Believe it or not, semiconductor chips are used for applications that go far beyond powering smart devices and electronics. For this reason, it’s not entirely surprising that semiconductor stocks have been particularly big winners as the artificial intelligence (AI) revolution has progressed.

Among the leading chip manufacturers NVIDIA (NVDA -2.10%) currently stands out as the 800-pound gorilla. But with shares up 651% since August 2022, investors should consider what opportunities exist in the chip space beyond Nvidia.

Let’s examine how Nvidia has become the world’s largest chipmaker and assess why another stock may be a better buy over the long term.

Nvidia is great, but…

Chips known as graphics processing units (GPUs) are used for a variety of AI-powered applications, such as training large language models, developing autonomous driving software, and machine learning. Nvidia’s GPU lineup includes the hugely popular H100 and A100 chips, and the company’s new Blackwell series is already being predicted to be a huge hit (but more on that later).

In fact, with a nearly 80% market share in the AI-based chip market, Nvidia seems virtually unstoppable.

Still, I caution investors against putting all their eggs in one company, even if it’s the de facto market leader. Below, I’ll detail why Nvidia’s time at the top may be coming to an end.

Image source: Getty Images.

Competition is intensifying

Many of the world’s largest companies are currently Nvidia customers. In fact, many of the “Magnificent Seven” companies, such as Microsoft, Tesla, Amazon, MetaAnd alphabetare considered some of Nvidia’s biggest customers.

While a customer list of this caliber is impressive, I wonder if it’s encouraging. Tesla CEO Elon Musk recently told investors that his electric vehicle company is looking for ways to compete more directly with Nvidia as Tesla looks to shed its heavy reliance on H100 chips.

In addition, many of the Magnificent Seven companies mentioned above have made it clear that they are also making significant investments in developing their own chips.

For example, I view Amazon’s $11 billion data center infrastructure project as a clear sign that the company wants to increase its investment in its Trainium and Inferentia chips.

What is surprising is that all of the competitors analyzed above have only a marginal connection with Nvidia. The development of semiconductors is not their core business.

Perhaps Nvidia’s most direct competitor is currently Advanced micro devices (AMD -2.75%). While AMD’s growth during the AI ​​revolution hasn’t even occurred in the same universe as Nvidia’s, I think that dynamic may soon change.

Nvidia’s momentum has been thrown into turmoil following the recent announcement that the new Blackwell chips are being delayed due to a design flaw. While I suspect Nvidia will still be sold out of these chips when they finally come to market, I think AMD now has an opportunity to explore new business.

With that in mind, I believe it’s only a matter of time before Nvidia’s growth slows down. I wouldn’t be surprised if the stock gave back some of its record gains afterward.

This company will definitely win

Given the sheer number of competitors and the risks involved in commercializing new products and services, you’re probably wondering which chip stock I actually have full confidence in.

Enter the chip manufacturing company Taiwan Semiconductor (TSM -0.79%). Nvidia, AMD and many others produce very little themselves. Instead, after developing the next generation hardware, they outsource the actual manufacturing to Taiwan Semiconductor.

Taiwan Semiconductor manufactures products for Nvidia, AMD, Amazon, Broadcom, Intel, Qualcomm, Sonyand many more.

According to data from Market.us, the total addressable market (TAM) for the global AI chip market is expected to grow at a compound annual growth rate (CAGR) of 31.2% between 2024 and 2033 to reach a size of $341 billion.

In my opinion, Taiwan Semiconductor will benefit no matter which company sells off its chips. Given the high probability of more GPUs coming from major technology companies and the optimistic forecast for the AI ​​chip market in general, I see Taiwan Semiconductor as a clear winner in the next few years.

Long-term investors looking for alternatives to the most obvious mega-cap AI opportunities should seriously consider a position in Taiwan Semiconductor now.