What It Means for Nvidia and AI Stocks

This is why its sales have grown by close to 1,000% in the last five years, hitting $113 billion in the last 12 months. With this jump in capex planning and the release of Nvidia’s state-of-the-art Blackwell chip, the company’s revenue should soar yet again in 2025.

Investors are optimistic about Nvidia. It is now one of the largest companies in the world with a market cap of $3 trillion. It trades at a trailing price-to-earnings ratio (P/E) of 48, which is well above the S&P 500 index average of 30. This doesn’t mean the stock will do poorly, but investors have placed high expectations on its future growth.

Nvidia is clearly a good business, and its customers are planning to spend a boatload on its products in 2025. However, I think there is a more durable AI semiconductor stock that is cheaper to buy at the moment.

It’s Taiwan Semiconductor Manufacturing (NYSE: TSM), or TSMC for short. The leader in computer chip manufacturing is the company that actually builds Nvidia’s products (Nvidia designs them). It also works with other companies such as Apple, another top customer.

There are two reasons to like TSMC over Nvidia as a long-term bet on AI stocks. First, it will benefit even if the competition for Nvidia increases. Its customers such as Alphabet and Amazon are investing heavily to vertically integrate and build their own AI computer chips.

This could hurt Nvidia’s business over the long run but will have no effect on TSMC since it is the only one that can build these chips, regardless of whether it’s for Nvidia or Amazon. This makes TSMC a safer bet over the long term.

Second, TSMC trades at a cheaper valuation than Nvidia with a P/E below 30. Again, this means that TSMC has lower expectations from investors for future growth.

Add it altogether and I think TSMC is a great buy-and-hold for investors looking to play the AI theme. Spending on data centers is set to boom in 2025, and a lot of that money will eventually make its way back to TSMC.

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $735,852!*

Now, it’s worth noting Stock Advisor’s total average return is 903% — a market-crushing outperformance compared to 176% for the S&P 500. Don’t miss out on the latest top 10 list.

Learn more »

*Stock Advisor returns as of February 3, 2025

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Microsoft CEO Satya Nadella’s $80 Billion Promise: What It Means for Nvidia and AI Stocks was originally published by The Motley Fool