Taiwan Semi: AI's Unsung Hero & A Smarter Buy Than Nvidia, Explained

Published Date: 11/08/2024

Taiwan Semiconductor Manufacturing, Nvidia, Artificial Intelligence, AI Hardware, Chip Manufacturing

Investors may want to consider the company that's actually manufacturing most of the underlying tech. There's no denying Nvidia has been the centerpiece of the artificial intelligence (AI) revolution thus far. However, time is driving changes on the AI front, and Nvidia is no longer the market's top opportunity.

Taiwan Semiconductor is behind the scenes, manufacturing chips for the biggest names in the industry, including Nvidia and AMD. In fact, it's estimated that Taiwan Semiconductor manufactures on the order of two-thirds of the world's semiconductors and associated circuitry.

As AI computing work makes its way toward end users, and end users' mobile phones in particular, Taiwan Semiconductor is well-positioned to capitalize on this trend. Apple's newest processor, the A17 found in the iPhone 15 Pro and Pro Max, is capable of handling generative AI tasks on the device itself, and Qualcomm's newest high-performance Snapdragon 8 (Gen 3) mobile processors can handle the same kind of load on mobile devices.

Despite the prospect of shrinking market share, there's still more upside for Taiwan Semiconductor than not. Market research outfit Skyquest suggests the artificial intelligence hardware market is set to grow at an annualized pace of 15.5% through 2031, while the mobile AI market is likely to grow at a compound yearly rate of nearly 27% for the same time frame.

So why is this stock down more than 20% just since its July peak? That's got more to do with the market environment than anything else. Investors finally began realizing last month that a few too many stocks had reached too-frothy valuations. However, even in a tough economic environment, most chip brands are still going to need new silicon, and most of them are still in no position to make much (if any) of it themselves.

  Taiwan Semiconductor Manufacturing Company Limited, also known as TSMC, is a Taiwanese multinational semiconductor contract manufacturing and design company. TSMC is the world's largest independent semiconductor foundry, and is widely considered to be one of the most important companies in the technology industry.

  The company was founded in 1987 in Hsinchu Science Park, Taiwan, and has since grown to become one of the largest and most successful companies in the world. TSMC is listed on the Taiwan Stock Exchange and the New York Stock Exchange.

  Nvidia Corporation is an American technology company that specializes in designing and manufacturing graphics processing units (GPUs) and high-performance computing hardware. Nvidia is widely considered to be one of the most important companies in the technology industry, and is known for its innovative products and technologies.

  Nvidia was founded in 1993 in Santa Clara, California, and has since grown to become one of the largest and most successful companies in the world. Nvidia is listed on the NASDAQ stock exchange.

  The Motley Fool is a financial services company that provides investment advice and research to individual investors. The company was founded in 1993 by David and Tom Gardner, and has since grown to become one of the most popular and respected financial media companies in the world.

  The Motley Fool is known for its contrarian investment approach, which emphasizes the importance of long-term investing and avoiding emotional decision-making. The company's website and publications provide news, analysis, and recommendations on a wide range of stocks and investment topics.

FAQS:

Q: What is Taiwan Semiconductor's role in the artificial intelligence industry?

A: Taiwan Semiconductor is a contract manufacturer that produces chips for many of the biggest names in the AI industry, including Nvidia and AMD.

Q: Why is Taiwan Semiconductor a better buy than Nvidia?

A: Taiwan Semiconductor is better positioned to capitalize on the next chapter of AI's growth story, and has a more diversified customer base and product portfolio.

Q: What is the outlook for the artificial intelligence hardware market?

A: The artificial intelligence hardware market is expected to grow at an annualized pace of 15.5% through 2031, according to market research outfit Skyquest.

Q: Why is Taiwan Semiconductor's stock down over 20% since its July peak?

A: The decline is largely due to the market environment, as investors have become increasingly cautious about valuations and economic growth.

Q: What is Taiwan Semiconductor's business model?

A: Taiwan Semiconductor is a contract manufacturer that produces chips for other companies, and does not design or sell its own chips.

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