Artificial Intelligence (AI) is transforming the way we live and it is going to become a significant part of our lives just like the Internet has. AI is growing at a rapid pace and has become a part of several industries today. With the increasing use and adoption of AI, there is going to be a rise in the demand for semiconductor stocks; but like every other industry, not all companies can make the most of this opportunity and stand the test of time.
While Nvidia (NASDAQ:NVDA) is already a leader and controls a large part of the market, there are other companies worth looking out for. These companies already have the innovation and tech and all they need to do is ramp up the manufacturing activities. Investing in these top semiconductor stocks will help make big gains in the long term.
Top semiconductor stocks: Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) is one of the biggest competitors of Nvidia and it is investing heavily into AI. The company sees it as the largest growth opportunity right now. It introduced MI300x which will start deliveries in 2024 and is set to give tough competition to Nvidia.
This could help the company gain market share since users who aren’t ready to wait for weeks to get Nvidia chips will now choose AMD. Trading at $102 today, the stock looks undervalued to me. Despite performing well, the stock hasn’t been able to hit new highs. Although it is up 59% year-to-date (YTD), it has a long way to go.
A leading supplier of graphics processing units and video game consoles, AMD already has a long history in the industry and it has been able to deliver significantly in the last few years. The use of AI and rising demand for chips could take the stock higher very soon. In the second quarter, the company saw an 18% year-over-year (YOY) drop in revenue, but this could be a one-time thing. It still remains one of the best semiconductor stocks to own right now.
Once it begins deliveries of MI300 accelerators, we could see an improvement in numbers. The company has the experience and the leadership to at least manage to grab a part of the market that is currently dominated by Nvidia. It will not be possible for Nvidia to meet the entire demand for AI chips and this is when AMD will gain. It has a huge market opportunity and the industry is hot right now. Buy the stock before it soars. It is the best alternative to Nvidia and could soar just like it did.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) is popular for the innovations in the field of wireless communication. Amidst the AI race, Qualcomm wasn’t much in the news but its financial report brought the company to the forefront. In the recent quarter, the company reported a revenue of $8.5 billion and the EPS came in at $1.60. The company is partnering with Jaguar Land Rover for the introduction of 5G services.
Known as one of the best in the industry, Qualcomm has a technology that offers high speed and low latency for a connected experience at all times.
One big reason the stock is a buy is its 5G supply agreement with Apple (NASDAQ:AAPL). The company will be using the Qualcomm Snapdragon 5G system through 2026 for iPhones and this will boost Qualcomm’s revenues. The company’s current technology licensing to 5G networks like Apple remains unchanged until 2025. It already has agreements with some of the biggest players in the industry and despite a drop in global semiconductor sales, Qualcomm is in a good position to continue enjoying steady revenue.
While Qualcomm didn’t have the best year, this news will make the coming years better for the company and it could boost the stock value. QCOM stock is exchanging hands for $112 and has taken a beating this year. They are down 10% in the year but this deal has come as a sigh of relief.
Do not expect the stock to jump to new highs, but it will certainly be moving upwards in the coming weeks. That said, the company also pays dividends and announced a quarterly dividend of $0.80 and has an impressive dividend yield of 2.83%, much better than that offered by many dividend stocks in the industry.
Taiwan Semiconductor Manufacturing (TSM)
One of the most important semiconductor companies, TSMC (NYSE:TSM) works with some of the biggest names in the industry. It remains isolated from China’s invasion to a certain extent because it has factories in the U.S. The company supplies chips to Nvidia and Apple, which shows the potential of these chips.
It is also starting production of the 3nm chip which will attract new customers very soon. One big reason to bet on this stock is that it is the supplier of the biggest companies in the world. If it is impacted by China’s moves, it could disrupt the supply chain of several other companies and the entire market could see the impact.
The company reported a 10% drop in revenue in the recent quarter and a 12% drop in profits. However, its July revenue was up 14% as compared to June which is a good sign. The market is improving and this could have a direct impact on TSMC’s business. Its chips are used across multiple industries and as the economy improves, we will see an improvement in its numbers too.
The stock is exchanging hands for $88 right now and is up 19% YTD. A recent drop in semiconductor chips has been noticed, but it is temporary. TSM stock looks cheap at the current level and could soar upwards as China-U.S. tensions ease. If you are a buy-and-hold investor, this is a stock to add to your portfolio.
On the date of publication, Vandita Jadeja 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.
