NVIDIA (Nasdaq: NVDA) has emerged as the standout stock over the last 18 months, akin to Cisco in the Dot-Com Boom or Apple in the smartphone era, being synonymous with AI in the minds of most investors.
As history has shown, the rise of the Internet gave birth to giants like Google, while the smartphone revolution propelled various sectors from apps to smartphone processors into success.
Similarly, the advent of generative AI is poised to create multiple winners beyond just NVIDIA. Let’s delve into three companies that might be flying under your radar but have the potential to thrive in this evolving landscape.
1. Taiwan Semiconductor
Taiwan Semiconductor (NYSE: TSM) stands as the world’s largest semiconductor manufacturer. Despite its dominant position, it has trailed behind many of its suppliers in recent performance.
Over the past 5 years, Taiwan Semiconductor has seen a remarkable 235% increase. In comparison, Lam Research (NASDAQ: LCRX), a major equipment supplier to Taiwan Semiconductor, has surged by 456%, and Cadence Design Systems (NASDAQ: CDNS), a semiconductor design software provider, has risen by 415%.
While Lam Research, Cadence, and Taiwan Semiconductor are all stellar companies essential to the semiconductor industry, Taiwan Semiconductor’s geopolitical risks have historically kept its valuation lower. However, recent market trends indicate a closing valuation gap as the demand for Taiwan Semiconductor’s cutting-edge chips, crucial for applications like artificial intelligence, continues to soar.
Despite constituting a small fraction of its overall production, these leading-edge chips have significantly boosted Taiwan Semiconductor’s revenue per Foundry Wafer from \(4,000 in December 2020 to nearly \)7,000 today, showcasing its robust pricing power in the early stages of an AI revolution that could span the next decade.
2. ASML
ASML (NASDAQ: ASML) shines as the producer of EUV Lithography systems, priced at a staggering $380 million each, with a monopoly on this indispensable technology globally.
The industry’s heavy reliance on a single company like ASML may seem extraordinary, given its critical role in crafting cutting-edge chips. Despite potential competition from China, which has been barred from importing ASML’s advanced machines, ASML’s innovative prowess and software investments set it apart.
While valuation concerns loom with ASML trading at 46X earnings and short-term challenges due to China stockpiling older machines, the long-term outlook remains promising. ASML’s unparalleled position in the market makes it a compelling investment for those looking to capitalize on the AI wave, with strategic buying opportunities on market dips.
3. Siltronic AG
If Taiwan Semiconductor and ASML are already on your radar, consider exploring a lesser-known player in the semiconductor space like Siltronic AG.
Specializing in producing silicon wafers, the foundation of semiconductors, Siltronic AG offers a unique entry point into the semiconductor value chain. While the industry has historically faced turbulent cycles, companies like Siltronic AG are gaining traction due to the increasing sophistication of semiconductor production.
Trading at just 9.6X earnings, significantly lower than its peers, Siltronic AG presents a cost-effective opportunity to benefit from the AI-driven semiconductor demand surge. Despite offering a more modest upside compared to other AI stocks, its attractive valuation makes it an intriguing option for investors seeking exposure to this flourishing market.
Siltronic AG, a German company, may require a brokerage that facilitates foreign securities trading. For those intrigued by this prospect, conducting thorough research on the company is advisable.
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