Chip stocks have been performing significantly better than the broader market in the past few weeks, and the trends are only looking up for these stocks. Semiconductor companies have been seeing a boom in demand that has refused to slow down, with orders from hyperscalers and other data center companies only gaining more momentum.
The tariff scare three months ago did cause a decline, but domestic demand has been strong enough to offset even Nvidia’s (NASDAQ:NVDA) missed orders, which were over $15 billion.
If you want to bet on the whole industry with one stock, look no further than Taiwan Semiconductor (NYSE:TSM).
Nvidia, AMD (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), and many other semiconductor companies that are surging today are all fabless. This means they outsource the manufacturing and are mostly semiconductor design companies.
Taiwan Semiconductor makes all these chips, and the pricing power this company has is tremendous. With chip stocks rallying once more, TSM stock seems poised for more gains.
Semiconductors are also exempt from tariffs to spare some of the biggest U.S. companies (which are now chip companies) from higher input costs.
If you believe this chip stock rally will continue, no other stock gives you such broad exposure.
TSM stock is also trading at very cheap prices compared to most other semiconductor stocks at the moment. The stock trades at just 29 times trailing earnings and 23.7 times forward earnings.
In comparison, NVDA stock trades at over 50 times trailing earnings and over 36 times forward earnings. AVGO stock trades at an even more expensive multiple, at 101 times trailing earnings and 41 times forward earnings.
That’s despite analysts expecting TSMC to post nearly 20% annual sales growth in the coming years, which is higher than Broadcom’s revenue growth expected at around 19% annually in the same timeframe.
The upside potential could be massive if the chip stock rally keeps outperforming expectations.
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