While Nvidia (NASDAQ:NVDA) dominates headlines in the semiconductor space, many view this sector as a one-horse race. Of course, that’s not the case. Companies like Nvidia and its mega-cap semiconductor peers are certainly among the most-watched stocks in the market right now.
The question for many investors is whether the valuations of these pricey chip stocks make sense. Indeed, Nvidia has proven that its larger-than-life valuation over the past decade has been warranted. However, these stocks are among the most difficult to value, even for the experts. For retail investors, these companies may be considered too much work to try to digest.
At the right price, any stock can be a buy, assuming it’s got a future. These three chip makers certainly do. Let’s dive into the reasons these stocks may be worth every penny.
Nvidia remains a top pick for investors seeking growth in today’s AI-focused world. In Q2, the company reported impressive earnings of $2.70 per share, beating expectations and showcasing strong revenue growth.
Nvidia’s Q2 earnings impressed bearish investors, with revenue surging 101% year over year (YOY) and net income skyrocketing by 843% YOY. Although it has a price-earnings ratio of 110-times, some argue that Nvidia is undervalued, especially with its forward price-earnings ratio at 44. Maintaining strong growth will be key to sustaining its undervalued status. Q3 guidance suggests this trend is continuing.
NVDA stock is poised for growth, backed by enthusiastic buyers and an uptrend above key moving averages. It boasts a $1.13 trillion market cap, rebounding from a pullback. Analysts give it a strong buy with a $1,100 yearly target. NVDA stock rose from $109 to $456 by August 31, 2023, with potential for $500. However, dropping below $470 may push it under $450. Technical analysis indicates bullish sentiment, with an RSI around 60.
Advanced Micro Devices
Advanced Micro Devices (NASDAQ:AMD) stock jumped over 2% on September 13, 2023, following a decline linked to unsettling news from China. Despite concerns about August’s high inflation, the semiconductor sector, including AMD, showed resilience. The stock is rebounding about 4% since September 11, 2023.
AMD’s recent acquisition of Mipsology bolsters its AI capabilities with top-tier inference and optimization tools. Furthermore, the company is collaborating with Hitachi Astemo to enhance automotive safety. The use of AI-driven object detection using AMD’s system-on-a-chip, enables both stereo and monocular image processing for self-driving vehicle cameras.
For those bullish on the growth these sectors can provide, and AMD’s position as a “number two” in the chip race, this is a stock to consider for the long-term.
Asml Holdings (ASML)
ASML (NASDAQ:ASML) stands out as the sole supplier of semiconductor manufacturing machines, boasting over 25% anticipated growth this year. The company also offers essential service packages, ensuring steady revenue and a strong case for buying their stock in diverse economic conditions.
ASML stock rose 20.55% year to date (YTD) to $663.56 with a $695.72 target by 19 analysts. The lithographic semiconductor industry aims for $35.21 billion by 2028 (8.56% CAGR). The company’s Q2 earnings showed 27.1% YOY revenue growth to $6.9 billion and 11.7% YOY net income growth to $1.92 billion. The print also boasts 18.54% YOY operating income growth to $2.33 billion, with a price-earnings ratio under 33-times.
The company develops essential tech for making efficient chips used in healthcare, climate solutions, and sustainable energy. This aligns with the European Commission’s goals for innovation and addressing societal issues. ASML is actively involved in a European partnership to advance semiconductor tech.
On the date of publication, Chris MacDonald 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