Chip stocks have been dropping as investors pocket high gains, and Motley Fool contributor Jennifer Saibil argues Nvidia is not the top pick among them. She points instead to Alphabet, Amazon and Taiwan Semiconductor Manufacturing, citing cloud growth, chip run rates and capacity spending.
Motley Fool contributor Jennifer Saibil names Alphabet, Amazon and Taiwan Semiconductor Manufacturing rather than Nvidia as chip stocks fall. Investors have been pocketing high gains after several good years, and between high spending and high valuations there are fears about what happens next.
Nvidia keeps growing at high rates, but Saibil writes that other chip stocks might be gaining ground. She also sees a possible ceiling on the stock, since Nvidia is already valued at more than $5 trillion.
Alphabet's cloud revenue climbs 82%
Warren Buffett and Greg Abel have been piling into Alphabet stock, which just plunged to its cheapest level in more than a decade. The market did not like the company's AI spend guidance for the year at $205 billion, topping Amazon's $200 billion.
That reaction ignored the second quarter, when revenue increased 24% year over year, cloud revenue rose 82% and operating income was up 30%. Alphabet carries a cloud backlog of $514 billion and trades at 16 times trailing 12-month earnings.
Amazon's chip business runs at $50 billion
CEO Andy Jassy said Amazon's chip business, as a stand-alone business, has a $50 billion run rate and is one of the three largest chip businesses in the world. Revenue increased 17% year over year in the second quarter, with a 28% increase in cloud revenue, the highest in 15 quarters.
However, the market is worried about the company's spending and whether it will pay off, and Amazon stock is trailing the S&P 500 this year. The stock trades at 28 times trailing 12-month earnings, just off a 10-year low.
TSMC expects to spend $265 billion in Arizona
Taiwan Semiconductor Manufacturing makes the chips its clients design and works with all of the top chip companies, including Nvidia, Alphabet and Amazon. Second-quarter sales increased 34% year over year, and operating margin expanded from 49.6% to 60.3%.
The company recently opened a U.S. location in Arizona and expects to spend $265 billion on the campus. Management raised its capital expenditure outlook for the year and does not anticipate any bottlenecks for the next few years.
TSMC's stock fell after its recent earnings report and trades at a P/E ratio of 29. Because it works with many different clients across a large range of technologies, Saibil writes, the company is not actually tied to the AI supercycle that is driving growth right now.
Source: The Motley Fool
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