Keithen Drury, The Motley Fool
4 min read
In This Article:
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Nvidia's data center dominance has provided immense growth.
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Taiwan Semiconductor is a chief beneficiary of the artificial intelligence (AI) arms race.
Artificial intelligence (AI) investing is still a major theme in the market. Although some AI hyperscalers have had success rolling out AI models, they aren't making a ton of money from it yet. As a result, I think investors are better off buying shares of the companies benefiting from this spending.
This makes shares of companies like Nvidia (NASDAQ: NVDA) and Taiwan Semiconductor (NYSE: TSM) excellent investments right now, and I think they are top AI stocks to buy with a little bit of June remaining.
There's an old saying: History doesn't repeat itself, but it often rhymes. Applying this wisdom to the AI arms race makes it easy to see a parallel: the gold rush.
During the gold rush, only a few prospectors struck gold and got rich, while many of them lost everything. On the flip side, those who sold pickaxes and shovels to the prospectors made a ton of money. That gives rise to the investment description of "picks and shovels," which perfectly describes Nvidia and Taiwan Semiconductor.
Nvidia makes graphics processing units (GPUs) that excel at processing workloads requiring immense computing power. A GPU is different from a traditional CPU because it can process multiple calculations in parallel. Combining this attribute with the ability to connect thousands of GPUs together in clusters allows AI hyperscalers to create jaw-dropping computing capacity used to train and run AI models.
Nvidia has an iron grip on the data center market, with most estimates stating that Nvidia has a 90% or greater market share in the data center GPU space. This dominance has allowed Nvidia's stock to prosper, as its revenue has dramatically risen since the start of 2023.
Nvidia is far from done growing. It posted 69% revenue growth in Q1 and projects 50% in Q2.
With Nvidia's clients announcing record data center spending for this year, it's no surprise that there's a ton of upside left. As a result, I think it's still one of the best AI stocks to own moving forward.
Nvidia doesn't make the chips that go into its GPUs; that's done by Taiwan Semiconductor. Alongside Nvidia, Taiwan Semi also has several other notable names in the AI arms race as clients, as well as consumer electronics customers like Apple. If you've got a device that would be considered advanced technology, chances are there's a chip produced by Taiwan Semiconductor inside of it.
