Because TSMC, KLA, and Lam Research Stocks all popped on Monday

Good news from the Taiwanese company Hon Hai Precision Industry (better known as Foxconn) spread to the benefit of semiconductor stock in general today. Foxconn reported sales growth of 15% in Q4 2024, to $63.9 billion, a number that CNBC characterized as a “bumper sales performance.”

Strong implied demand for AI semiconductor chips launched shares of Taiwan Semiconductor Manufacturing Company (NYSE: TSM) to an all-time high at Monday’s opening bell. At 10:35 am ET, TSMC shares remained up a solid 4.9%. Actions of KLA (NASDAQ: KLAC) and Lam Research (NASDAQ: LRCX)both of which supply semiconductor manufacturing equipment to TSMC, did even better, 5% and 5.8%, respectively.

Commenting on the results, CNBC noted that Foxconn saw “slight declines” in sales of PCs and smart consumer electronics, but its cloud and networking products, including servers used to support AI functions, they had robust growth. Investors quickly extrapolated from this that growth should be good for the major AI chipmakers Nvidia and to his contract manufacturer TSMCand also to the companies that make the machines that allow TSMC to make those chips, KLA and Lam Research.

In addition to reinforcing this thesis, on Friday Microsoft announced plans to invest “$80 billion to build AI-enabled data centers to train AI models and deploy AI and cloud-based applications around the world.”

Long story short, the AI ​​revolution seems far from over. Investors buy shares of almost anyone and everyone involved in this industry today.

That doesn’t necessarily mean that did you However, you should buy AI stocks indiscriminately.

On the one hand, yes, if Foxconn’s good news and Microsoft’s massive investments mean AI growth will continue into 2025, there are likely deals to be found. TSMC stock, for example, trades for about 28 times earnings, and Wall Street analysts agree that the stock will likely continue to grow earnings at 28% or more annually over the next five years. . This implies that the shares of TSMC, at least, remain quite cheap.

KLA stock, on the other hand, costs more than TSMC (29 times earnings as opposed to 28 times) and the company is growing more slowly. Analysts predict just 15% long-term growth for KLA, giving the stock a price/earnings-to-growth (PEG) ratio of nearly 2, which stretches the definition of what I call “fairly priced.” (KLA also pays a smaller dividend yield than TSMC, just 1% as opposed to 1.7%).

The Story Continues