Invest in Two Straightforward Chip Companies that Flourish with Artificial Intelligence (AI) Investments
When you think about artificial intelligence (AI) investing, you might picture the software or the tech that trains the AI models. But let's not forget about the crucial chips that power these devices. The chip market is a massive investment opportunity, thanks to the tech giants in the AI arms race. Two of my top picks in this sector are Taiwan Semiconductor (TSM -0.93%) and ASML (ASML -0.79%).
1. Taiwan Semiconductor
Taiwan Semiconductor Manufacturing Company, or TSMC, is a contract chip manufacturer. That means it fabricates the chips, while companies like Apple and Nvidia design them. Being in this position allows TSMC to focus on top-notch manufacturing, without worrying about marketing its products. Plus, it means TSMC can work with both sides of the competition—like manufacturing chips for AMD and custom AI accelerators that challenge Nvidia for market share.
TSMC's management is bullish about the prospects of AI-related chips, projecting a 45% compound annual growth rate (CAGR) over the next five years. This rapid growth, plus TSMC's projected 20% overall CAGR over five years, makes this a promising investment.
2. ASML
ASML might not manufacture chips, but it does produce the tools required to make them. Its extreme ultraviolet (EUV) lithography machines allow clients to create microscopic electrical traces on a chip. ASML is the only company with this technology, and it's not likely to be overtaken soon—given decades of research and billions invested to get there.
While ASML can't sell its high-powered machines to China due to strict regulations, it's still allowed to sell certain models. As the industry grows, even limited sales will help ASML's revenue rise.
Why are they good investments now?
Both TSMC and ASML are currently undervalued. TSMC is trading at 22 times forward earnings, which places it as a market-average stock given its rapid growth expectations. ASML's monopoly status is already priced into its stock, but with a forward P/E ratio of 30 times, it's cheap compared to its normal valuation.
With solid growth expected in the chip market, now's a great time to invest in both companies and hold onto them for at least five years. Given their strong fundamentals and expected market dominance, these stocks will likely outperform the market and offer impressive returns.
- Regardless of the current geopolitical tensions, Taiwan Semiconductor Manufacturing Company (TSMC) remains a promising investment opportunity in the finance sector, especially considering its projected 45% compound annual growth rate (CAGR) in AI-related chips over the next five years.
- In 2025, Taiwan's hardware industry, particularly Taiwan Semiconductor, is expected to continue its growth trajectory, making it an attractive option for those looking to invest in tech stocks with strong fundamentals.
- The global investing community should take note of the significant potential in the chip market, given the intense AI arms race among tech giants, and consider allocating a portion of their investment portfolios to companies like Taiwan Semiconductor and ASML.
- Despite the high valuation of ASML due to its monopoly in extreme ultraviolet (EUV) lithography technology, the company's future-proof business model and growing revenue from limited sales to countries like China make it an appealing investment option for those looking for steady growth and potential long-term returns.
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