NVIDIA‘s (Nasdaq: NVDA) stock keeps soaring after its split. The company closed Friday at $131.88, and its shares are now up a whopping 39% since the company reported earnings. Let me repeat that so it can sink in, NVIDIA closed at an adjusted price of $94.95 on May 22nd before it reported earnings after hours and is already past $130 per share! That is an incredible jump for a company of its size.
I’ve previously written about why I thought NVIDIA was likely headed past $150 by the end of summer, yet I can see why investors might be looking at NVIDIA’s meteoric rise and wondering if it’s time to lighten up on their ownership or are afraid to purchase the stock at these levels. If you’re looking for AI ideas but want some stocks that haven’t run up quite as much or are “cheaper,” here are three great ideas.
1. Celestica 
Source: Celestica
Source: Celestica
I previously wrote up Celestica as a top AI opportunity in May. The company is an ODM, which in plain English means it will help companies like Google get all the components to build their data centers. As you can imagine, this has always been kind of a sleepy part of the tech industry, but it’s now in focus. It’s not just that the growth of AI is putting more demand on building out data centers, but also their complexity is increasing. For example, features like liquid cooling are now becoming essential.
This is great news for Celestica (NYSE: CLS) as it has great relationships in the hyperscaler market with customers like Google. As their data center revenue scales (and data centers get more complex in the AI age), Celestica’s margins are increasing as well. Last quarter sales jumped 20% while operating income (EBIT) surged 114%.
And the future looks bright as well. When Celestica last reported earnings they updated 2024 outlook as follows:
- Revenue guidance up to $9.1 billion (previous guidance of $8.5 billion)
- Adjusted operating margin of 6.1% (previously was guided to 5.5% to 6%)
- Adjusted EPS of $3.30 (previous outlook was $2.70)
- Adjusted free cash flow of $250 million (previous outlook was $200 million)
The company trades for about 21X trailing earnings (NVIDIA is currently at 77X by comparison), and when I look at their forward estimates I see a stock that Wall Street continues to underestimate. For example, Wall Street estimates still call for “just” $9.12 billion in revenue this year, which is only slightly above their raised guidance. With trends behind AI data center build outs continuing to grow stronger, it wouldn’t surprise me if the company once again raised guidance and Wall Street was forced to continue taking target prices up on the company.
2. Vertiv
Source: Vertiv
While talking about Celestica I briefly mentioned liquid cooling, which is a market that needs more exploring.
According to estimates from JPMorgan’s research team, components built to cool data centers will have a 54% CAGR from 2023 to 2028. To put that in perspective, that’s a higher growth rate than most estimates for the actual AI processors like NVIDIA makes!
The reason for this growth level is twofold. One, AI chips simply have higher power consumption needs. Second, they generate incredible amounts of heat. In the past, much of the cooling in data centers came from cooling fans, but they simply won’t provide enough cooling for future chips like NVIDIA’s B200.
Liquid cooling has some major advantages. The first is simply that liquids move heat more effectively than air. Second, it allows data centers to be built more compactly since space isn’t needed for fans and airflow. Third, it’s also more power efficient, which is becoming a huge consideration as power is often 40% to 50% the cost of running a data center.
The cost of liquid cooling can be a high upfront cost – think $20,000 to $50,000 per coolant distribution unit (CDUs) – but for the reasons stated above it’s becoming essential.
The company benefitting the most from this trend is Vertiv (NYSE: VRT), which is a dominant force in coolant distribution units. If you look at the company’s chart, you might think you’ve missed its run. Shares are up 100% year-to-date and 305% over the last year, which is NVIDIA-level performance.
And yet, this is a company that could be a good portfolio addition even after these gains. Net income is forecasted at $598 million this year, but that number is projected to rise to $2.14 billion by 2028.
The key reason behind that growth is simply what we stated above, the cooling market is growing at a 54% CAGR between 2023 and 2028 and Vertiv’s profits are growing alongside that market at a CAGR of 36%.
If you’re looking for a company riding a trend that should succeed whether NVIDIA continues gaining share or loses some, Vertiv is a strong contender for a spot in your portfolio.
3. Taiwan Semiconductor
Source: Taiwan Semiconductor
Taiwan Semiconductor (NYSE: TSM) has long been one of my portfolio’s core holdings. That being said, even this “late” into the growth of AI, it’s a stock I’m comfortable continuing to add to.
The background on the company is they’re the dominant manufacturer of cutting-edge semiconductors, but let me walk through a few near-term catalysts for the company.
1.) Taiwan Semiconductor’s largest customer is Apple (Nasdaq: AAPL). Prior to the company’s WWDC event, I predicted its stock would rally through the summer as it became clear AI would generate a coming “supercycle” for iPhone upgrades. Lo and behold, Apple’s stock has been surging in recent weeks as Wall Street ups their estimates on the stock and comes to the same company. This should lead to more profit growth at Taiwan Semiconductor that Wall Street is still behind on adding to their models for the company.
2.) TSM’s CEO recently met with NVIDIA CEO Jensen Huang and reportedly received his blessing on raising prices. Here’s what C.C. Wei had to say:
“I did complain to Nvidia’s CEO Jensen Huang — the ‘three trillion guy’ — that his products are so expensive. I think those products are really valuable for sure, but I am thinking about showing our values as well.”
3.) Reports that Taiwan Semi’s main rival Samsung is having problems ramping cutting-edge semiconductor nodes speak well to Taiwan Semi’s ability to raise prices and competitive positioning at a time AI is leading to booming demand for advanced chips.
Add it all up and my very strong suspicion is that Wall Street is currently underestimating Taiwan Semiconductor’s profits for the next 12-18 months. As they raise these estimates its stock should continue to gain.
Taiwan Semiconductor currently trades for 18.7X 2025 earnings. If Wall Street estimates continue rising, that number could drop to 16X or 17X next year’s earnings. That’s cheaper than the S&P 500 average, for one of the most dominant companies in AI.
Not bad at all.
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