Consider if it's worthwhile to pass up Palantir and invest in two AI-focused stocks instead.
In the rapidly evolving world of artificial intelligence (AI), two companies stand out for their significant contributions - Nvidia and Taiwan Semiconductor Manufacturing Company (TSMC).
Nvidia, a leading player in the AI semiconductor space, has reported a spike in its data center revenue. The first quarter of fiscal 2026 saw a 73% increase, reaching an impressive $39 billion. The company's management estimates that revenue will climb a further 50% in the second quarter, reaching $45 billion.
Nvidia's processors are estimated to account for 75% to 95% of all AI semiconductors, making it a dominant force in the market. The company's non-GAAP (adjusted) earnings were up 33% from the year-ago quarter, and its reported P/E ratio is about 56, on par with the rest of the semiconductor industry.
TSMC, on the other hand, is estimated to make 90% of the world's most advanced processors. The company manufactures processors that many companies design, including those for AI. TSMC's business has been booming due to the surge in AI processor demand, and its AI revenue is expected to double this year compared to last year's sales.
TSMC's earnings surged 61% in Q2 2025, and the company's stock trades at a P/E ratio of just 29, which is at the S&P 500 index's average. Any investor fears that artificial intelligence demand is cooling down should be put to rest regarding TSMC.
Investing in some of the tangible parts of AI, such as processors and manufacturing, could be a good way to include diversification into an artificial intelligence-heavy portfolio. It's wise to spread out investments across a handful of AI stocks, including TSMC.
Meanwhile, Palantir Technologies, a company whose services are used by the U.S. government and companies, has seen its shares surge 480% over the past year. However, Palantir Technologies' price-to-earnings ratio is 690, which is significantly higher than both Nvidia and TSMC. Furthermore, the company is loss-making, making a standard P/E comparison with other companies in the industry not meaningful.
In conclusion, Nvidia and TSMC offer attractive valuations and are key players in the AI semiconductor market. Investing in these companies could provide a balanced approach to an AI-heavy portfolio, offering exposure to the tangible aspects of AI development and manufacturing.
Sources: 1. August 10, 2025 market write-up 2. July 2025 commentary 3. Zacks reporting of forward multiples as of early August 2025 4. July 2025 commentary 5. YCharts reporting of forward multiples as of early August 2025
Investing in the finance sector of technology, particularly in companies like Nvidia and Taiwan Semiconductor Manufacturing Company (TSMC), could offer a balanced approach to an artificial intelligence-heavy portfolio. These companies, with Nvidia dominating the AI semiconductor market and TSMC manufacturing the majority of the world's most advanced processors, provide exposure to the tangible aspects of AI development and manufacturing. Given their attractive valuations and key roles, they could be wise additions to any portfolio seeking to diversify within the AI industry.
