AI stocks have hit a rough patch lately. But strong earnings from the world’s largest AI chipmaker – Taiwan Semiconductor (TSM) – seem to confirm that this selloff offers a golden buying opportunity.
Indeed, Taiwan Semiconductor makes over 60% of the world’s semiconductor chips. And recently, the company has benefited tremendously from the AI Boom, as tech companies flock to buy its next-gen chips to build their AI applications.
Just yesterday, TSM reported quarterly earnings that suggest it is benefitting more than ever from the AI Boom right now.
Parsing TSM’s Quarterly Numbers
The chipmaker reported 40% revenue growth in the second quarter of 2024, driven by accelerating demand for its AI chips. That’s up from just 16% revenue growth in the previous quarter.
TSM’s chips are also commanding premium prices, leading to higher gross margins and operating margins. Overall, the company reported 42% operating profit growth in the quarter – its best operating profit growth rate since 2022.
Moreover, management expects all this robust growth will continue both next quarter and for the rest of the year.
Suffice to say, it was a stellar quarter for TSM. It underscored that the company’s AI tailwinds are only growing stronger and that the firm should benefit from the AI Boom for many years to come. Indeed, the consensus expectation is for TSM to grow revenues from just about $2 billion right now to nearly $7 billion by the end of the decade.
Yet, TSM stock dropped in response to the strong quarterly earnings report.
Why?
Because all AI stocks are under fire right now, driven by fears of an “AI Bubble.” The entire Global X Artificial Intelligence & Technology ETF (AIQ) is down about 6.5% over the past two days alone.
But we’re confident that those bubble fears are overblown. In fact, they are entirely unwarranted. TSM’s numbers prove that.
The Final Word
It’s important to understand – TSM is the “top of the funnel” for the AI Boom. It sells AI chips, and other companies then use those chips to make AI applications.
Therefore, if TSM is selling a bunch of AI chips today, that means companies will increasingly build on top of those chips over the next several quarters. That means more AI applications are coming down the pike – a lot more.
Of course, more AI applications mean more revenue and profits for AI firms. And that, in turn, means higher AI stock prices, too.
That’s exactly why we believe the recent AI stock selloff is a great buying opportunity.
And in response, we’re looking at the top-performing AI stocks of 2024 to find opportunities in those that have had big pullbacks recently.
We’re looking for fundamentally superior AI stocks with great growth prospects that have plunged into undervalued territory and look ripe for a technical rebound.
And it seems there are some really compelling opportunities emerging in that bucket of stocks.
Learn more about the opportunities we’re looking at right now.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.