Mizuho desk analysts on Monday reflected on the latest batch of AI product launches during recent user conferences hosted by Dell (NYSE:DELL) and Microsoft (NASDAQ:MSFT), along with a new line of Qualcomm (NASDAQ:QCOM) chips designed for Windows PCs.
According to the analysts, the second half of 2024 and the calendar year 2025 are expected to mark the beginning of AI's expansion to edge devices, shifting the focus from large-scale cloud-based AI to personal computing devices like PCs, notebooks, iPads, and smartphones.
Such transition will necessitate more powerful neural processors (NPUs) and increased onboard memory to support advanced features such as natural language processing and personal chatbot assistance.
Although Qualcomm trades higher amid growing AI excitement, Mizuho analysts believe that companies like AMD (NASDAQ:AMD), Intel (NASDAQ:INTC), and Dell are unlikely to attract strong interest among investors based solely on their edge AI capabilities. Meanwhile, Apple (NASDAQ:AAPL) could gain some traction, though that seems more likely to happen in 2025, analysts noted.
Having said that, Mizuho believes investors should take a look at Taiwan Semiconductor, which they belive could be "the best way" to play the new AI wave. Speficially, Mizuho views TSM as “a potential winner for AI on the edge as the leader semi foundry who will make all the new NPUs and likely benefit from potential upgrade wave CY25 onward to AI-based CPUs and MPUs for PC/notebooks and smartphones.”
Analysts think that TSM will be able to charge a premium for these advanced chips, which will be produced using cutting-edge technology and are more complex in design.
Despite TSM's stock rising 48% year-to-date, outperforming the VanEck Semiconductor ETF (SMH), the chipmaker is still underperforming the SMH over the past two years by 3500 basis points.
TSM is projected to achieve a 22% year-over-year revenue growth this year and 20% the next year, with gross margins bottoming at 52% in Q3 2024 and reaching 54.7% by the end of 2025.
At the moment, the stock trades at 20x its estimated earnings per share for 2025, compared to its core AI semiconductor peers trading at 30-35x.
“TSM to me feels like the “swiss army knife” of AI semis,” Mizuho analysts said.
“They win no matter what chip manufacturer is most successful in AI on the edge (with exception of INTC). But the potential for volume and average selling price (ASP) uplift on mature smartphone and PC end markets is a win-win as investors look out to CY25/26 and model growth,” they added.
Even modest upgrade rates to AI devices are viewed as a “net positive driver” for the chipmaker’s revenue growth, margins, and valuation, Mizuho analysts continued.
“And 20x P/E to me seems almost too low for AI semi winners given current market with rates likely lower in yr vs higher,” they wrote.
Furthermore, the company is diversifying its manufacturing capacity outside of Asia, with new fabs in Europe and the US, reducing geopolitical risks.