Unmissable Chance in investment: Select 1 Promising Artificial Intelligence (AI) Shares to Acquire Immediately and Maintain

Unmissable Chance in investment: Select 1 Promising Artificial Intelligence (AI) Shares to Acquire Immediately and Maintain

In today's advanced technological landscape, Artificial Intelligence (AI) is causing a significant shift. AI technologies are making their mark in various sectors, including education, business, investments, and household management. Unsurprisingly, AI has also turned into a significant investment trend on the stock market, drawing the attention of both novice and seasoned investors.

However, it's essential to note that not all AI-driven companies enjoy equal success. A select few are in a position to capitalize on the ongoing AI wave effectively. Taiwan Semiconductor Manufacturing (TSM -1.45%), commonly known as TSMC, appears well-positioned to leverage this opportunity, given its significant role in constructing the hardware infrastructure required to run intricate AI workloads.

Let's delve into why TSMC might be a wise long-term investment.

AI Boost

As the world's largest contract chip manufacturer, TSMC is renowned for manufacturing chips for various fabless chip designers and prominent consumer electronic companies, such as Nvidia, Advanced Micro Devices, and Apple.

It's no surprise that TSMC has become a significant beneficiary of hyperscalers moving from traditional servers to AI servers. Owing to its advanced semiconductor process technologies, TSMC plays a crucial role in manufacturing the sophisticated semiconductor content used in these AI servers, including GPUs, AI accelerators, and networking processors. In fact, estimates suggest that TSMC currently manufactures around 90% of the world's advanced AI processors.

Most existing AI accelerators are manufactured with 5-nanometer or 4-nanometer technology. However, many customers are now opting for TSMC's advanced 3-nanometer process technology. Given that 3-nanometer chips offer better processing power and energy efficiency than previous-generation chips, they are more suitable for power-intensive AI data centers. TSMC predicts a considerable increase in revenue from 3-nanometer chip sales in 2024. Moreover, the company is also preparing for volume production of 2-nanometer chips in 2025. Analysts anticipate that 2-nanometer chips will contribute more to the company's revenue than 3-nanometer or 5-nanometer chips during the first two years after their launch.

According to projections, AI processors will be the primary driver of TSMC's overall revenue growth in the coming years. The company expects annual growth in revenue from AI processors at a compound annual growth rate (CAGR) of 50% over the next five years, contributing over 20% of the company's revenue in 2028.

High-Performance Computing (HPC) Business

The surge in AI-driven demand for hardware has propelled the HPC business to become the largest revenue contributor for TSMC.

In the first quarter of 2024, HPC accounted for 46% of the company's total revenue. The HPC business partially counterbalanced the negative impact of smartphone business seasonality in the first quarter. The HPC business is also expected to provide long-term support to TSMC.

Impressive Financials

Despite challenges in the smartphone business, TSMC boasts impressive financials. The company has projected a revenue growth of between 20-25% in U.S. dollar terms for 2024. As of the end of the first quarter, TSMC had 1.9 trillion New Taiwan dollars in cash and marketable securities and reported 255 billion New Taiwan dollars in free cash flow.

Geographic Expansion

Although TSMC holds around 61.2% of the global semiconductor foundry market, a substantial portion of this business is concentrated in Taiwan.

To reduce geographic concentration risk, TSMC plans to build three facilities ("fabs") in Arizona. TSMC expects volume production of 4-nanometer chips in the first fab in Arizona in the first half of 2025. The company has scheduled volume production of 2-nanometer and 3-nanometer chips at the second fab in Arizona by 2028. Lastly, the company plans to commence production of chips based on 2-nanometer or advanced technologies in the third fab in Arizona by the end of 2030. The U.S. government is also aiding TSMC in this initiative by offering $11.6 billion in grants and loans to the company.

TSMC has also planned specialty technology fabs in Japan and Germany to broaden its geographic reach.

Reasonable Valuation

Currently, TSMC is trading at a price-to-earnings (P/E) ratio of 29, lower than the semiconductor industry median PE multiple of 32. Though not excessively cheap, the valuation appears reasonable considering that analysts predict its revenue to grow year-over-year by 24% in 2024 and by 20.4% in 2025.

These projections are noteworthy, considering the weakness in demand in the smartphone market, which accounted for 38% of the company's revenue in the first quarter. Smartphone seasonality and lengthening in the smartphone replacement cycle are significant challenges for TSMC. However, TSMC remains optimistic about the robust demand for high-performance computing-related chips, which can help mitigate the adverse impact of smartphone market weakness.

Given TSMC's crucial role in building the hardware infrastructure for AI systems, its technological superiority, and its reasonable valuation, it now seems to be an astute investment choice for investors.

Investors who are interested in the finance sector may find TSMC an appealing long-term investment due to its strong position in the AI market. With estimates suggesting TSMC manufactures around 90% of the world's advanced AI processors, its revenue from AI processors is projected to grow at a CAGR of 50% over the next five years, contributing over 20% of the company's revenue in 2028.

Given TSMC's substantial role in manufacturing chips for AI servers, investing money in TSMC could be an excellent way for individuals looking to capitalize on the growing trend of AI and high-performance computing (HPC).

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