The artificial intelligence (AI) investing sector is a gold mine for finding companies with market-beating potential. Nvidia (NVDA +0.07%) and Taiwan Semiconductor Manufacturing (TSM +0.81%) are among the stocks that I think can outperform the market over the next five years.
Nvidia
Nvidia is a stock that has made plenty of people rich. If you had invested $10,000 in Nvidia a decade ago, you'd now have about $2.7 million. Unfortunately, we don't have a time machine to capture those returns, but Nvidia's future looks bright.
Nvidia makes graphics processing units (GPUs), which are used to process the intense calculations necessary to train AI models. GPUs have a unique ability to process multiple calculations in parallel, which lets them outperform traditional CPUs. While other competitors in the GPU market exist, Nvidia's products outperform them.
NASDAQ: NVDA
Key Data Points
Wall Street analysts expect Nvidia's revenue to increase by about 51% in its fiscal 2026 (ending January 2026). That indicates that Nvidia's growth is far from over. Driving this growth is increased client spending as well as a ramp-up of its next-generation architecture, Blackwell. Blackwell GPUs drastically outperform the previous-generation Hopper GPUs and provide a significant reason to upgrade. Furthermore, GPUs tend to have a lifespan of about three to five years, so a replacement cycle may start soon.
Additionally, Nvidia isn't the expensive stock it was once portrayed to be. The stock trades for 54 times trailing earnings, which isn't that much of a premium compared to some of its big tech peers. Nvidia is growing significantly faster than Amazon (48 times earnings), Apple (42 times earnings), and Microsoft (36 times earnings), yet only holds a slight valuation premium to those three.
NVDA PE Ratio data by YCharts
Nvidia is still a great AI stock to own, and I'm confident it can provide the market-beating returns investors are looking for over the next five years.
Taiwan Semiconductor Manufacturing
Moving down the value chain, Taiwan Semiconductor makes microchips within Nvidia GPUs. TSMC makes chips for many more customers than Nvidia, but AI-related chips have given the company a huge boost.
In Q2 2023, management projected that AI-related hardware would grow at a 50% compound annual rate for the next five years, when it would then make up a low-teens percentage of revenue. However, TSMC's results have far outpaced this projection, as AI revenue is expected to triple for 2024 and now makes up a mid-teens percentage of revenue.
NYSE: TSM
Key Data Points
Taiwan Semi sees no signs of AI revenue slowing (similar to Nvidia), so it's fairly obvious that it is set to have a great 2025. Wall Street analysts project 25% revenue growth for 2025, but there's another revenue booster on the horizon for 2026. In 2026, Taiwan Semi's next-generation 2 nanometer (nm) chip is slated to reach mass production. These chips can decrease energy consumption by 25% to 30% when configured at the same computing power level as previous-generation 3nm chips. With electricity costs being a significant input for operating a data center, this may cause some clients to upgrade their computing hardware based on the energy cost savings alone.
Taiwan Semiconductor's stock is also pretty cheap compared to big tech stocks, and it is growing faster than all of them.
TSM PE Ratio data by YCharts
There are plenty of reasons to be bullish on Taiwan Semi's stock, and I'm confident it can continue to drive market-beating returns over the next five years.
