That’s higher than some analysts expected. Earlier this year Morgan Stanley Broadcom’s custom AI chip revenue opportunity is between $20 billion and $30 billion, noting that this market is capable of growing at a compound annual growth rate of 20%. Based on this growth rate, the custom AI chip market would have grown to $51 billion in three years at the high end of the forecast range.

So recent comments from Broadcom management suggest the opportunity could be much bigger. More importantly, Broadcom is collaborating with TSMC and leveraging its advanced chip packaging capability to set new standards in the custom AI chip market and develop more powerful processors that can deliver better performance.

On the other hand, TSMC will likely continue to benefit from strong demand for GPUs used in data centers. AMD management noted on the October 2024 earnings call that the size of the AI ​​accelerator market could grow at an annual rate of 60% and reach $500 billion in 2028. Nvidia, on the other hand, sees a $1 trillion revenue opportunity The data center market is getting bigger thanks to the shift from general-purpose computing to GPU-powered accelerated computing.

Not surprisingly, TSMC is busy increasing its capacity to produce more chips to meet these customers’ demand for AI chips. According to Taiwan-based financial newspaper Commercial Times (via TrendForce), TSMC is expected to double its advanced chip packaging capacity to 70,000 wafers per month in 2025, followed by a further increase to 90,000 wafers per month in 2026.

The improved capacity should allow TSMC to fulfill more orders from customers producing AI chips and ultimately maintain robust growth in sales and profits.

The rapid rise in Palantir stock has made it quite expensive. More specifically, Palantir has a price-to-earnings ratio of 411, along with a forward earnings multiple of 172. TSMC is far cheaper on both fronts. The trailing win multiplier is 33, while the future win multiplier is 23.

What’s interesting here is that TSMC’s 2025 earnings are expected to grow at a faster rate of 27% to $8.93 per share, compared to Palantir’s forecast earnings growth of 25% to $0.47 per share. As a result, TSMC is currently the much cheaper AI stock compared to Palantir, and buying it seems like a no-brainer given the former’s expected faster earnings growth.

Additionally, TSMC’s dominance in the foundry market, where it holds a solid 64% share – well ahead of second-place Samsung Foundry’s 12% – means it is well positioned to drive long-term growth in AI chips to optimal use. All of this makes TSMC a top stock to buy, and investors who missed Palantir’s phenomenal run may consider buying the Taiwanese foundry giant before it soars following impressive earnings in 2024 .

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.

Missed Palantir’s prelim? My top artificial intelligence (AI) stock to buy and hold. was originally published by The Motley Fool