The graphics specialist seems set to deliver a solid set of results next week, and that’s likely to give these two stocks a shot in the arm.
Nvidia (NVDA 0.98%) is set to release its fiscal 2025 second-quarter results (for the three months ended July 28) on Aug. 28. The market is eagerly looking forward to the chip giant’s numbers, considering that it is playing a pioneering role in the proliferation of artificial intelligence (AI).
While there have been concerns of late about Nvidia’s ability to sustain its AI-fueled growth, a closer look at recent developments indicates that the company could indeed deliver better-than-expected results. The demand for Nvidia’s graphics cards has been exceeding supply, and its share of the market for AI graphics processing units (GPUs) is so strong that analysts are expecting its outstanding growth to continue beyond the current fiscal year.
More importantly, a solid set of results from Nvidia will give the AI ecosystem a nice lift, as its GPUs are the critical building blocks for companies looking to build and deploy AI applications. This article takes a closer look at two names that are key players in the AI market and likely to benefit from Nvidia’s impressive results because of their ties to the company.
1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM -0.35%), popularly known as TSMC, is the world’s largest semiconductor foundry, with a market share of nearly 62%. As Nvidia is a fabless semiconductor company, it utilizes TSMC’s production facilities to manufacture its chips. So, the healthy demand for Nvidia’s AI chips also translates into more orders for TSMC, leading to impressive growth in the latter’s revenue and earnings.
It is worth noting that TSMC has been witnessing an acceleration in its growth this year, thanks to clients such as Nvidia.
TSM Revenue (Quarterly) data by YCharts
TSMC reported year-over-year revenue growth of 13% in the first quarter of 2024 to $18.9 billion. This was followed by stronger growth in Q2 when its top line jumped 33% from the year-ago period to $20.8 billion. The foundry giant has guided for $22.8 billion in revenue for Q3, which would be an increase of 34% from the same period last year.
However, TSMC’s revenue for July increased an impressive 45% year over year, suggesting that it is on track to grow at an even faster pace in the current quarter. Also, solid results from Nvidia are likely to lift the confidence of TSMC investors. That’s because Nvidia’s AI chips are manufactured using TSMC’s advanced process nodes.
For instance, Nvidia’s highly popular H100 AI graphics card is built using TSMC’s 5-nanometer process node. What’s more, Nvidia is reportedly one of the companies that have completely booked out TSMC’s 3nm chips for the next couple of years. Not surprisingly, TSMC is focused on expanding its production capacity to meet the strong demand from customers, such as Nvidia, and recently approved a $30 billion expansion plan to construct new fabrication facilities and upgrade existing ones.
All this explains why better-than-expected results from Nvidia are likely to rub off positively on TSMC stock, which is why investors should consider buying it while it is trading at just 27 times forward earnings, a discount to the U.S. technology sector’s average of 44.
2. Micron Technology
Nvidia’s AI GPUs are equipped with a special type of memory known as high-bandwidth memory (HBM) to accelerate AI workloads, and Micron Technology (MU 0.32%) is one of the companies supplying the graphics card specialist with this chip. On its June earnings conference call, Micron management said the company expects to generate “several hundred million dollars” in HBM revenue in the current fiscal year 2024, which will end this month, followed by “multiple billions of dollars in revenue from HBM in fiscal 2025.”
It is worth noting that Micron has sold out its HBM capacity for 2024 and 2025. However, the company is looking to win a bigger share of this market by expanding its customer base and developing HBM chips that could deliver more power and efficiency. That’s a smart thing to do, considering that the HBM market is forecast to generate $14 billion in revenue this year and $20 billion in revenue in 2025, up from just $5.5 billion last year.
This outstanding growth in the HBM market is directly proportional to the growing AI chip demand, as the likes of Nvidia and AMD have been looking to pack their offerings with more of this memory. The good part is that the AI-fueled surge in the memory market is driving a turnaround in Micron’s fortunes, leading to a recovery in its margins and helping the company return to revenue growth.
MU Revenue Estimates for Current Fiscal Year data by YCharts
Analysts are expecting Micron’s revenue to increase by 61% in fiscal 2024 to $25 billion, followed by a 54% increase in fiscal 2025 to $38.6 billion. Meanwhile, it is expected to post a profit in the current fiscal year as compared to a loss of $4.45 per share in fiscal 2023.
MU EPS Estimates for Current Fiscal Year data by YCharts
However, the stock’s performance has been volatile lately, and it lost 25% of its value in the past couple of months. With the stock currently trading at an incredibly attractive 12 times forward earnings, investors can consider buying it before Aug. 28, as Nvidia’s results are likely to give the memory specialist a shot in the arm.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
