TLDR
- Nvidia continues to dominate AI chip market despite competition from custom accelerators
- Taiwan Semiconductor expects 45% annual growth in AI-related chips over next five years
- Alphabet trades at cheap valuation of 17.5 times forward earnings despite AI competition concerns
- Upstart sees lending business recovery with 67% revenue growth and improved AI conversion rates
- CoreWeave revenue surged 420% to $981.6 million but carries $8.6 billion debt burden
Three established technology companies continue to attract investor attention as artificial intelligence demand reshapes the market. Nvidia, Taiwan Semiconductor, and Alphabet each face different challenges while positioning for future growth.
Nvidia (NVDA) maintains its position as the leading AI chip manufacturer. The company’s graphics processing units remain the preferred choice for training AI models. Competition from custom AI accelerators developed by some clients has emerged, but Nvidia’s GPUs still offer unmatched flexibility and computing power.
The stock currently trades at lower valuations than it maintained through most of 2024. Forward price-to-earnings ratios show the stock is more affordable now than at previous peak levels.
Taiwan Semiconductor (TSMC), supplies chips for cutting-edge devices including Nvidia’s GPUs. The company receives orders years in advance, providing management with clear visibility into future demand patterns.
TSMC’s Arizona fabrication facility has sold out chip production capacity through 2027. Management likely has orders extending through 2028 in their current system.
Strong Growth Projections Drive Optimism
Company leadership expects AI-related chips to grow at a 45% compound annual growth rate over the next five years. This contributes to projected company-wide growth of nearly 20% annually during the same period.
The stock trades at 21 times forward earnings, representing a market-average multiple for a company projecting above-average growth rates. Few companies of TSMC’s size can deliver predictable 20% growth over five-year periods.
Alphabet (GOOG) faces different challenges as investors worry about its core Google search business. Rising AI competition and potential economic downturns create uncertainty for the company’s primary revenue source.
The company was found guilty of operating two illegal monopolies, potentially leading to a business breakup. These concerns have pushed Alphabet’s valuation down to 17.5 times forward earnings.
Google Search revenue increased 10% year-over-year in the first quarter. The company has integrated AI features through its AI overviews while maintaining traditional search functionality.
Emerging Players Show Promise and Risk
Two newer companies demonstrate the potential and volatility of AI investments. Upstart (UPST) and CoreWeave (CRWV) represent different approaches to capitalizing on artificial intelligence growth.
Upstart operates in the lending sector using AI models that outperform traditional FICO scoring methods. The company’s lending models have delivered 12.2% annualized returns compared to 4.1% from two-year Treasury bonds.
Recent improvements to Upstart’s AI model make one million predictions per applicant, six times more than the previous system. Conversion rates improved from 14% to 19.1% in the first quarter.
Revenue grew 67% to $213 million as loan originations doubled to 240,706. The company expects to return to profitability in the second half of this year.
CoreWeave operates as a pure-play cloud infrastructure company focused on generative AI applications. Customers rent computing power specifically for AI purposes.
Revenue jumped more than 100 times from 2022 to 2024, reaching $981.6 million in the first quarter with 420% growth. Major clients include Microsoft and Nvidia.
The company carries $8.6 billion in debt to fund rapid data center expansion. First quarter net loss reached $314.6 million due to $263.8 million in interest expenses and IPO costs.
CoreWeave reported adjusted EBITDA profit of $606.1 million with a 62% margin, showing underlying business profitability. The company guides to $4.9-5.1 billion revenue for the full year with $800-830 million adjusted operating income.
