Until the trend fails, chip stocks should remain in focus. Throughout 2023, the best AI stock stocks have been a dominating theme, as these stocks — big and small — have enjoyed powerful upside surges. In some cases, it has even helped power the overall markets higher.
That seems like an extreme statement, but given the market capitalization gains we’ve seen in many of these names, it’s not inaccurate.
With good reason, the boom in AI chip stocks has investors continually looking at this space for gains. Even with the increase in volatility that we’re seeing so far in August — the Standards and Practices 500 and Nasdaq have declined in the first four trading sessions of August — investors aren’t wavering.
Nor should they. Until the trend in these stocks truly cracks, investors have no reason to bail on the best AI chip stocks. With that in mind, let’s look at a few names to buy.
Nvidia (NVDA)
Most readers knew Nvidia (NASDAQ:NVDA) would be on this list and for good reason. The stock has been on a dominating run and has helped lead the charge in AI stocks. When the trend in AI stocks finally dies down, it won’t happen unless Nvidia folds, too.
In late May, Nvidia reported earnings. Even with expectations rising considerably alongside the stock price, management delivered robust results. Not only did Nvidia deliver a top- and bottom-line beat, but guidance was way ahead of consensus expectations.
At the time, one report noted that, “A rush of interest in artificial intelligence (AI) has helped to fuel a $4tn (£3.2tn) rally in technology stocks this year…The AI rally has helped lift the [Nasdaq] index 23% so far this year.”
That’s a lot of good news for this group and in particular, its leader Nvidia. The firm is due to report earnings again later this month and while the stock is still up notably from its prior report — up about 50% — it has been consolidating its gains as investors await the next catalyst.
Broadcom (AVGO)
Long-term investors have always believed that Broadcom (NASDAQ:AVGO) was under-appreciated as an investment. The stock had a low valuation, solid free cash flows, an attractive dividend and decent growth.
Now though, it appears that the secret is out — and that’s thanks to AI.
Up almost 60% so far this year and Broadcom has become one of the best AI chip stocks in the market. The huge rally in the stock price has driven its dividend yield down to 2% (from about 3.5% in October 2022) and its forward price-to-earnings from sub-11 at the one-year low to more than 20 currently. That’s what happens when a stock goes on a rip-roaring rally.
When the firm reported earnings on June 1, Broadcom beat on earnings and revenue expectations while delivering upside guidance for next quarter.
In the press release, CEO Hock Tan said, “Our third quarter outlook projects year-over-year growth, reflecting continued leadership in networking as we support a measured ramp into large scale AI networks.”
In the conference call, he added that, “Put this in perspective, our revenue today from this [generative AI] opportunity represents about 15% of our semiconductor business. Having said this, it was only 10% in fiscal ’22. And we believe it could be over 25% of semiconductor revenue in fiscal ’24. In fact, over the course of fiscal ’23 that we’re in, we are seeing a trajectory where our quarterly revenue entering the year doubles by the time we exceed ’23.”
Advanced Micro Devices (AMD)
Unfortunately, companies who do not lead new trends typically cannot embark on new paths at the snap of investors’ fingers. In the case of the best AI chip stocks, that happens to be the case of Advanced Micro Devices (NASDAQ:AMD).
When Nvidia reported blowout results in May, AMD had reported a few weeks before that. Unfortunately, its results disappointed investors and the stock fell almost 10% in a single session after earnings. Everyone seemed to forget that though, as reports of AMD working with Microsoft (NASDAQ:MSFT) helped erase those gains and drive shares to new 2023 highs.
Fast forward a few months to the beginning of August when AMD reported its second-quarter results. While the firm beat on earnings and revenue estimates, guidance for next quarter disappointed Wall Street again.
I think AMD will be an AI chip stock winner — eventually. That’s as demand continues to vastly outstrip industry supply. That said, AMD is not to the level that Nvidia is at now in terms of meeting some of that demand.
On the date of publication, Bret Kenwell 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.
