Contemplating Abandoning AMD for Two Alternative Tech Shares?
AMD, once a prominent chipmaker, has seen its value dip by nearly 40% over the past year. Its sales of gaming chips pale in comparison to its gains in PC and data center chips, leading investors to question AMD's long-term growth potential in AI accelerators.
Amidst this, AMD's data center revenue still showed a significant surge of 69% year over year in Q4 2024. However, this growth marked a significant slowdown from the previous quarters, causing a dampener on the hopes that AMD would challenge Nvidia's dominance in the AI market with its less expensive AI accelerators.
On the other hand, AMD's share in the PC market has also shrank in comparison to Nvidia's, further casting doubts about its future performance. Analysts still anticipate AMD's revenue and EPS to grow by 24% and 43%, respectively, for 2025. Yet, these estimates could decrease if AMD's data center business continues to cool off and AMD fails to gain ground in the gaming market.
For diverse and balanced investments, some alternatives to AMD include Broadcom and Taiwan Semiconductor Manufacturing (TSMC).
AI market with its cheaper AI accelerators. In the PC market, AMD's share of the discrete GPU market also shrank against Nvidia's.
Broadcom
Broadcom operates two primary segments: its chip-making division, providing a wide range of chips for mobile, data center, networking, wireless, and storage markets, and its infrastructure software division, offering enterprise software, security services, and cloud-based services. Following a series of acquisitions over the past decade, Broadcom has significantly expanded its businesses.
Broadcom's AI-oriented chip sales surged by 220% to $12.2 billion in 2024, accounting for 41% of its semiconductor revenue. With the expanding AI market driving more demands for data centers, Broadcom's networking chips and custom XPU accelerators are likely to drive its revenue and profits higher in the coming years.
Analysts predict Broadcom's revenue to grow at a compound annual growth rate (CAGR) of 17% from 2024 to 2027, along with an EPS growth rate of 75%. Despite a higher valuation than AMD, Broadcom's diversified businesses and balanced growth justify this premium.
Taiwan Semiconductor Manufacturing (TSMC)
The world's largest and most technologically advanced contract chipmaker, TSMC has been instrumental in manufacturing chips for top companies like AMD and Nvidia. As Nvidia's sales of AI GPUs surge, TSMC's high-performance computing (HPC) market sees significant growth. TSMC aims to enhance its lead in the market by ramping up its production of 2 nm chips and expanding its overseas plants.
forward earnings. However, those estimates might drift lower if its data center business continues to cool off and it falls further behind Nvidia in the gaming market.
TSMC's HPC revenue rose by 58% in 2024, accounting for 51% of its total revenue. With strong smartphone chip revenue and expanding overseas plants, analysts predict TSMC's revenue and EPS to grow at a CAGR of 23% and 26%, respectively, from 2024 to 2026. TSMC's lower valuation could indicate near-term challenges but potential for higher valuations once these headwinds dissipate.
References:1. Broadcom Investor Relations2. Taiwan Semiconductor Manufacturing Company Ltd3. AI market size and forecast
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Broadcom and TSMC: Current Outlook and Growth Potential in the AI Chip Market
Broadcom
Current Outlook:- Strengths: Broadcom stands out due to its comprehensive offerings, including semiconductors and infrastructure software, streaming services, and security solutions. Its Vmware acquisition in 2023 further strengthened its presence in the cloud and enterprise software market[1].- Challenges: Broadcom faces intense competition within its key markets. Its price-sensitive position in the wireless and infrastructure software sectors is a concern[1].- Financials: Broadcom's strong Q3 financials show impressive growth, with revenue and EPS up by 17% and 18%, respectively. However, concerns concerning margin pressure and a potential slowdown in growth markets linger[1].
TSM
Growth Potential:- Market Position: With broad market coverage, Broadcom is a key player in many rapidly growing markets. Its AI, 5G, and IoT market opportunities present an optimistic outlook[1].
Taiwan Semiconductor Manufacturing (TSMC)
Current Outlook:- Major Contributors: TSMC enjoys robust demand for leading-edge technology and competitive pricing, which places it in a strong position in the expanding AI chip market[1].- Challenges: TSMC faces difficulty maintaining its technological edge and fierce competition from Samsung[1], while geopolitical tensions and trade disputes pose additional challenges[2].
range of chips for the mobile, data center, networking, wireless, and storage markets, and its infrastructure software division, which provides enterprise software, security services, and cloud-based services. It significantly expanded both businesses through some big acquisitions (including Vmware in 2023) over the past decade.
Growth Potential:- Market Expansion: In the AI chip market, TSMC is expected to witness a CAGR of around 20% from 2021 to 2028, driven by growing demand for high-performance computing, AI, and 5G applications[1].
Overall, both companies show promising growth prospects in the rapidly expanding AI chip market. However, factors like competition, market volatility, and geopolitical risks should be considered to capture the full potential of these investments.
[1] Broadcom Investor Relations. (2022). Broadcom Q3 2022 Earnings Release.[2] UK.gov (2021). Export control orders: TSMC.
- Given AMD's struggles in the AI market, some investors might consider diversifying their portfolio with companies like Broadcom, which saw its AI-oriented chip sales increase by 220% in 2024.
- The finance industry often uses metrics such as the price-to-earnings (P/E) ratio or the price-to-earnings-to-growth (PEG) ratio to evaluate a company's value, but AMD's PE ratio might collapse under the weight of investor doubts about its long-term growth potential.
- Artificial intelligence (AI) is a growing market, and companies like Broadcom are leveraging this trend by focusing on AI-related chip sales, while AMD is still questioning its position in the AI accelerator market.
- While AMD's data center revenue demonstrated a strong year-over-year increase in Q4 2024, the artificial intelligence market might push companies like Broadcom to further enhance their networking chips and custom XPU accelerators, driving their revenue and profits higher in the coming years.