With the world pivoting towards artificial intelligence, savvy investors are on the lookout for the most promising semiconductor stocks for AI. Semiconductors are the essential components in microchips and are critical for AI expansion. They’re driving innovations in AI algorithms and facilitating machine learning models to tackle more complex tasks faster than ever before. With that, the semiconductor market is poised to experience exponential growth on the back of AI-led tailwinds.
Despite the challenges stemming from the market turmoil, Chinese lockdowns, and other related challenges, the semiconductor space remains as resilient as ever, reporting impressive sales numbers. Inflation is starting to show signs of cooling down, and the CHIPS Act has injected enthusiasm into the space making semiconductor investing an increasingly attractive prospect.
And, as the semiconductor market gears up to hit the $1 trillion mark by the end of 2030, investors will be looking to add semiconductor companies in droves to their portfolios. In short, buckle up and embrace the future of semiconductor investing with these popular semiconductor stocks for AI.
|SMH||VanEck Semiconductor ETF||$240.23|
Semiconductor Stocks for AI: Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) has long been one of the most popular tech stocks, and it’s not hard to see why. The semiconductor titan’s unparalleled position in the chips world has helped it carve out a niche across some of the most lucrative tech verticals. Its position in the AI revolution through its cutting-edge GPUs will help unlock the company’s next growth phase. Its GPUs have already played an instrumental role in training popular chatbots such as ChatGPT.
With the AI landscape in its infancy, analysts fully believe in Nvidia’s pricing power on AI chips, propelling its revenue and valuations skyward. It’s been an incredible wealth compounder over the years, and with AI in the mix, it could comfortably surpass its highest price of $333.3 and then some.
Taiwan Semiconductor (TSM)
When it comes to semiconductor prowess, Taiwan Semiconductor (NYSE:TSM) stands tall as the undisputed leader in the sector. It boasts a massive presence in this intricate domain, positioning itself as a long-term beacon for investors seeking the perfect blend of size and scale. Therefore, it remains one of the best semiconductor stocks for AI.
What sets the firm apart is its unparalleled capacity to tackle the complexities of semiconductor manufacturing, which continue to grow invaluable over time. Its top and bottom-line results have consistently grown by double-digit margins over the past several years and are poised for even bigger gains.
According to Bank of America, TSM is poised to ride the generative AI trend and could gain 25% from its current price. Therefore, with TSM stock in your portfolios, you can rest easy knowing you’re hitching a ride with the industry’s best.
VanEck Semiconductor ETF (SMH)
For investors looking for a diversified entry point into the semiconductor realm, The VanEck Semiconductor ETF (NASDAQ:SMH) is arguably their best bet. It includes a powerhouse of industry leaders, with holdings in NVDA and TSM, along with other semiconductor AI stocks. Its top holdings, which include the top dogs in the semiconductor realm, comprise more than 25% of its total holdings.
The beauty of the ETF lies in its well-rounded approach, enabling investors to tap into the AI boom without taking the risk of single-stock bets. As AI adoption surges, so does the demand for semiconductors, making this ETF an appealing option for those looking to ride the secular tailwinds in the sector. Moreover, the ETF has an expense ratio of 0.35%, roughly 25% lower than the sector median. On top of that, it’s been a tremendous wealth compounder, generating more than 154% return in the past five years.
Intel (NASDAQ:INTC) has fallen on hard times over the past few years despite being a chip behemoth. This is evidenced by its recent quarterly results, which show double-digit sales and earnings growth drops. Consequently, it had to slash its dividend by more than 60% last year, coupled with a steep drop in its stock price, which added to its shareholders’ woes.
However, it’s not all doom and gloom for Intel. It Gaudi AI chip has demonstrated strong potential in handling large language models. In fact, Gaudi2 surpassed Nvidia’s competing chip in training AI systems, although Nvidia’s latest release has since eclipsed Gaudi2. Undeterred, Intel is diligently working on Gaudi3, keeping pace with Nvidia.
Hence, AI could be a game-changer for INTC stock going forward. Another positive indicator for the firm is the positive hedge fund sentiment surrounding the stock. Hedge fund holdings increased by more than 675,000 in the past quarter alone.
Amkor Technology (AMKR)
Amkor Technology (NASDAQ:AMKR) is the unsung hero of the burgeoning semiconductor arena. As a packaging and test service provider, it effectively supports chip manufacturers, paving the way for their success in AI. Moreover, it diligently streamlines processes for semiconductor companies, which makes it more than just a cog in the machine.
Its utility is evidenced by its rock-solid track record of growth across both lines. In the past five years, Amkor has witnessed healthy growth across its top and bottom line, with its revenue and EBITDA margin soaring by 11.4% and 12.5%, respectively. Its 5-year average return on equity is also at a stellar 15.3%. Furthermore, it recently started paying a dividend, yielding just 1.3%, which could grow much higher in the future. Also, its stock trades at just 0.9 times forward sales, 66% lower than its sector median.
ON Semiconductor (ON)
ON Semiconductor (NASDAQ:ON) is a rising star in the semiconductor space, demonstrating remarkable growth over the past few years. Moreover, on the back of its superb performances, it earned its place in the prestigious S&P 500 in June last year. Thanks to its savvy diversification across multiple high-growth sectors like vehicle electrification, AI, 5G, cloud infrastructure, and others, it quickly becomes a name to watch in its sector. ON’s staggering portfolio of over 80,000 proprietary parts attests to its strength in its market.
ON Semiconductor’s impressive financials further, solidify its status with a robust balance sheet featuring nearly $3 billion in cash equivalents. Moreover, it boasts an order backlog of $16.6 billion and is undergoing a transformation that could take its gross margins past the 50% mark. By 2025, the firm is targeting 20-25% free-cash-flow (FCF) revenue conversion, equating to approximately $2 billion in FCF. Moreover, its shareholders can expect to reap the benefits, with an anticipated 50% of the cash flow returned to them.
Broadcom (NASDAQ:AVGO) is an innovative semiconductor firm making waves in the AI and 5G realm. Its tailor-made wireless and broadband communication solutions have made it a giant in the 5G sector. Blazing-fast internet speeds unlock countless possibilities, from smart cities to AI and virtual reality.
Recently, Broadcom announced the delivery of its revolutionary Jericho3-AI, touting the highest-performance fabric for AI networks in the sector. It offers mind-boggling features, including perfect load balancing, congestion-free operation, and zero-impact failover, which should help reduce job completion times for AI workloads. It can effectively handle up to 32,000 GPUs, a staggering four times more than the previous generation.
As Broadcom continues to push the boundaries in AI networking, expect the stock to soar in the foreseeable future. It’s up more than 13% year-to-date and will continue its momentum on the back of AI tailwinds.
On the date of publication, Muslim Farooque 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.