Semiconductor stocks have been the best-performing names in 2023, driven by the accelerating interest in artificial intelligence. Nvidia (NASDAQ:NVDA) is up 187%-plus year-to-date, while other stocks like Super Micro Computer (NASDAQ:SMCI) are up nearly 474%. Indeed, the momentum is too hot to ignore, but it should also be noted that a cooldown is overdue here.
Nonetheless, AI will eventually be a massive sector. It will take substantially more time for that to happen than many people expect. In that time, some up-and-coming companies will challenge the current AI industry bellwethers. Nvidia, for example, is priced for perfection. Not many investors see the long-term threat from Advanced Micro Devices (NASDAQ:AMD), which is rumored to be partnered with Microsoft (NASDAQ:MSFT). AMD will likely be neck and neck with Nvidia by the time AI starts to generate substantial sales and profit. Thus, I don’t see NVDA stock as a good bet with its current entry point of>$400.
We’ll be using Google’s Bard AI to find semiconductor stocks that are a good bet. Using Bard as a tool and screening their fundamentals can yield great stock-picking results. Let’s start!
Me: Hi Bard, I am writing an article for InvestorPlace titled “3 Semiconductor Stocks That AI Predicts Will Deliver Triple-Digit Returns in 2024” Can you give me some ideas?
Intel (INTC)
Bard: “Intel (NASDAQ:INTC) is a leading provider of microprocessors and other semiconductor products. The company is well-positioned to benefit from the growing demand for cloud computing, data centers, and artificial intelligence. Intel is also investing heavily in new technologies, such as 5G and artificial intelligence, which could drive significant growth in the future.”
Even though Intel is up 27% since my last buy recommendation, it has been quiet recently. But that doesn’t mean it lacks the potential to deliver triple-digit returns in the long run. INTC trades at a depressed valuation, the likes of which haven’t been seen in almost a decade. Thus, it is a no-brainer to snap up the stock before it runs higher.
While competitors like AMD did surpass the company and give it a beating regarding consumer processor chips, Intel is far from dead. For one, Intel’s processors are still top-notch choices for single-core performance. The company has been delivering on their promise of a comeback against AMD by showcasing many chips ahead of schedule. Intel also cut prices on its Arc A750 to just $199, comparable to Nvidia’s RTX 3060, going for $329 officially.
We’ll be looking at further appreciation once the gaming sector receives tailwinds again. I won’t delve too much into financials. However, revenue is expected to rebound by 13.4% next year which will make it appeal more to Wall Street. But again, I’m confident that this long-term play can deliver better returns than most semiconductor stocks.
Skyworks Solutions (SWKS)
Bard: “Skyworks Solutions (NASDAQ:SWKS) is a leading provider of high-performance analog semiconductors. The company’s strong track record of innovation and growth make it well-positioned to benefit from the growing demand for analog chips in a variety of applications. Skyworks Solutions also has a strong balance sheet and a dividend yield of over 2%.”
Finding semiconductor stocks that provide both growth and value is difficult in this environment – and Skyworks is no different. You may wonder where the “growth” is since its bottom line has been shrinking since Q4 2021, and the top line declined by 12% YOY in the last two quarters. Skyworks is a risky play because its growth is in the future. But it can deliver double-digit returns if you snap up the stock at its current price.
Skyworks is projected to grow its revenue by 6.3% next year and accelerate to 9.3% YOY in 2025. EPS will also bounce back by up to 17.2% YOY in the next two years. The downside risk here is low, and I believe substantial appreciation is ahead once growth returns. The chips supplied by the company to a range of different industries should also insulate it from headwinds in 2024.
Qualcomm (QCOM)
Bard: “Qualcomm (NASDAQ:QCOM) is a leading provider of mobile processors. The company is well-positioned to benefit from the growing demand for 5G smartphones and other mobile devices. 5G is the next generation of cellular network technology, and it is expected to drive significant growth in the mobile market. Qualcomm is one of the leading providers of 5G chips, and the company is well-positioned to capture a significant share of this growing market.”
While Qualcomm is an excellent pick, despite Bard’s explanation for choosing it being a little old. Qualcomm currently changes hands 14 times forward earnings, and 5Gs tailwinds are still in play. This underappreciated company dominates the 5G and telecommunications space and is a well-known semiconductor player.
Semiconductor stocks outside of the AI space are facing a cyclical downturn. QCOM is likely near or at the trough of this downturn, as it is already down over 35% from its peak, and Wall Street’s concerns have been priced in. Still, the consensus analyst price target is not that high, implying a 15% upside.
However, I believe there is much higher upside potential. Sales are expected to decline by over 18.8% this year but return to growth in the next two years. This growth is moderating, but further surprises are possible if the handset market recovers.
All things considered, this is a passive pick, and there won’t be any triple-digit returns anytime soon (as Bard believes), but the small downside risk makes it worth grabbing because there is a 2.72% dividend yield as a sweetener!
On the date of publication, Omor Ibne Ehsan 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.
