Nvidia’s (NASDAQ:NVDA) | NVDA Price Prediction stock price has been on a tear in recent years, and is undoubtedly the best-performing mega-cap stock in the market. On certain days, NVDA stock looks more like a penny stock than a $3 trillion behemoth, but that’s just the way the markets seem to operate in this era of heightened options volume and increased volatility.
This stock is up more than 500% since early 2023 on strong AI chip demand. The company has seen continuous triple-digit revenue and earnings growth, something that’s a rarity among many companies, particularly those in this market capitalization echelon.
That said, Nvidia’s growth could benefit other suppliers that are largely hidden away from the view of most investors. Here are three such companies that could benefit from Nvidia’s meteoric rise, and see similar surges of their own.
Key Points About This Article:
- Nvidia’s AI-driven surge has turned the mega-cap giant into a volatile trading play for many investors, with its upside momentum remaining strong.
- However, various Nvidia suppliers may be better bets in this current environment as ways to play this surge in interest around AI stocks.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Fabrinet (FN)
Semiconductor chip manufacturing
Fabrinet (NYSE:FN) is a global leader in precision manufacturing. The company focuses on a range of sectors, including telecommunications and medical devices, with its precision manufacturing technology also keenly important for chip production. In fact, Nvidia accounted for 35% of Fabrinet’s annual sales this past year, rising from a share of around 12.5% the previous year, indicating the kind of growth Fabrinet is seeing as a result of its direct ties to the chip maker.
The company’s recent strong financial results were headlined by record revenue for the fourth consecutive quarter. Top-line revenue came in at $753.3 million, up 15% year-over-year, with earnings per share hitting $2.41. Additionally, Fabrinet’s Board approved expanding its share repurchase program by $139.5 million.
The company expects record sales between $760 million and $780 million in the September quarter. I think such numbers may be light, particularly if the company’s Nvidia business continues to grow. Additionally, outside of Nvidia, Fabrient is seeing strong growth, with its telecom business set to expand dramatically over the coming years.
As Fabrinet’s profitability profile continues to improve, I think its price-earnings ratio of around 30-times will prove to be light. This is a picks-and-shovels way to play Nvidia’s infrastructure I think investors shouldn’t ignore.
Keysight (KEYS)
A semiconductor manufacturing machine
Keysight Technologies (NYSE:KEYS) is another key Nvidia supplier, offering electronic design and test solutions to companies in various industries. With a $27 billion market capitalization, this is no small company. But I have to admit, before researching this article, I hadn’t stumbled upon Keysight yet. That suggests that perhaps there’s opportunity for other investors in a similar boat.
Notably, KEYS stock has underperformed the S&P 500 over the past year, which is another reason why many investors may have overlooked this stock. That said, Keysight did report strong earnings on August 21, bringing int $1.22 billion in revenue for its fiscal third quarter, down 12% year-over-year but exceeding forecasts. Adjusted EPS rose slightly to $2.22, surpassing expectations.
Macroeconomic challenges impacted demand across Keysight’s two segments, CSG and EISG, leading to revenue declines. Despite this, orders increased to $1.25 billion from $1.24 billion a year prior. CEO Satish Dhanasekaran indicated that the company’s order pipeline supports a stronger second half of the year and a gradual recovery in 2025, assuming no further economic downturns.
I think Keysight is certainly an intriguing stock to consider due to its ties to Nvidia alone. This is a company trading at a reasonable trailing price-earnings ratio of less than 30-times, and could be poised for much further upside, if the tailwinds behind Nvidia propel this stock even higher.
Taiwan Semiconductor (TSM)
A Taiwan Semi office building
Taiwan Semiconductor (NYSE:TSM) is among the top chip stocks in the world, a major supplier for Apple and Nvidia, among other key semiconductor names. Unmatched in its scale and technology, the company’s 3nm chip is the world’s smallest and most powerful, with an upcoming 2nm chip in development promising at 25%-30% improvement in energy efficiency. Indeed, if we’re going to see the kind of AI revolution everyone expects, Taiwan Semi’s core technology is going to become even more important.
The company has projected a 15-20% compounded annual growth rate moving forward for revenue, driven by core demand from companies like Nvidia and a 50% CAGR for overall AI demand over the medium-term. While Nvidia’s growth is notable, TSMC’s stability and technological advancements offer a compelling investment alternative.
Since 2022, Taiwan Semi has secured NT$62.5 billion ($1.95 billion) in subsidies from China and Japan. In the first half of 2024 alone, the company received NT$7.96 billion, following NT$47.55 billion in 2023 and NT$7.05 billion in 2022, according to the Taipei Times.
Additionally, the company has also focused on expanding into Western markets, recently starting construction on an $11 billion plant in Germany, supported by €5 billion in state aid. Taiwan Semiconductor plans to raise prices for international projects to achieve its long-term gross margin target of 53%.
Assuming these tailwinds remain in place, this is a long-term stock I think is worth owning right now at current levels.
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