Investing Wisely with $50,000: Top Picks for Immediate Allocation
Dabbling in stock purchases might seem daunting with the S&P 500 and Nasdaq Composite nearing their record highs. Remember what Warren Buffet advised investors: "Fear the times when others are greedy." Now, plenty of high-growth stocks are trading at overvalued prices.
If you're looking to invest at least $50,000 in this bubbly market, it's crucial to meticulously hunt down these market leaders that are still expanding, have sizeable competitive advantages (moats), and seem reasonably priced compared to their growth potential. I reckon these three robust stocks tick all the boxes: Broadcom (AVGO 0.25%), Advanced Micro Devices (AMD 3.93%), and Taiwan Semiconductor Manufacturing (TSM 3.49%).
The underappreciated AI contender: Broadcom
Previously known as Avago Technologies, Broadcom became one of the world's leading chipmakers and infrastructure software companies by acquiring the original Broadcom eight years ago. Their chipmaking business offers a diverse array of chips for mobile, wireless, networking, data storage, and industrial markets. Their infrastructure software business, bolstered by strategic acquisitions, provides cloud and security services.
Both their chipmaking and software businesses have been thriving, and they've benefited significantly from the AI market's explosive expansion over the last two years. In fiscal 2024 (ending in October), sales of AI-focused networking and optical chips increased to $12.2 billion, accounting for 24% of their overall revenue. This growth compensated for the decline in sales for non-AI chips, which face more cyclical and macro-economic challenges.
Analysts predict that for fiscal 2025, revenue and adjusted earnings per share (EPS) will expand by 18% and 27% respectively, as they continue to grow their AI-focused business. Priced at 29 times forward earnings, their stock remains reasonably valued and may surge further as their non-AI chip and software businesses flourish in a better macroeconomic climate.
The tenacious secondary chipmaker: AMD
AMD, the world's second-largest manufacturer of x86 CPUs and discrete GPUs, trails behind Intel and Nvidia respectively. However, AMD has persisted with its strategy of selling comparative chips at lower prices.
Unlike Intel, which manufactures the majority of its chips, AMD is a fabless chipmaker, outsourcing production to Taiwan Semiconductor and other foundries. This strategy allowed it to bypass the industry's supply chain weaknesses and outperform Intel in the race to manufacture smaller and denser chips.
Although its growth temporarily slowed last year as the PC market weakened, AMD's revenue growth steadily picked up again over the last two quarters as the PC market stabilized and AI-oriented data center chip sales (such as EPYC CPUs for servers and Instinct GPUs for AI applications) increased dramatically. Data center revenue accounted for more than half of its revenue in its latest quarter, and this figure is expected to continue to rise as the AI market expands further.
Analysts predict that AMD's revenue and adjusted EPS will grow 13% and 25% respectively this year as it recovers from the PC market's decline. For 2025, they anticipate revenue and adjusted EPS to jump 27% and 54% respectively, as these headwinds dissipate and the AI tide rises. This represents remarkable growth for a stock priced at just 26 times forward earnings.
The cornerstone of the semiconductor industry: TSMC
Also known as TSMC, Taiwan Semiconductor is the world's largest and most advanced contract chipmaker, producing chips for leaders in the fabricless chipmaking space such as Nvidia, AMD, Apple, and Qualcomm. TSMC's revenue sank 9% in 2023 due to a decrease in PC shipments and the end of the 5G upgrades for smartphones.
However, TSMC expects revenue to surge by nearly 30% in 2024 as the PC and smartphone markets recover, and the AI market expands. The AI market's exponential growth should create long-term tailwinds for TSMC's high-performance computing (HPC) segment, a significant part of its business. Analysts predict that TSMC's revenue and EPS will grow 33% and 36% respectively for the entire year.
In 2025, TSMC plans to ramp up production of its most advanced 2 nm chips. These chips should keep it ahead of its competitors, Intel and Samsung, and maintain its position as the leader in the global semiconductor industry. Analysts predict that TSMC's revenue and EPS will grow 25% and 26% respectively for the year. TSMC's growth may be cyclical, but it trades at just 21 times forward earnings and is an effortless way to capitalize on the growth of the chipmaking and AI markets.
Given the current market conditions with high-growth stocks trading at overvalued prices, it's essential to allocate your investing money wisely. Considering the potential growth in the AI market, stocks like Broadcom, AMD, and TSMC, with their robust offerings in the chipmaking and software industries, could be worth looking into. These companies, with reasonable valuations compared to their growth potential, could offer promising returns in the long term.
