The stock market appeared likely to open mixed on Thursday, and a large factor for markets was Nvidia (NVDA -8.41%). The chipmaker released quarterly results late Wednesday that caused its stock to soar, and shares were up 28% in premarket trading. That was enough to lift futures on the Nasdaq Composite (^IXIC -2.22%) by nearly 2%, even as Dow Jones Industrial Average (^DJI 0.30%) futures lost ground.
Record demand for products that will enable businesses to put new artificial intelligence (AI) capabilities to work was a key factor in Nvidia's report. But for those who might think that Nvidia's stock is too expensive after seeing its market cap jump $200 billion overnight, some alternatives might be worth looking at. Shares of Taiwan Semiconductor Manufacturing (TSM -3.50%) and ASML (ASML -3.59%) are on the rise in sympathy with Nvidia, but their gains have been less extensive even as they also will likely profit from the AI stock craze.
Taiwan Semi: Making the chips that its customers design
Taiwan Semiconductor Manufacturing saw its stock rise 7% in premarket trading. That gives the leading semiconductor contract manufacturing company a market cap that's roughly half of Nvidia's after their respective bumps higher.
Some of the largest tech companies in the world have chosen not to make semiconductor chips in-house. Instead, they've turned to Taiwan Semi, which operates a cutting-edge foundry business that allows its customers to submit their chip designs and have Taiwan Semi produce the physical semiconductors that will go into their products. Last year, Taiwan Semi used nearly 300 different process technologies to produce almost 12,700 different semiconductor chips for its clients. Taiwan Semi has the largest production capacity of any semiconductor producer, with commanding market share of roughly 30% when you take out commodity memory-chip production.
As more businesses try to roll out chip designs to take advantage of AI, Taiwan Semi will stand ready to produce those semiconductors. Already, Taiwan Semi saw revenue jump 43% in 2022 and earnings per share rise 68% because of heightened demand for chips. Artificial intelligence is likely to promote further growth, even in the face of macroeconomic headwinds. That makes Taiwan Semi worth looking at for those who think Nvidia has come too far too fast.
ASML Holding: Making the machines that make chip production possible
Another step backward in the semiconductor production chain, ASML stock climbed 5% in premarket trading Thursday morning. The semiconductor equipment manufacturer also stands to benefit from increased demand due to the AI revolution.
ASML has been in a pioneer in the lithography process that allows chipmakers to etch ever-smaller electronic circuits onto semiconductor wafers. Its extreme ultraviolet deposition technology has been a key advance in allowing chips to become smaller and more densely packed. Companies like Taiwan Semi rely on ASML for the equipment they need to make cutting-edge chips using 7-nanometer, 5-nanometer, and even smaller physical features.
ASML's revenue nearly doubled in the first quarter of 2023 from year-ago levels, with net income coming close to tripling. Those growth rates won't remain that high for long, but ASML is taking steps to meet rising demand in the face of AI and other key trends requiring advanced semiconductor chips.
Investors are making a big deal of AI and its promise. Yet even as many shareholders bid up Nvidia stock to new heights, that doesn't mean you need to limit your window of opportunity. Looking at alternatives like Taiwan Semi and ASML might be a smarter way to take advantage of new demand from AI applications.
