Overlook Nvidia: Two Tech Investments Worth Considering Instead
Nvidia (NVDA - 3.10%) has been on a spectacular journey over the past year and a half, seeing its stock skyrocket over 670% since the beginning of 2023. Its latest quarter's revenue surged an impressive 262% YoY. This stunning success can be largely attributed to the hype surrounding artificial intelligence (AI). Nvidia's top-tier graphics processing units (GPUs) have become the go-to option for a multitude of data centers. The interest in AI has not only captivated investors but also tech users seeking to profit from the AI boom.
However, Nvidia's steep stock price rise has left it vulnerable to a correction if it fails to meet even minor expectations. This is why it's worth considering alternative options in the tech sector that offer better value.
1. Taiwan Semiconductor Manufacturing Company (TSMC -1.53%)
TSMC is the world's largest semiconductor (chip) foundry, generating chips tailored to customers' unique requirements instead of pursuing general sales. This foundry model helps TSMC establish strong relationships with its clients and becomes a critical partner in the tech world.
TSMC's chips play a pivotal role in numerous everyday gadgets, such as smartphones, car infotainment systems, gaming consoles, GPUs, and more. Its deep integration with Nvidia makes TSMC indispensable to the tech giant. Without TSMC's manufacturing capacity, Nvidia would struggle to meet the surging demand for GPUs.
In the second quarter, TSMC recorded a stunning $20.8 billion in revenue, a 33% rise compared to the same period last year. Specifically, its high-power computing (HPC) segment, which focuses on AI-related chips, saw a 52% increase in revenue, now accounting for half of the company's revenue. TSMC anticipates AI-related chips' growth to surge at a 50% compound annual growth rate (CAGR) over the next five years, defining approximately 20% of its total earnings.
Despite an impressive 60% increase in its stock price this year, TSMC's slump in the past month offers investors an attractive buying opportunity. Its P/E ratio of 29 indicates it is not an inexpensive stock, but its profound impact on the tech sector may justify the high valuation for long-term investors.
2. Microsoft (MSFT 1.05%)
Microsoft's stock experienced remarkable growth during the past year, although it has struggled lately. In the past month, the tech giant has witnessed an 9% downward trend, causing it to slip to the second-most valued company by market cap.
Microsoft took the initiative in 2019 by partnering with ChatGPT's creators, OpenAI, with a $1 billion investment. Since then, the parties have expanded their collaboration, enabling OpenAI to leverage Microsoft's cloud service, Azure, for infrastructure and supercomputing power, and integrating OpenAI's AI technologies into Microsoft's vast product portfolio.
Microsoft's extensive involvement in various enterprise sectors, such as large-scale computing, cloud services, and software, safeguards its longevity in the tech market. Despite its $36.8 P/E ratio, Microsoft's steady growth and broad market dominance make it an appealing prospect for investors who plan on investing in the stock for the long term.
In summary, while Nvidia has enjoyed significant success in recent times, it's advisable to consider alternative tech options for balancing risk and opportunity. TSMC and Microsoft show promising growth potential and stability, making them worthwhile considerations for investors.
- Investors looking for alternatives to Nvidia might consider Taiwan Semiconductor Manufacturing Company (TSMC), whose strong relationships with clients and critical role in the tech world have led to impressive revenue growth, particularly in its high-power computing segment focused on AI-related chips. With a projected 50% compound annual growth rate for AI-related chips over the next five years, TSMC represents a potentially lucrative long-term investment despite its slightly high P/E ratio.
- Microsoft, which has partnered with ChatGPT's creators, OpenAI, for infrastructure and supercomputing power, and integrates OpenAI's AI technologies into its product portfolio, is another tech company worth considering for diversified investing. Despite a recent downtrend, Microsoft's extensive involvement in various enterprise sectors, such as cloud services and software, provides a stable foundation for long-term growth, making it an attractive investment opportunity despite its moderately high P/E ratio.
