Nvidia CEO Jensen Huang says buying this stock could be a smart move
Jensen Huang is the co-founder and CEO of Nvidia, the AI chip master that in July became the world’s first company to hit a $4trn market-cap. The stock has since pushed on, with Nvidia now valued at $4.34trn, as I write.
Note that the ‘0.34’ bit at the end of that figure is actually $340bn! That’s more than the market-cap of AstraZeneca ($253bn), the largest listed firm in the FTSE 100.
Safe to say then, Nvidia’s CEO knows a thing or two about building value.
TSMC
On Friday 22 August, Huang was in Taiwan. He was asked by a reporter what he thought about the US government taking stakes in chip companies, including potentially Taiwan Semiconductor Manufacturing (NYSE:TSM), known as TSMC.
âWell, first of all, I think TSMC is one of the greatest companies in the history of humanity, and anybody who wants to buy TSMC stock is a very smart person,â he replied.
The first part of that sentence is undeniably true. TSMC is the worldâs leading semiconductor foundry, making the cutting-edge chips that power everything from iPhones to artificial intelligence (AI) data centres.
Its scale and advanced manufacturing give it a strategic importance to the global economy that few other companies can rival. Blue-chip customers include Apple, Broadcom, AMD and, of course, Nvidia.
These firms outsource chip manufacturing to TSMC rather than spend a fortune doing it themselves. Indeed, the main reason for Huangâs trip to Taiwan was in relation to TSMCâs work on the companyâs next-generation AI chip architecture (called Rubin).
Taking stock
But what about the second part of Huangâs statement? Could it be a smart stock worth considering today? I think so, though there are a couple of things worth watching.
One is that TSMC is building ‘fabs’ (a specialised factory where semiconductors are made) abroad, with a whopping $165bn committed to investments in the US. While this diversifies its global footprint and pleases the US government, it will probably weigh on profit margins, at least for a time.
Also, if the US government does one day become a TSMC shareholder (in exchange for Biden-era CHIPS Act grants), this could inflame China-Taiwan tensions.
But I think the positives far outweigh the negatives here. For starters, TSMC is at the heart of the ongoing tech/AI revolution, which is only likely to deepen over the next decade. It is the ultimate picks-and-shovels tech play, in my opinion.
And with an advanced fab costing roughly $10bn to $20bn, the barriers to entry in its industry are absolutely enormous.
Warren Buffett once said: âIf you gave me $100bn and said take away the softâdrink leadership of CocaâCola in the world, Iâd give it back to you and say it canât be done.â I reckon this applies even more so to TSMC, especially with its cutting-edge 2nm chips due to be launched later this year.
In Q2, AI-related demand helped revenue jump 44% to $30bn. But chief executive CC Wei said AI demand is likely to remain very strong: “Increasing AI model usage and adoption…means more and more computation is needed, leading to more leading-edge silicon demand [benefitting TSMC].”
The stock is currently trading at 24 times forward earnings, about the same as the S&P 500. At this price, I think TSMC is indeed a smart stock to consider.
The post Nvidia CEO Jensen Huang says buying this stock could be a smart move appeared first on The Motley Fool UK.
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Ben McPoland has positions in AstraZeneca Plc, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool UK has recommended Advanced Micro Devices, Apple, AstraZeneca Plc, Nvidia, and Taiwan Semiconductor Manufacturing. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
