’s revenue grew 32% year-over-year previous. This is a marked improvement from TSMC’s 9% revenue decline to $69.3 billion in 2023. TSMC management expects to see revenue growth of 30%. for 2024 in US dollar terms, which would bring its revenue to $90 billion for the year.
The positive thing is that consensus estimates also project healthy revenue growth for the company for the next two years.
TSM revenue estimates for the next financial year data by Y Charts.
However, recent comments from major AI chip makers indicate that TSMC may very well exceed market expectations in the future. Broadcom, for example, generated $12.2 billion in revenue from AI chip sales in fiscal 2024, up 220% from the previous year. The company estimates that its addressable market in custom AI processors and networking chips could be between $60 billion and $90 billion by fiscal 2027.
That’s more than some analysts expected. Earlier this year, Morgan Stanley valued Broadcom’s revenue opportunity in custom AI chips at $20 billion to $30 billion, stating that this market is capable of growing at a 20% compound annual growth rate. Based on this growth rate, the custom AI chip market would have reached $51 billion in three years, at the high end of the forecast range.
So the latest comments from Broadcom management suggest the opportunity could be much bigger. More importantly, Broadcom is working with TSMC and using the latter’s advanced chip packaging capability to push the boundaries of the custom AI chip market to deliver more powerful processors capable of delivering better performance.
On the other hand, TSMC will likely continue to benefit from strong demand for GPUs deployed in data centers. AMD management highlighted during the October 2024 earnings conference call that the size of the AI accelerator market could grow at an annual rate of 60% and reach $500 billion in 2028. Nvidia, in On the other hand, sees a $1 trillion revenue opportunity in the data center market driven by the shift from general-purpose computing to GPU-powered accelerated computing.
Not surprisingly, TSMC is working to increase its capacity so it can produce more chips to meet these customers’ demand for AI chips. According to Taiwanese financial newspaper Commercial Times (via TrendForce), TSMC is expected to double its advanced chip packaging capacity to 70,000 wafers per month in 2025, followed by a further increase to 90,000 wafers per month in 2026.
The capacity improvement is expected to enable TSMC to fulfill more orders from customers that produce AI chips and ultimately maintain robust top-line and bottom-line growth.
Valuation makes buying TSMC a no-brainer for now
Palantir’s stock surge has made it quite expensive. Specifically, Palantir has a price-to-earnings ratio of 411, as well as a forward earnings multiple of 172. TSMC is much cheaper on both of these fronts. Its current earnings multiple stands at 33, while the forward earnings multiple stands at 23.
The interesting thing to note here is that TSMC’s earnings are expected to grow at a faster rate, 27% to $8.93 per share in 2025, compared to Palantir’s forecast net growth, 25% to 0.47 $ per share. So, TSMC is the significantly cheaper AI stock to buy right now compared to Palantir, and buying it seems like a no-brainer given that the former is expected to see faster earnings growth.
Additionally, TSMC’s dominant position in the foundry market, where it enjoys a solid 64% share, well ahead of second-place foundry Samsung’s 12%, means it is well placed to make the most of of the secular growth of AI chips. All of this makes TSMC one of the top stocks to buy, and investors who missed Palantir’s phenomenal rise can consider buying the Taiwanese foundry giant before it soars higher after impressive gains in 2024.
Harsh Chauhan has no position in any of the securities mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Nvidia, Palantir Technologies and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.
