Affordable AI solutions at half the price

In recent years, the U.S. stock market has paid close attention to technology stocks, especially companies leading the artificial intelligence revolution like NVIDIA. After reaching new all-time highs, NVIDIA is now the “consensus” investment, leaving investors searching for the next opportunity.

Exchange Traded Funds (ETFs) provide investors with exposure to a wide range of sectors, including technology. ETFs focused on emerging markets have attracted a lot of institutional attention, such as the iShares Core MSCI Emerging Markets ETF which brought in up to $54 million in institutional buying in the first quarter of 2024. This marked an all-time high in the S&P index. 500 may have spooked some investors into thinking that potential interest rate cuts were already priced into the market.

One of the best performing emerging market ETFs, the iShares MSCI Emerging Markets ex China ETF NASDAQ: EMXC, gives investors a lot to think about with its top holdings. From the beginning, the Taiwan Semiconductor Manufacturing Co. New York Stock Exchange: TSM is one of the hottest options in the semiconductor industry and can help investors gain exposure to the AI ​​revolution at half the price.

Taiwan Semiconductor’s race to the top

With an 11% weighting of the ETF, Taiwan Semiconductor stock is EMXC’s top holding. Interestingly, Samsung Electronics Co. comes in second place with 5.6%. The ETF appears to be increasingly leaning towards opportunities in emerging markets exposed to the chip rush, with an attached discount.

Compared to the IT sector, Taiwan Semiconductor stock’s P/E ratio of 27.6x gives investors an 86% discount to its peers. By NVIDIA NASDAQ:NVDA A richer valuation of 36.6x is also 56% more expensive than that of Taiwan Semiconductor, where investors can find their upside gap.

Analysts believe Taiwan Semiconductor’s earnings per share (EPS) could grow as much as 24% over the next 12 months, putting it above NVIDIA’s 13% projection. It may be a sign of a slowdown from where markets have bid up NVIDIA stock thus far, but that’s not all. With its stock price target of $911, NVIDIA analysts believe this stock has approximately 4.5% upside from where it trades today. On the other hand, analysts of Susquehanna Bancshares Inc. expects Taiwan Semiconductor stock to reach a valuation of up to $180 per share, a target that would require an upside of up to 26% from today’s prices.

Despite seeing much greater upside and looking to grow its EPS at nearly double NVIDIA’s rate, Taiwan Semiconductor shares have underperformed NVIDIA by up to 155% over the past 12 months.

Investors have been reluctant to invest in Asian markets, as seen in China’s CSI 300 (their version of the S&P 500), which recently hit a 5-year low. As Taiwan faces a growing threat of Chinese invasion, some potential shareholders may have become spooked by the geopolitical risk.

Not everyone shrugged off Taiwan Semi

As of March 2024, PNC Financial Services Group Inc. has increased its position in shares of Taiwan Semiconductor by 18.3%. Given that the company’s net investment in the stock stands at $99.2 million, this allocation represents a purchase of approximately $18 million.

Markets as a whole have something else to say about Taiwan Semiconductor, as the stock is now trading at 90% of its 52-week high, as bulls push the stock towards higher momentum.

Meanwhile, worthy U.S. peers such as Advanced Micro Devices Inc. have returned to 75% of their 52-week high. However, its P/E ratio of 49.1x is still 118% more expensive than Taiwan Semiconductor’s valuation.

The US government is also stepping up. In the latest round of funding established by the Chips and Science Act, Taiwan Semiconductor received a grant of up to $11.6 billion to build additional chip plants in the United States. Now that the US manufacturing sector is entering new expansionary trends, as demonstrated by the first ISM Manufacturing PMI growth reading in more than a year, these new factories could be built at the perfect time for Taiwan Semi.

As long as the AI ​​race continues, companies like NVIDIA and even Apple Inc. will rely on Taiwan Semiconductor to make their chips. These two tech giants account for the most significant chunk of the chipmaker’s revenue.

Investors who have decided to exit NVIDIA’s potentially depleted momentum based on fundamentals may explore Taiwan Semiconductor as the next opportunity. Or at least that’s what Wall Street thinks.

Before you consider Taiwan semiconductor manufacturing, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Taiwan Semiconductor Manufacturing wasn’t on the list.

While Taiwan Semiconductor Manufacturing currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here