Already Up Over 50% - These 2 AI Chip Stocks Are Just Getting Started

NVIDIA Corporation NVDA, a leading designer of artificial intelligence (AI) processors, and Taiwan Semiconductor Manufacturing Company Limited TSM, or TSMC, the manufacturer of advanced AI chips, have seen their shares climb 59.9% and 62%, respectively, over the past year.  

This growth momentum shows no signs of slowing down, as incessant AI demand, expanding data centers, and easing trade tensions are expected to continue boosting revenues and profitability. Let’s take a look at what’s driving their upside potential and why investors remain bullish on these stocks. 

TSMC Poised for Major Gains as AI Expands 

Continued strong demand for TSMC’s leading-edge process technologies is expected to drive future growth, as it has in the past. For the first quarter of 2026, TSMC projects revenues between $34.6 billion and $35.8 billion, according to investor.tsmc.com. This would surpass fourth-quarter 2025’s $33.73 billion, a 25.5% year-over-year increase and a 1.9% sequential rise. 

TSMC’s profitability is set to strengthen, with the company expecting its gross profit margin for the first quarter of 2026 to be between 63% and 65%, slightly higher than the fourth quarter of 2025’s 62.3%. As more AI hyperscalers build new data centers, demand for TSMC’s chips powering these computing units is expected to increase, driving higher profit margins. 

As a result, TSMC is expected to see earnings growth of 46.2% for the current quarter and 29.1% for the full year. TSMC’s $14.01 Zacks Consensus Estimate for earnings per share (EPS) implies growth of 27.1% year over year.

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Brokers are also bullish on TSMC’s prospects. They predict TSMC stock’s average short-term price target at $408, representing a 19.2% increase from the last close of $342.3. The highest target of $520 implies a potential upside of 51.9%.

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NVIDIA Set for Growth on Eased Trade Tensions and AI Demand 

Some investors may remain cautious on NVIDIA due to the potential impact of a U.S.-China trade conflict on its sales. The company also faces tough competition from rivals like Advanced Micro Devices, Inc. AMD, especially as spending on data centers continues to rise. 

However, at the moment, the trade tensions between the United States and China have somewhat eased, which bodes well for NVIDIA. This is because China has allowed some of its selective tech players, including Alibaba Group Holding Limited BABA and ByteDance, to purchase NVIDIA’s H200 AI chips. The Trump administration has already approved the shipments, which could boost NVIDIA’s growth in the region. 

While the current geopolitical scenario offers a positive outlook, strong global demand for NVIDIA’s cutting-edge Blackwell chips and cloud graphics processing units (GPUs) is expected to continue to drive sales. Notably, NVIDIA projects revenues of nearly $65 billion, plus or minus 2%, for the fiscal fourth quarter of 2026, according to investor.nvidia.com. NVIDIA also anticipates an improvement in profitability, consistent with its historical performance. 

Thus, the company’s expected earnings growth rate for the current quarter and year are 70.8% and 55.9%, respectively. NVIDIA’s $4.66 Zacks Consensus Estimate for EPS indicates growth of 10.7% year over year.

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Brokers are also optimistic about NVIDIA’s outlook. They forecast the average short-term price target for NVDA stock at $254.81, implying a 33.1% increase from the last closing price of $191.52. The highest target is $352, suggesting a potential upside of 83.8% (read more: NVIDIA at 41x Forward Earnings: Buy, Hold, or Cash Out?).

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NVIDIA currently has a Zacks Rank #2 (Buy), while TSMC has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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This article originally published on Zacks Investment Research (zacks.com).

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