Nvidia vs Taiwan Semiconductor Manufacturing: Which Artificial Intelligence (AI) Stock Is a Better Buy Right Now?
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Adam Levy, The Motley Fool
Thu, December 4, 2025 at 6:06 PM CST 6 min read
[NVDA
+2.11%](/quote/NVDA/ "NVDA")
[TSM
-0.85%](/quote/TSM/ "TSM")
Key Points
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* Nvidia and Taiwan Semiconductor Manufacturing dominate the markets in which they operate.
* Both companies have wide moats protecting their businesses, but their stocks aren't without risks.
* The best investment comes down to whether analysts' estimates have more upside or downside potential.
* 10 stocks we like better than Nvidia ›
The major advances in artificial intelligence (AI) we've seen over the last few years wouldn't be possible without continued improvements in semiconductor capabilities. AI developers rely on data centers full of the most advanced chips from companies like Nvidia (NASDAQ: NVDA) to train new and bigger large language models. The growing use of AI has further increased demand for graphics processing units (GPUs) and other AI accelerator chips, as the compute needs for AI inference continue to rise.
Nvidia has been the biggest beneficiary of the growing demand for processing power, but the company doesn't manufacture the chips it designs. It works with Taiwan Semiconductor Manufacturing (NYSE: TSM) to print and package its GPUs. TSMC has also produced strong financial results, thanks to growing demand from Nvidia and a host of other customers.
Both semiconductor stocks have experienced significant growth over the past few years. Nvidia's stock price has climbed over 900% over the last three years, while TSMC's stock is up a respectable 250%. However, investors should always look forward to what's next for a stock.
With that in mind, which is a better buy now?
Image source: Getty Images.
Nvidia: The GPU king
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Nvidia has seen insatiable demand for its market-leading GPUs. During the company's most recent earnings release, CEO Jensen Huang described sales of the most recent Blackwell platform as "off the charts." Indeed, the company produced revenue growth of 62% year over year in the most recent quarter, bringing its quarterly total to $57 billion.
That speaks to the huge hardware technology lead Nvidia has built. That's further strengthened by its CUDA software, which allows developers to easily run thousands of Nvidia GPUs together. This has created significant switching costs for developers, and it's easier to pay a premium price for Nvidia chips than to pay for more price-efficient chips from competing GPU makers or custom hardware.
However, the price may be worth it for Nvidia's biggest customers, who make up the vast majority of its revenue. The company disclosed that four customers accounted for more than 10% of sales in the most recent quarter, totaling 61% of sales combined.
Those customers are likely Microsoft, Meta Platforms, Amazon, and Alphabet. All four are working on custom AI accelerators to displace their reliance on Nvidia, and Meta is reportedly considering doubling down on custom chips by partnering with Alphabet to use its Tensor Processing Units.
The growing use of alternative chips from Nvidia's largest customers is the biggest risk facing Nvidia. Meanwhile, its hardware lead is shrinking, as competing GPU makers and custom solutions catch up in design capabilities.
The stock trades for just 24 times analyst estimates for fiscal 2027 (mostly calendar 2026). At that price, a significant portion of the risk is already factored in. But a slowdown in sales to any one of the big four customers could cause those estimates to come down considerably, and Nvidia could see its earnings multiple compress if it misses analysts' targets. As long as its biggest customers continue to build out new data centers and outfit them with as many Nvidia GPUs as they can get their hands on, the stock can keep climbing.
TSMC: A behind-the-scenes industry giant
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Taiwan Semiconductor Manufacturing has seen its market share in the contract chip manufacturing business surge amid the AI boom, as demand for the most advanced semiconductors has led to a rise in sales across the industry. For anyone seeking the most advanced chip manufacturing capabilities, TSMC is practically their only choice, especially if they anticipate large-scale manufacturing needs. As a result, TSMC has seen its dollar share of the market rise above 70%.
That's reflected in the 40.8% year-over-year increase in revenue last quarter and its gross margin expanding to 59.5%. Management expects to maintain that high gross margin, but revenue growth should slow to the 20% range this quarter. October sales grew 17% on a constant-currency basis as the Taiwanese Dollar strengthened, relative to the U.S. Dollar.
TSMC's position as the leading advanced chip manufacturer appears secure from a technology standpoint. It works closely with companies like Nvidia to develop the next generation of processes, which ensures it's able to book the biggest customers years in advance.
That provides clarity on how much to invest in new facilities to meet demand. Considering the company brings in substantially more revenue than its next closest competitor, it's able to invest more in research and development for the next-generation process, ensuring it maintains its technological lead.
The biggest threats to TSMC are geopolitical in nature. So far, it's been able to dodge tariffs imposed by the U.S. government. However, relations between Taiwan and China could disrupt its supply if war breaks out in the region.
TSMC has started geographically diversifying its facilities, including new foundries in Arizona. With the stock trading around 23 times analysts' 2026 expectations, investors seem to be factoring in those risks in pricing the shares.
Which is a better buy right now?
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With both stocks trading at similar multiples of future earnings expectations, choosing between the two might come down to investor preference. Nvidia may have more upside, as it continues to grow rapidly and analysts anticipate a long runway for continued earnings growth.
However, the uncertainty at Nvidia is higher, as it faces multiple sources where weakness could negatively impact those earnings estimates that are propping up its value. What's more, the competition is growing relatively stronger, and there are growing signs of its biggest customers moving away from the GPU leader. So the risks are looking more relevant at this stage.
Meanwhile, TSMC doesn't promise the same upside as Nvidia but is likely a less volatile investment. It has successfully mitigated the risks it faces to the extent possible (while they have been an overhang on the company for decades). The company should be able to maintain very high earnings growth for years to come, barring catastrophic disruption.
My preference is for TSMC at the current price. I have more confidence in its ability to grow the bottom line at the levels analysts expect.
Should you invest $1,000 in Nvidia right now?
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Adam Levy has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Nvidia vs Taiwan Semiconductor Manufacturing: Which Artificial Intelligence (AI) Stock Is a Better Buy Right Now? was originally published by The Motley Fool
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