Chicago, IL – November 18, 2024 – Today, Zacks Investment Ideas feature highlights Taiwan Semiconductor Manufacturing Co. TSM, Nvidia NVDA, Constellation Energy CEG and Micron Technology, Inc. MU.
3 AI Stocks to Buy Now on the Dip (Not Named NVIDIA)
Today’s episode of Full Court Finance at Zacks dives into the reasons behind the stock market’s run to fresh highs following Donald Trump’s presidential victory. The episode then explores three artificial intelligence (AI) stocks not named Nvidia to buy now on the dip—Taiwan Semiconductor, Constellation Energy, and Micron.
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The recent sideways movement helped cool off a red-hot market and more profit-taking seems likely at some point relatively soon given how far above some key moving averages both the S&P 500 and the Nasdaq are trading.
Thankfully, the next dip will likely be bought up rather quickly given how upbeat Wall Street is about the likelihood of lower corporate taxes, less red tape, and economic growth-focused efforts during a second Trump term. Wall Street is also pleased with the outlook for earnings growth and the Fed’s rate cut projections.
Even though the market is rather overheated, with Nvidia and others trading right near all-time highs, several impressive AI stocks are already trading well below their records.
Why Taiwan Semiconductor Stock is a Great Buy and Hold Tech Investment
Nvidia, Apple, and other technology heavyweights rely on Taiwan Semiconductor Manufacturing Co. to build their most cutting-edge chips.
Taiwan Semi pioneered the dedicated semiconductor foundry business model that transformed TSM into the most dominant player in the vital industry, earning a reported 61% of the semiconductor foundry market share in the fourth quarter of 2023.
Taiwan Semi is ramping up its industry-leading 3-nanometer technology, which is fueling the AI boom and beyond. Shipments of Taiwan Semi’s 3-nanometer chips accounted for 20% of total Q3 wafer revenue, up from 15% in Q2, with “advanced technologies” making up 69%.
The costs and institutional knowledge required to build the most cutting-edge semiconductors create an almost impenetrable moat around Taiwan Semi. TSM is addressing geopolitical fears by expanding its manufacturing footprint beyond Taiwan into Japan and the U.S. On top of that, Taiwan Semi pays a dividend and its balance sheet is solid.
TSM posted another beat-and-raise quarter in mid-October, providing upbeat AI-boosted guidance again. The chip maker is projected to grow sales by roughly 26% in 2024 and 24% in FY25 to soar from $69 billion in 2023 to $108 billion next year. Taiwan Semi is projected to boost its adjusted earnings by 30% and 28%, respectively. And its upbeat EPS outlook helps it earn a Zacks Rank #1 (Strong Buy).
Taiwan Semi stock has more than tripled the Zacks Tech sector over the past 20 years. TSM has climbed 255% in the past five years and 80% YTD. Yet TSM stock trades 9% below its mid-October highs and 19% below its average Zacks price target. TSM stock is attempting to find support at its 50-day moving average.
On the valuation side, Taiwan Semi trades at a 34% discount to its 10-year highs at 22.3X forward 12-month earnings and 17% below the Zacks Tech sector—Nvidia trades at 43.5X.
Why CEG Is a Must-Own AI and Nuclear Energy Stock
Constellation Energy cemented the long-term relationship between nuclear and AI when it secured its 20-year power purchase agreement with Microsoft in September.
Constellation is the largest U.S. nuclear power plant operator, boasting over 20 reactors at roughly a dozen sites across the Midwest, the Mid-Atlantic, and the Northeast. Constellation is retrofitting its current nuclear power plants to keep them running for a lot longer, reopening decommissioned plants, and venturing into next-gen nuclear technologies.
Constellation benefits from the U.S. government’s active support for nuclear energy expansion. The U.S. earlier this week doubled down on its pledge to triple its nuclear energy capacity by 2050. “The importance of AI and the data economy to America’s economic competitiveness and national security can’t be overstated, and Constellation will do our part to meet the moment,” CEO Joe Dominguez said in prepared Q3 remarks.
CEG posted solid Q3 results on November 4, pointing to “visible, double-digit long-term base EPS growth backed by the Nuclear Production Tax Credit.” CEG has boosted its balance sheet in 2024. This should help it grow through mergers and acquisitions and return more value to shareholders via buybacks and dividends.
Constellation announced in early 2024 its plans to boost its dividend per share by 25% in 2024, exceeding its 10% annual growth target.
Constellation shares have surged 95% YTD (10th best S&P 500 stock) and 145% in the last two years. CEG has dropped since its release as investors took home profits following its massive run. The nuclear energy giant is trading 20% below its early October highs and 22% below its average Zacks price target.
Constellation stock is trading at some of its lowest RSI levels over the past 12 months. CEG is also attempting to find support near its May highs. If Constellation stock falls to its 200-day moving average it might offer a great entry point for traders and long-term investors.
Buy This AI Semiconductor Stock Down 35% from Its Highs?
Micron Technology, Inc. is one of the largest makers of memory chips. MU’s offerings are found in PCs, smartphones, and most critically these days, data centers. Micron said earlier this year that AI will drive record demand for memory chips. Micron is currently a key memory chip supplier for Nvidia’s AI processors. Micron plans to build a leading-edge memory “megafab” to help meet growing memory chip demand.
Micron topped our Q4 FY24 earnings estimate in late September on the back of 93% YoY revenue growth, driven by “robust AI demand.” Micron is projected to grow its revenue by 52% in FY25 and another 25% next year to climb from $25 billion in FY24 to $48 billion in FY26 (following 61% YoY expansion in FY24).
MU’s earnings outlook has dipped slightly recently. Still, Micron’s FY26 consensus estimate is up 230% during the past 12 months. Micron is projected to more than double its adjusted earnings in FY25 (+130%) and 45% next year to expand from $1.30 a share in FY24 to $12.55 next year.
Wall Street dumped the historically volatile stock following its rally to all-time highs in June. Samsung and others are ramping up their memory chip efforts. But Micron’s growth outlook remains stellar, and 23 of the 27 brokerage recommendations Zacks has are “Strong Buys” and it pays a dividend.
MU stock has climbed 190% in the past 10 years, lagging tech’s 320%. Yet MU has soared 1,200% in the last 15 vs. Tech’s 620%. Micron trades 35% below its summer records and 46% below its average Zacks price target. MU is trying to find support near its 50-week and 50-day moving averages. MU is also trading at a 60% discount to tech at 10.9X forward earnings and near its 10-year median.
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