Synthetic intelligence (AI) continues to be one of many greatest driving forces within the inventory market. Whereas chipmakers and cloud computing firms have been the most important early beneficiaries, software program firms are beginning to see good progress alternatives emerge as properly.
That mentioned, the semiconductor sector remains to be among the best locations to search out attractively valued shares tied to AI. Let’s take a look at two semiconductor shares that ought to see AI assist energy their progress in December and past.
1. Nvidia
The largest AI winner so far has been Nvidia (NVDA -1.81%), which has grown to turn out to be the second-largest firm on the earth. Nvidia initially developed a brand new kind of semiconductor chip known as a graphics processing unit (GPU) to assist velocity up the rendering of graphics in video video games and elsewhere. For a very long time, this was a distinct segment trade dominated by Nvidia and ATI (which has since been acquired by Superior Micro Gadgets).
Nvidia was capable of increase the usage of GPUs to different industries with the assistance of its CUDA software program platform, which allowed the chips to be programmed to extra effectively deal with duties. This led to extra builders studying to program GPUs utilizing CUDA, which led to the builders buying Nvidia GPUs to do their work on, making a virtuous circle and serving to create the huge moat the corporate sees as we speak.
The usage of GPUs in cryptocurrency mining turned a progress driver for the corporate again in 2016-2017, however it was the usage of GPUs for coaching massive language fashions (LLMs) and AI inference in starting in 2021-2022 that led to astronomical progress for Nvidia. In the present day, Nvidia’s GPUs have turn out to be the spine of the AI infrastructure buildout, and thru the huge moat it gained with CUDA, it now holds an approximate 90% market share.
Picture supply: Getty Photos.
Nvidia’s CEO says the present demand for its chips is “insane,” because the world’s prime tech firms race to turn out to be AI leaders. The largest danger to the inventory is that if demand slows. Nonetheless, Nvidia’s largest prospects have by and enormous expressed plans to proceed ramping up AI infrastructure spending to reap the benefits of what many view as a once-in-a-generation alternative. Additionally working in Nvidia’s favor is that with the intention to enhance their AI fashions, these firms want exponentially extra computing energy, and thus extra GPUs, to coach their fashions on.
Regardless of its big positive aspects previously few years, the inventory trades at a pretty valuation. It has a ahead price-to-earnings (P/E) ratio of about 33 based mostly on 2025 analyst estimates, and a worth/earnings-to-growth (PEG) ratio of roughly 1. A PEG ratio beneath 1 is normally thought of undervalued, however progress shares will typically command PEG ratios properly above 1.
NVDA PE Ratio (Ahead 1y) information by YCharts.
All this makes Nvidia a pretty choice to contemplate shopping for this month as we head into 2025.
2. Taiwan Semiconductor Manufacturing
Whereas Nvidia has turn out to be the dominant participant within the GPU market, Taiwan Semiconductor Manufacturing (TSM -0.63%), or TSMC for brief, has turn out to be the main participant within the contract semiconductor manufacturing area. The corporate is a detailed companion with Nvidia and the first producer of its GPUs. Apple, in the meantime, is its largest buyer, and the iPhone maker commonly buys out all the capability of TSMC’s superior nodes when TSMC strikes to newer superior chip manufacturing expertise.
TSMC thus has two huge AI progress alternatives in entrance of it. The largest stays making chips to satisfy the large demand for AI chips coming from the AI infrastructure buildout. TSMC will proceed to profit from Nvidia’s success, however it would additionally profit from any firms trying to get in on this area as properly. Quite a few firms have began to design customized AI chips via Broadcom and Marvell to satisfy particular wants, whereas Arm Holdings and Softbank have been rumored to be searching for manufacturing capability to make their very own AI chips.
Along with AI chips for information facilities, TSMC would additionally profit from any elevated demand coming from an finish gadget {hardware} improve cycle. Newer smartphones and PCs are typically wanted to run the most recent AI choices, so any elevated demand for smartphones or computer systems would profit the corporate. Apple is pushing its new AI options with Apple Intelligence, which is anticipated to spice up iPhone 16 gross sales, whereas Microsoft has been advancing its AI Copilot, which may assist with an enterprise PC improve cycle.
To satisfy rising demand, TSMC continues to spend money on including extra capability whereas additionally persevering with to push expertise innovation and shrinking node sizes. Smaller nodes permit for higher chip efficiency and energy consumption, whereas additionally rising the variety of chips that may match on a wafer.
TSMC has additionally displayed sturdy pricing energy over the previous few years, and it’s set to boost costs as soon as once more in 2025. In accordance with Morgan Stanley, the corporate will enhance costs by 10% for CoWoS (chip on wafer on substrate), 6% for high-performance computing, and three% for smartphones. Notably, CoWoS is a packaging expertise used for high-performance chips, resembling Nvidia’s GPUs.
Like Nvidia, TSMC trades at a pretty valuation, with a ahead P/E beneath 23 based mostly on analysts’ 2025 estimates and a PEG of 1.2.
TSM PE Ratio (Ahead 1y) information by YCharts.
Given the chance nonetheless in entrance of TSMC, it seems to be like a stable inventory to purchase in December forward of what ought to be a robust 2025 for the corporate.
Geoffrey Seiler has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Superior Micro Gadgets, Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Broadcom and Marvell Expertise and recommends the next choices: lengthy January 2026 $395 calls on Microsoft and quick January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.
