1 Cheap Artificial Intelligence (AI) Stock to Buy Before April 18

Buying an artificial intelligence (AI) stock that is trading at an attractive valuation and growing at an impressive rate may seem difficult right now, considering that companies in a position to capitalize on this technology have seen rapid share price gains in the past. there is. About a year.

nvidiaFor example, it’s trading at 71 times trailing earnings, but the good thing is that the chipmaker has been able to justify its premium valuation with outstanding growth. On the other hand, AI software play Palantir Technologies Although it’s trading at a lofty valuation, growth isn’t enough to justify the generous multiples.

But for investors seeking a mix of growth and value in the AI ​​niche, there’s one company in luck. Taiwan semiconductor manufacturing industry (TSM -3.18%), popularly known as TSMC – not only is it currently cheap, but it looks set to deliver impressive growth. Let’s take a look at why investors should consider buying this stock before it reports first-quarter 2024 earnings on April 18.

TSMC is expected to see stronger-than-expected growth

When TSMC announced its fourth quarter 2023 results in January of this year, the company guided for first quarter 2024 revenue of $18.4 billion, the midpoint of the range.

However, looking at monthly revenue statistics for the first three months of 2024, we can see that we are trending well above that number. More importantly, sales growth accelerated each month.

TSMC’s monthly sales in January increased 8% compared to the same period last year. That was followed by an 11% increase in February, and an even better performance in March, up 34% year over year. So first quarter revenue was $18.86 billion, up nearly 14% year-over-year and ahead of the consensus estimate of $18.26 billion.

Full quarterly results are scheduled to be released on April 18, and it wouldn’t be surprising to see the stock surge higher once they are reported. That’s because demand for AI chips in a variety of applications is now moving the needle in a bigger direction for TSMC, as evidenced by its March quarterly sales.

Long-term growth of the AI ​​chip market will be a tailwind for TSMC

apologize It is TSMC’s largest customer, accounting for 25% of total sales. But the smartphone maker is struggling for growth, as recent results show.

In addition, Apple will begin increasing iPhone production, for which TSMC supplies chips, from the second half of the year. So the sharp increase in sales for chipmakers last month can be attributed to a surge in demand from the likes of Nvidia. AMD, intel, Qualcommand BroadcomThis is one of our top seven customers.

All of these chip manufacturers are focused on delivering new AI chips while also increasing production of existing products to meet strong demand from customers. This is why TSMC is rapidly increasing production capacity. It is expected to double its advanced chip packaging capacity from 120,000 wafers last year to 240,000 wafers this year, driven primarily by demand from Nvidia, which accounts for about 60% of its advanced chip packaging capacity.

Meanwhile, Intel recently unveiled Gaudi 3, a new AI accelerator based on TSMC’s 5-nanometer manufacturing process. Intel has already begun shipping samples of the chip and expects full production to begin in the third quarter of 2024. Meanwhile, interest in Broadcom’s custom AI processors is growing, and the company has also recently secured new clients.

Likewise, Qualcomm is on track to take advantage of the growing adoption of AI within smartphones and personal computers. Overall, TSMC is best positioned to capitalize on the long-term growth of the AI ​​chip market, especially considering that it is the world’s leading semiconductor foundry with an estimated market share of 61%. This figure is far ahead of second place Samsung Electronics’ market share of 11%.

Considering that the global AI chip market is expected to grow at a CAGR of 38% through 2032, it is likely that TSMC will continue to maintain its impressive momentum. The following chart suggests that analysts are expecting sales to increase significantly in 2024 and compared to last year’s peak of $69.3 billion.

TSM revenue estimates for the current fiscal year, data from YCharts.

That’s why buying this semiconductor stock right now seems like a no-brainer considering its attractive valuation. TSMC is trading at 29 times historical earnings. Nasdaq 100has a return multiple of 30 (using the index as a proxy for technology stocks). Its future earnings multiple of 24 is also lower than that of the Nasdaq 100 Index.

Plus, TSMC stock is much cheaper than Nvidia. That means it’s a cheap way to drive the AI ​​chip boom.

The above evidence also shows that TSMC appears to be built for long-term growth as it plays a significant role in the AI ​​chip market. That’s why investors would do well to buy this AI stock before it jumps higher (and becomes expensive) after 40%. It has recorded profits so far in 2024.