Without innovations in microchips, none of the technology we take for granted today would be possible. Smartphones, AI models, and vehicles depend heavily on this industry, making it a vital investment area.
I see three promising chip stocks that look like buys right now. They are Nvidia (NVDA -6.22%), Taiwan Semiconductor Manufacturing (TSM -3.90%), and ASML (ASML -1.42%). Each has a different thesis for why it will be a successful investment in 2025.
Nvidia
Nvidia can be considered a chip company because it manufactures GPUs that use a considerable amount of proprietary chip technology to make them best in class. Nvidia's top-performing GPUs have allowed it to capture nearly all of the artificial intelligence (AI) computing market, which has provided the company with massive growth over the past two years.
In 2025, Nvidia is working to ramp up production of its next-generation Blackwell architecture, which provides incredible improvements over the previous Hopper architecture. With many of Nvidia's largest clients warning investors they will continue ramping up data center spending in 2025 to meet the growing AI demand, Nvidia is primed to benefit once again.
Although 2025 won't bring the same explosive growth for Nvidia as the previous two years, Wall Street analysts still expect 51% growth for fiscal 2026 (ending January 2026). Considering Nvidia's $3.4 trillion market capitalization, that's incredible growth. Furthermore, Nvidia's stock isn't as expensive as it appears.
NVDA PE Ratio data by YCharts
With the company growing revenue at a 50% clip, 54 times trailing earnings really isn't a bad price to pay. As a result, I think investors can confidently take a position in Nvidia right now.
Taiwan Semiconductor
Nvidia's GPUs contain chips manufactured by Taiwan Semiconductor. Because TSMC is a chip foundry, companies like Nvidia send TSMC chip designs to fabricate. However, Taiwan Semi is a neutral party, as it also manufactures chips for competitor GPUs. This makes Taiwan Semiconductor an intriguing AI investment, as it is a true picks-and-shovel play on the AI boom.
Management hasn't been shy about letting investors know how much AI is benefiting the company. For 2024, management expects AI-related revenue to triple year over year and make up a mid-teens percentage of overall revenue. That's massive growth, and considering that Nvidia is still expected to grow in 2025, it bodes well for Taiwan Semiconductor.
TSMC will also launch its latest product, 2-nanometer (nm) chips, at the end of the year. These chips are expected to be far more power efficient than previous generations and will greatly reduce operating costs for expensive AI computing equipment.
With Taiwan Semiconductor trading at just 23 times forward earnings, it looks like a great stock to scoop up right now.
ASML
ASML isn't doing as well as the previous two stocks. ASML provides extreme ultraviolet lithography machines that are vital in the chip manufacturing process. No other company in the world has this technology, giving ASML a monopoly.
However, Western governments have used this monopoly as a tool in their quest to prevent China from overtaking them in technological prowess. As a result, the Netherlands (where ASML is headquartered) and the U.S. have placed export bans on some of its machines, only allowing the low-tech ones to be sold and serviced in China.
These bans have started to hurt ASML, as management had to cut 2025 revenue guidance from the original 30 billion to 40 billion euro range to between 30 billion and 35 billion euros. Still, the long-term growth picture is intact, as management's revenue guidance for 2030 of 44 billion to 60 billion euros hasn't changed from the original 2022 investor day guidance.
ASML's technology is nearly impossible to replicate, as it is the culmination of decades of innovation. With its machines vital in the chip manufacturing process, ASML is well positioned to be a long-term winner in the chip investing world. With the stock down around 36% from its highs after the China news, now seems like a great time to scoop up shares and capitalize while the rest of the market is fearful.
