In 2023, Nvidia achieved a remarkable milestone, establishing itself as the leading chip company by market cap, a testament to its strong performance amid fluctuating global semiconductor demands. The year saw the semiconductor industry grappling with sluggish demands in the downstream electronics sector. However, the burgeoning field of AI and geopolitical uncertainties have pivoted as key investment drivers, fostering significant growth.
Nvidia’s products were unrivaled in meeting the demands spurred by the generative AI boom. This unparalleled demand translated into an exceptional financial year for Nvidia, with its stock soaring by an impressive 239%, propelling the company’s valuation beyond the trillion-dollar mark. This achievement placed Nvidia among the elite group of only five U.S. stocks valued at over a trillion dollars. The company’s top and bottom lines mirrored this phenomenal growth.
The third quarter financials were particularly striking, with revenue surging 206% to reach $18.12 billion. Net income, following generally accepted accounting principles (GAAP), escalated over thirteenfold, hitting $9.24 billion. This remarkable income provided Nvidia with a profit margin exceeding 50%.
As 2024 unfolds, Nvidia’s outlook appears incredibly promising. The company’s AI-focused H100 accelerators are in extraordinary demand, leading to a significant price surge and a shortage of GPUs and other essential components for its AI models.
The AI boom’s benefits are expected to extend to other companies in 2024. While Nvidia is likely to maintain its dominance in AI chips, there are indications that other chip stocks might close the gap. Here are three companies poised to outshine the AI chip leader in 2024 potentially*:
- Advanced Micro Devices (AMD): AMD is a strong contender to challenge Nvidia’s supremacy in AI. The launch of its Instinct MI300 AI accelerators in December received an enthusiastic reception, reflected in a 10% stock surge. Renowned clients such as Dell, Hewlett-Packard Enterprise, Lenovo, Microsoft, and Oracle have shown interest. AMD’s Instinct Platform is reported to offer a 60% throughput increase for large language models compared to Nvidia’s H100 HGX.
- ACM Research: A less familiar name in the sector, ACM Research focuses on manufacturing machines for cleaning semiconductor wafers, a critical process for error prevention in chip production. This niche positioning in the value chain positions ACM to benefit from the increasing technical demands of AI chip production.
- Taiwan Semiconductor (TSMC): TSMC, the world’s largest contract semiconductor foundry, is also expected to witness robust growth in 2024. AI currently accounts for about 6% of TSMC’s revenue. However, given its dominant presence in chip manufacturing and a significant market share in advanced chip production, TSMC is well-placed to capitalize on the escalating AI demand.
While Nvidia’s 2023 success story is indeed remarkable, the dynamic nature of the semiconductor industry suggests an exciting and competitive landscape ahead, especially in the realm of AI chip development.
*Source: Motley Fool
Shariah Compliance of Nvidia, AMD & TSMC Stock
In assessing the Shariah compliance of NVIDIA’s stock, we consider three key criteria (following the AAOIFI methodology):
- Business Activity: NVIDIA’s revenue from non-Halal and doubtful sources is calculated to be 1.45% of its total revenue. This is well within the 5% threshold set for Shariah compliance, indicating adherence to Islamic financial principles in terms of its business activities.
- Interest-bearing Securities and Assets: The percentage of NVIDIA’s interest-bearing securities and assets stands at 3.20%. This is significantly below the maximum limit of 30% of the company’s market capitalization, suggesting compliance with Shariah guidelines in this regard.
- Interest-bearing Debt: NVIDIA’s interest-bearing debt is at 1.70% of its market capitalization. This figure is also well within the permissible limit of 30%, aligning with Shariah requirements.
Considering these factors, NVIDIA’s stock can be classified as a Halal, earning a solid 5-star rating for its compliance with Shariah financial principles.
When evaluating the Shariah compliance of AMD’s stock, the following criteria are examined:
- Business Activity: AMD’s involvement in non-Halal and doubtful business activities contributes to 1.45% of its total revenue. This is comfortably below the Shariah compliance threshold of 5%, indicating that its primary business activities align with Islamic principles.
- Interest-bearing Securities and Assets: AMD’s interest-bearing securities and assets constitute 4.20% of its market capitalization. This percentage is within the acceptable limit of 30% for Shariah compliance, suggesting adherence to Islamic financial principles in this area.
- Interest-bearing Debt: The percentage of AMD’s interest-bearing debt relative to its market capitalization is 1.77%. This figure falls well within the permissible 30% limit, aligning with Shariah standards.
Overall, According to Musaffa’s Halal stock screener, following the AAOIFI standards, AMD’s stock is considered Halal, and it receives a solid 4-star rating for its adherence to the principles of Shariah-compliant investing.
The Shariah compliance of TSMC’s stock is assessed based on the following criteria:
- Business Activity: TSMC’s non-Halal and doubtful business activities account for 2.35% of its total revenue. This percentage is under the 5% limit set by Shariah compliance standards, indicating that its main business operations are Shariah compliant.
- Interest-bearing Securities and Assets: The proportion of interest-bearing securities and assets in TSMC’s portfolio is 12.06% of its market capitalization. Though this is higher than the other two companies, it remains within the 30% threshold for Shariah compliance.
- Interest-bearing Debt: TSMC’s interest-bearing debt stands at 6.37% of its market capitalization. This is well below the 30% limit, suggesting compliance with Islamic financial principles regarding debt.
In conclusion, TSMC’s stock meets the criteria for being a Halal stock, earning a 3-star rating from Musaffa’s halal stock screener for its overall adherence to Shariah financial guidelines.
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