It might seem intimidating to buy stocks as the S&P 500 and Nasdaq Composite hover near their all-time highs. After all, Warren Buffett told investors to be "fearful when others are greedy" -- and plenty of high-growth stocks are trading at greedy valuations.
So if you plan to invest at least $50,000 in this frothy market, you should carefully seek out the market leaders that are still expanding, have wide moats, and look undervalued relative to their growth potential. I believe these three resilient stocks check the right boxes: Broadcom (AVGO -1.47%), Advanced Micro Devices (AMD 0.10%), and Taiwan Semiconductor Manufacturing (TSM -0.70%).
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The underrated AI play: Broadcom
Broadcom, which was known as Avago Technologies before it acquired the original Broadcom eight years ago, is one of the world's top chipmaking and infrastructure software companies. Its chipmaking business provides a wide range of chips for the mobile, wireless, networking, data storage, and industrial markets. Its infrastructure software business, which it expanded via some big acquisitions, provides cloud and security services.
The company's chipmaking and software businesses are both growing, and it's benefited from the rapid expansion of the artificial intelligence (AI) market over the past two years. In fiscal 2024 (which ended in October), its sales of AI-oriented networking and optical chips more than tripled to $12.2 billion and accounted for 24% of its total revenue. That growth offset its declining sales of non-AI chips, which face more cyclical and macro challenges.
For fiscal 2025, analysts expect its revenue and adjusted earnings per share (EPS) to grow 18% and 27%, respectively, as it continues to grow its AI-oriented businesses. Its stock is still reasonably valued at 29 times forward earnings, and it could head a lot higher as its other non-AI chip and software businesses flourish in a warmer macro environment.
The resilient underdog chipmaker: AMD
Advanced Micro Devices, or AMD, is the world's second-largest producer of x86 CPUs and discrete GPUs. It trails behind Intel and Nvidia in those two markets, respectively, but it's continued to grow by selling comparable chips at lower prices.
Unlike Intel, which manufactures most of its own chips, AMD is a fabless chipmaker that outsources its production to Taiwan Semiconductor and other foundries. That strategy enabled it to avoid the industry's supply chain constraints while pulling ahead of Intel in the "process race" to manufacture smaller and denser chips.
AMD's growth slowed last year as the PC market cooled off. However, its year-over-year revenue growth accelerated again over the past two quarters as the PC market stabilized and its sales of AI-oriented data center chips (which include its EPYC CPUs for servers and Instinct GPUs for AI applications) surged. Data center revenue accounted for more than half of its revenue in its latest quarter, and that percentage will likely keep climbing as the generative AI market expands.
Analysts expect AMD's revenue and adjusted EPS to grow 13% and 25%, respectively, this year as it recovers from the PC market's slowdown. For 2025, they expect its revenue and adjusted EPS to jump 27% and 54%, respectively, as those headwinds dissipate and the AI tailwinds kick in. Those are impressive growth rates for a stock that trades at just 26 times forward earnings.
The semiconductor linchpin: TSMC
Taiwan Semiconductor, also known as TSMC, is the world's largest and most advanced contract chipmaker. It produces chips for fabless chipmaking giants like Nvidia, AMD, Apple, and Qualcomm. TSMC's revenue fell 9% in 2023 as PC shipments declined and the 5G upgrade cycle for smartphones ended.
In 2024, it expects its revenue to grow nearly 30% as the PC and smartphone markets stabilize and the AI market expands. The AI market's explosive growth should generate strong long-term tailwinds for TSMC's high-performance computing (HPC) segment, which produces the powerful AI data center GPUs for Nvidia and AMD. Analysts expect its revenue and EPS to grow 33% and 36%, respectively, for the full year.
In 2025, TSMC plans to ramp up production of its smallest and densest 2 nm chips. These chips should keep it ahead of its closest competitors, Intel and Samsung, and maintain its position as the linchpin of the global semiconductor market. Analysts expect its revenue and EPS to grow 25% and 26%, respectively, for the year. TSMC's growth is cyclical, but it trades at just 21 times forward earnings and is one of the simplest ways to profit from the growth of the chipmaking and AI markets.
