It’s difficult to underestimate the growing importance of microchips and semiconductors. The consulting firm McKinsey & Co. released a report in April proclaiming we’re currently living in the “semiconductor decade.” Most forecasts predict a $1 trillion industry by 2030. The explosion of both artificial intelligence (AI) and cloud computing has ratcheted up demand for microchips and semiconductors higher than ever before. For companies manufacturing chips that run everything from our smartphones to our refrigerators, keeping up with demand has become their number one challenge.
Amid the current boom, a few companies have grabbed the spotlight, notably Nvidia (NASDAQ:NVDA), whose stock has tripled this year on sales of its advanced chips that drive AI applications. However, Nvidia isn’t the only player in today’s chip industry. Several other important chipmakers also deserve the attention of investors. Here are three under-the-radar chip stocks with huge upside potential.
Intel (INTC)
Microchip maker Intel (NASDAQ:INTC) appears to be back in the good graces of investors after its second-quarter earnings print. The stock rose 10% in the last month, reversing a steep decline that resulted after the company announced the biggest loss in its 55-year history for this year’s first quarter. While INTC stock is down 16% over the last five years, the share price is now up 42% in 2023 and trending in the right direction after a prolonged slump.
The company is investing billions of dollars in its ongoing effort to shift its business from designing microchips and semiconductors to manufacturing them through foundries and fabrication centers, not just for itself but also for third parties. The change represents a titanic shift that has cost Intel huge capital expenditures and the confidence of analysts. However, the fact that Intel was able to return to profitability in Q2 of this year and raised its forward guidance seems to have won back some investors.
Broadcom (AVGO)
There’s a buying opportunity with chipmaker Broadcom (NASDAQ:AVGO) right now. The company’s share price fell 7% after its latest earnings print. While Broadcom beat analyst expectations on both the top and bottom lines, its forward guidance was slightly lower than what Wall Street analysts had penciled in, resulting in the selloff. However, Broadcom still posted very good financial results, and its outlook remains strong despite the company signaling some near-term headwinds.
Another reason to be bullish on AVGO stock is the fact that Broadcom’s $61 billion acquisition of cloud computing firm VMware (NYSE:VMW) looks likely to go through after antitrust regulators in the European Union approved the deal. The takeover of VMWare is widely expected to be finalized by October 30 this year, which is the end of Broadcom’s 2023 fiscal year. The blockbuster deal should boost Broadcom’s infrastructure software business. AVGO stock is up 55% year to date and 263% over five years.
Taiwan Semiconductor Manufacturing (TSM)
It’s not without risk, but the opportunity with Taiwan Semiconductor Manufacturing (NYSE:TSM) is too great to ignore. While the threat of China looms over both Taiwan as a country and the future of Taiwan Semiconductor Manufacturing as a going concern, the reality is that TSMC has a near monopoly on the fabrication of microchips and semiconductors worldwide. Currently, TSMC fabricates 60% of the world’s chips and semiconductors and more than 90% of the most advanced ones.
This dominance gives Taiwan Semiconductor a huge competitive advantage and a big moat around its business. If it weren’t for the threat posed by China, TSM stock would likely be skyrocketing to the moon in this current era of extreme demand for its products. The Chinese government’s recent move to ban the use of Apple (NASDAQ:AAPL) iPhones by government workers has hit TSMC’s share price hard, as Apple is one of its largest customers. Despite the turmoil, TSMC’s importance to the global tech industry is indisputable.
TSM stock is up 21% this year and has gained 102% over the last five years.
On the date of publication, Joel Baglole held long positions in AAPL and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
