Taiwan Semiconductor Manufacturing (TSM) vs. NVIDIA (NVDA): Which Chip Stock Stands to Gain the Most in 2024?

Post-pandemic, the semiconductor market experienced fluctuations due to supply chain disruptions, geopolitical tensions, and changing consumer demands. Despite challenges, the industry has exhibited resilience and adaptability, highlighting its capacity to overcome adversity and maintain strong performance in the face of dynamic external factors.

As the sector rebounds, I analyzed two prominent chip stocks, Taiwan Semiconductor Manufacturing Company Limited (TSM) and NVIDIA Corporation (NVDA), to determine which holds the potential for superior gains in 2024. Prior to examining the featured stocks, let’s examine the factors propelling the industry's growth.

Surpassing spring projections, the World Semiconductor Trade Statistics (WSTS) revised its forecast due to slightly improved fiscal 2023 second and third-quarter results. The updated market valuation for 2023 now stands at an estimated $520 billion, with an anticipated growth of 13.1% projected for 2024.

According to the WSTS report, the outlook for the current year points to a “vigorous upswing” in the global chip market, indicating a 13.1% increase and reaching a valuation of $588 billion.

Anticipated to be propelled primarily by the memory sector, the industry's growth is poised to reach approximately $130 billion in 2024, reflecting a remarkable uptrend of over 40% from the preceding year. 2024 is projected to mark a resurgence, with all chip types experiencing revenue growth fueled by double-digit expansion in the memory market.

Gartner (IT) forecasts a robust 16.8% global semiconductor revenue growth in 2024, reaching a total of $624 billion.

Furthermore, as the global demand for Artificial Intelligence (AI) and High-Performance Computing (HPC) surges, alongside stabilizing needs for smartphones, personal computers, infrastructure, and resilient growth in the automotive sector, the semiconductor industry is poised to usher in a new wave of growth.

A resurgence in market demand and enhanced government incentives globally are also driving a surge in fab investments in crucial chipmaking regions. The heightened global focus on the strategic significance of semiconductor manufacturing for national and economic security serves as a pivotal catalyst for these trends.

Both TSM and NVDA are expected to benefit from the industry’s tailwinds. In terms of price performance, TSM has gained 5.7% over the past month, while NVDA surged 12.2% during the same period. Moreover, TSM witnessed a 1.2% gain over the past six months, while NVDA climbed 23.5% over the same duration.

Additionally, TSM jumped 35% over the past year, closing the last trading session at $102.24, whereas NVDA has gained 266.3% during the same period, closing the last trading session at $522.53.

But which Semiconductor & Wireless Chip stock could be a better pick? Let's find out.

Recent Developments

On September 27, 2023, TSM unveiled the groundbreaking 3Dblox 2.0 open standard, showcasing advanced 3D IC design capabilities to enhance design efficiency. Simultaneously, the 3DFabric Alliance achieved significant milestones, fostering integration in memory, substrate, testing, manufacturing, and packaging.

TSM's relentless pursuit of 3D IC innovation renders its cutting-edge silicon stacking and advanced packaging technologies more accessible to a broader customer base, amplifying the company's market competitiveness and revenue potential.

On January 8, reports revealed that NVDA's Generative AI is catalyzing the next phase of drug discovery and design. Spearheading this transformation is NVIDIA BioNeMo, a generative AI platform empowering the creation, customization, and deployment of foundational models, thereby accelerating advancements in drug discovery processes.

By pioneering advancements in drug design, customization, and deployment, NVDA could diversify its portfolio and tap into a burgeoning market, ensuring sustained revenue growth and enhanced shareholder value.

Recent Financial Results

For the fiscal 2023 third quarter that ended September 30, 2023, TSM’s net revenue increased 13.7% quarter-on-quarter to $17.28 billion. Its income from operations rose 12.9% from the previous quarter to $7.21 billion. Also, its net income and EPS rose 16% and 16.1% from the prior quarter to $6.66 billion and $0.26, respectively.

As of September 30, 2023, TSM’s cash and cash equivalents amounted to $40.64 billion, up 1.2% year-over-year. In addition, the company’s current assets and total assets stood at $64.51 billion and $169.90 billion, respectively, a 3.4% and 18.1% rise year-over-year.

For the fiscal 2024 third quarter that ended October 29, 2023, NVDA’s non-GAAP revenue increased 34.2% quarter-on-quarter to $18.12 billion. Its non-GAAP operating income rose 48.6% from the previous quarter to $11.56 billion.

However, as of October 29, 2023, NVDA’s current liabilities amounted to $9.10 billion, up from $6.56 billion as of January 29, 2023. Also, its total liabilities came in at $20.88 billion, compared to $19.08 billion as of January 29, 2023.

Past and Expected Financial Performance

Over the past three years, TSM’s revenue and EBITDA increased at a CAGR of 18.6% and 20.7%, respectively. Moreover, its net income and EPS both grew at a CAGR of 21.5% over the same time frame.

For the fiscal year ending December 2024, analysts expect TSM’s revenue to increase 21% year-over-year to $84.30 billion. The company’s EPS for the ongoing period is expected to grow 18.1% from the previous year to $6.05.

NVDA’s revenue and EBITDA rose at a CAGR of 44.8% and 63.3% over the past three years. Furthermore, its net income and EPS increased at respective CAGRs of 70.3% and 70.5% during the same period.

For the fiscal year ending January 2025, NVDA’s revenue is expected to increase 54.3% year-over-year to $90.72 billion. Likewise, the company’s EPS for the same period is expected to rise 62.3% from the prior year to $19.88.

Valuation

In terms of forward P/E, TSM is trading at 19.84x, 54.9% lower than NVDA, which is trading at 43.95x. Moreover, TSM’s forward EV/Sales of 6.69x compares with NVDA’s 20.50x. In addition, TSM’s forward EV/EBITDA of 9.91x is 72.8% lower than NVDA’s 36.48x.

Thus, TSM is more affordable.

Profitability

TSM’s trailing-12-month revenue is 1.5 times that of what NVDA generates. Moreover, TSM is more profitable, with a trailing-12-month EBITDA margin of 67.86%, compared to NVDA’s 49.39%. Also, TSM’s trailing-12-month cash from operations of $41.34 billion compares with NVDA’s $18.84 billion.

POWR Ratings

TSM has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. Conversely, NVDA has an overall rating of C, translating to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TSM has a C grade for Stability, in sync with its 24-month beta of 0.90. On the contrary, NVDA has a D grade for Stability, justified by its 24-month beta of 1.94.

In addition, TSM has a C grade for Value. In terms of forward EV/EBIT, the stock is trading at 15.74x, 20.7% lower than the industry average of 19.83x, whereas its forward Price/Sales of 6.93x is 142% higher than the 2.86x industry average.

NVDA, on the other hand, has a D grade for Value, in line with its higher-than-industry valuation. In terms of forward EV/EBIT and forward Price/Sales, the stock is trading at 34.49x and 20.62x, 73.9% and 620.5% higher than the industry averages of 19.83x and 2.86x, respectively.

Of the 91 stocks in Semiconductor & Wireless Chip industry, TSM is ranked #20, while NVDA is ranked #29. 

Beyond what we've stated above, we have also rated both stocks for Growth, Momentum, Quality, and Sentiment. Click here to view TSM’s ratings. Get all NVDA ratings here.

The Winner

With an expanding memory sector, increased demand for AI and high-performance computing, increased production capacity, government incentives, and a growing recognition of its strategic significance, the chip industry is positioned for significant growth.

Amid the industry's anticipated growth, TSM and NVDA both stand to benefit. However, TSM's superior financial performance, heightened profitability, lower valuation, and greater stability currently position it as the more favorable investment choice over NVDA.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.

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NVDA shares were trading at $534.86 per share on Tuesday afternoon, up $12.33 (+2.36%). Year-to-date, NVDA has gained 8.00%, versus a -0.25% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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