If I Could Load Up on Any Artificial Intelligence (AI) Stock, It Would Be This One (Hint: It’s Not Nvidia)

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For quite some time now, there has been widespread discussion about the tech firm Nvidia (NVDA). This trend has persisted for several years. Over the last five years, its stock price skyrocketed by an impressive 1,600%. Notably, this month, it achieved a remarkable feat, becoming the world’s first company to reach a staggering $4 trillion market capitalization.

If pushed to select an AI-focused stock for purchase right now, I wouldn’t opt for Nvidia. This is not a reflection on Nvidia’s quality or potential, as it undeniably possesses both in abundance. However, there’s another stock that appears more enticing to me at the moment.

The AI moment

Frankly speaking, I haven’t been actively searching for AI-related stocks. Instead, many investors seek profit from AI trends by identifying stocks that give access to AI technologies. However, my investing strategy doesn’t follow this pattern. I have specific criteria that I look for in stocks, and these could belong to any industry. While diversification across categories is crucial, it’s not the sole factor guiding my investment decisions.

It’s clear that there’s an appetite for investing in artificial intelligence, particularly among growth-oriented investors, given its significant potential for expansion. The AI sector is indeed witnessing rapid advancements, with even greater development anticipated. Notably, Nvidia has been reporting remarkable growth, such as a 69% surge in revenue year on year in their latest quarter. Furthermore, Grand View Research forecasts that the AI market will expand at an impressive compound annual growth rate of approximately 36% until 2030.

Despite varying opinions about Nvidia currently, its stock has reached impressive heights. While there appears to be no question that it will keep growing, there is some concern about the high valuation it holds. Some metrics suggest it could be overpriced, given its price-to-sales ratio of 29 and P/E ratio of 55. Although it does warrant a premium, it’s undeniably priced as such.

Another way of expressing this could be: The potential for growth might be limited for investors given its substantial size. For instance, if Nvidia’s stock price doubles, it would reach a market capitalization of $8 trillion. If you’re seeking a stock that can rapidly double your investment, Nvidia might not be the best choice compared to other stocks.

Another way to play AI

Given my recent investment in Taiwan Semiconductor Manufacturing (TSM), it’s clear which stock I’d pick again. Yet, it wasn’t my intention to buy a stock solely focused on AI. Rather, what drew me to TSM was its promising growth potential, particularly in the context of advancements in AI that rely on its products. If TSM were strictly an AI stock without other attractive prospects, I might have given it a pass.

One reason TSMC seems appealing as a stock is its versatility, as it’s not solely dependent on a single area of expertise. Investing in specialized AI stocks, like any trend-driven company, carries risks. In 2023, TSMC was included in the Berkshire Hathaway portfolio, indicating some level of stability. At that time, Buffett described it as “one of the best-managed companies and [most] important companies in the world.” Buffett typically doesn’t explain his reasons for divesting from a stock, but he did express concerns about TSM’s location, which have partially materialized in today’s context. “Exceptional people and exceptional competitive position,” he said, “[but] I’d prefer to find it in the United States.

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The situation unfolded with some flexibility due to its vulnerability to tariff fluctuations, yet it has persistently shown robustness and expansion. It’s also proactively working towards diversifying its worldwide manufacturing facilities, minimizing its reliance on tariffs. This development aligns well with the investment argument.

TSMC serves numerous clients and dominates approximately 58% of the worldwide semiconductor market, as reported by Statista. As the market leader, it enjoys a competitive advantage due to its high entry barriers in the industry. With multiple partnerships across various fields, it’s well-positioned to weather changes in any single area, such as AI.

Top performance, huge growth potential, low price

Furthermore, a superior stock typically exhibits key characteristics such as consistent growth, strong financial performance, and a forward-looking perspective.

In the second quarter, our revenue saw a significant jump of 39% compared to the same period last year, surpassing expectations, and our net income soared by 61%. Our gross margin enhanced by 5.1 percentage points, and our operating margin improved by 7.1 percentage points. The high-performance computing segment, encompassing AI, accounted for 60% of our total, and all its segments showed growth except for the automotive sector, which remained steady. For the time being, AI is expected to be our primary growth catalyst, but we’re diversifying our focus areas.

There persist worries regarding tariffs, and there could be a spike in the need for importers to secure chips before they increase. Management has made clear that importers, not TSMC, bear the responsibility for tariffs, and it’s also significantly increasing its investments in U.S. facilities to mitigate these potential issues.

For those considering investments in the tech sector, Taiwan Semiconductor’s stock, trading at a P/E ratio of 31 and a price-to-sales ratio of 13, seems reasonable given its growth potential. If you’re seeking a premier AI stock that offers more than just artificial intelligence, Taiwan Semiconductor could be an excellent pick for your portfolio.

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2025-07-21 13:35