If institutional investment is any indication, the boom in chip stocks is still going strong. More than that, the momentum is poised to remain a defining market trend throughout the second half of 2023.
Part of the ongoing success with chip stocks is due to high interest in artificial intelligence (AI). This fast-growing area of tech is helping spur demand for semiconductors and growth for the companies that produce them. As a result, hedge funds doubled down on chip stocks throughout the first quarter. That puts the sector’s biggest names in focus, such as Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD). However, other companies in the chip space have seen institutional investment rise as well.
Does this mean now is the time for retail investors to closely watch chip stocks before they rise even further? Let’s take a closer look at which names hedge funds are buying up and what investors can expect.
Chip Stocks Are Hot for a Reason
Which companies have been the biggest winners of the semiconductor boom so far? According to Barron’s, data from 13F forms shows that investors purchased a combined total of 27 million shares of NVDA stock and 38 million shares of AMD during Q1. That indicates increases of 2.5% and 5% respectively from the previous quarter. While Bridgewater Associates — the country’s largest hedge fund — did not stock up on either of those names, it did double down on other chip stocks. The firm added shares of both Broadcom (NASDAQ:AVGO) and Lam Research (NASDAQ:LRCX) to its holdings.
All of the four chip stocks mentioned are in the green today and have spent the past six months rising steadily. However, it must be noted that NVDA stock has enjoyed a truly stellar two quarters, rising almost 90% since mid-November. The company recently hit a new 52-week high and reached a higher valuation than Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B). This supports the argument that Nvidia could be among the next trillion-dollar companies. InvestorPlace contributor Muslim Farooque notes:
“As we have seen in the past few months, AI isn’t confined to merely internet searches […] [I]ts reach extends into streamlining disease screening, enhancing crop yields, improving logistics, and whatnot […] Whatever shape or form AI takes, though, Nvidia stands at the heart of this transformation, with its powerhouse GPUs and cutting-edge software fueling its innovation engine.”
That isn’t to say that other chip stocks don’t have significant growth potential. Both Broadcom and AMD recently reported stellar earnings. On top of that, things may be about to get even better for the entire sector. According to Bernstein, the personal computing market seems to be “normalizing.” Put another way, the market is returning to levels from before the Covid-19 pandemic.
What Comes Next?
As the semicondctor boom continues, one question has be asked: Is it too late for investors to gain exposure to chip stocks? While names like Nvidia and Broadcom currently trade at very high levels, that doesn’t mean they don’t have further to run. The fact that institutional investors have been stocking up on these names recently should reassure investors as well. What’s more, if Bernstein is correct, chipmakers will see even greater demand as the PC market stabilizes — this time with the added benefit of the AI gold rush creating more tailwinds.
On the date of publication, Samuel O’Brient did not hold (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.
