February was a good month for semiconductor stocks. After starting the year on a positive note, chipmakers’ stocks rose further last month. But as the chip makers started reporting their quarterly earnings and highlighted the dips of their inventories, their stocks fell But the semiconductor industry has made it through the pandemic and a long year of supply shortage, and it has tremendous opportunities going forward. Given these points, the sector’s stocks should be bought on weakness.
Some analysts think that the sector is close to bottoming, and many investors clearly agree. Indeed, Chipmakers have gained 13.6% so far this year, while the NASDAQ is up 9.2% in 2023. The passage of the CHIPS and Science Act has also been a major, positive catalyst for the sector.
The industry will certainly recover, and the rebound could come as soon as the second half of 2023. Keeping this in mind, let’s take a look at the three semiconductor stocks to watch.
At the top of my list is chipmaker Nvidia (NASDAQ:NVDA). The chipmaker is one of the biggest players in the semiconductor industry.
NVDA stock bottomed in October, and it has been rising consistently since then. I believe the stock will continue moving upward this week as the company gears up to host its ‘GTC 2023’ event.
When it comes to generating revenue, Nvidia has ample opportunities, since the top tech companies use its GPUs for their cloud-computing needs. Moreover, NVDA’s data center business is growing rapidly.
NVDA’s revenue from data centers contributed 67% of its total sales last quarter. However, the biggest reason to bet on the stock right now is the tremendous potential of artificial intelligence.
The company is tapping AI, and several companies will need Nvidia’s applications to use ChatGPT. This will lead to increased demand for NVDA’s chips and strong revenue growth by the company in the coming quarters. NVDA is already positioned to benefit from the advances of the AI sector, and the proliferation of the technology should significantly boost its financial results.
Citi analyst Atif Malik, has a price target of $305 on NVDA and a “buy” rating on the stock. The analyst believes that the shares will benefit from growing AI adoption by multiple cloud service providers.
Further, Morgan Stanley analyst Joseph Moore has a price target of $304 and an “overweight” rating on the name.
NVDA stock is one of the best semiconductor names to own at this point.
Advanced Micro Devices (AMD)
Next is Nvidia’s big rival, Advanced Micro Devices (NASDAQ:AMD). The company struggled in the past few years due to the chip sector’s challenges.
But this is only temporary, and the company’s future looks promising. AMD stock is up 47% in 2023 but it’s down 17% year over year, so it does have room to climb.
When I recommended this stock last week, it was trading at $82. The stock is trading at $94.50 today, and one solid reason to bet on the stock is its data center business.
The sales of AMD ‘s embedded and data center segment increased by a double-digit percentage last quarter. I believe the company will continue to report strong data center revenue in the coming quarters, and the company’s Q1 results could beat analysts’ average estimates. AMD stock is a strong buy.
AMD reported strong fourth-quarter earnings. Its data center revenue soared 63% versus the same period a year earlier to $6.04 billion, and its operating income soared 86% to $1.8 billion.
The company’s operating income jumped thanks to its acquisition of Xilinx, and I think AMD’s OI will continue surging thanks to the deal.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor (NYSE:TSM) is already a leader in the industry, since its chips are used across multiple sectors. TSM stock is nearing its 52-week high of $109.
The stock is up 14% in the past six months and has risen after bottoming in November last year. Taiwan Semiconductor has made multi-million dollar investments in its application-specific integrated circuit (ASIC) chips. The chips are used for mining crypto, and it is expected that the investment will generate massive returns for the company in the long term.
TSM reported Q4 sales of $19.93 billion and holds $43.7 billion of cash. This shows its ability to invest in research and technologies that transform the sector.
Fundamentally, TSM is very strong and it holds a solid position in the industry, since most of the semiconductor companies source their chips from the Taiwanese company. So no matter what the market does, TSM is expected to report strong revenue.
The firm recently announced that it would spend $40 billion to build a U.S. plant, and it will soon build a chip-making unit in Japan.
As TSM’s production capacity increases, the stock may hit new highs. Indeed, Bank of America analysts have a price target of $115 on the shares.
TSM stock can surge massively, and the firm’s investments could pay off in the long run.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.