When Intel (NASDAQ:INTC) reported earnings two weeks ago, it sent semiconductor shares reeling. A weak outlook due to stronger-than-usual seasonal headwinds and inventory issues sent shivers through the sector. But don’t worry — chip stocks to buy are leading the market again.
However, as Intel’s earnings show, not all semiconductor stocks are created equally. The chipmaker will continue to lead the market in PC CPUs for years to come but it will be playing catch up to other tech companies as artificial intelligence (AI) continues moving towards center stage.
Below are three chip stocks to buy that won’t be left behind. These companies will come into their own as the industry moves forward.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) is one of those chip stocks to buy, as it reported earnings after Intel, to help convince investors that the market was not all doom and gloom. Although its Q1 guidance was nothing earth-shattering and fell short of expectations in some respects, where it counted the chipmaker was on point.
AMD expects $3.5 billion in data center revenue in 2024, a 75% increase from its previous outlook of over $2 billion. In the December quarter, the chipmaker’s data center revenue jumped 38% from last year but was 43% higher than the prior quarter. It secured record revenue in CPU and data center GPU, which even exceeded management’s expectations. That was driven higher by the release of its new AI chip, the MI300X GPU, which is seeing quick uptake by customers.
Advanced Micro Devices is naturally second to Nvidia (NASDAQ:NVDA), which has dominated the market. However, Advanced Micro Devices’ new chip could steal a chunk of business away from Nvidia. It’s reportedly faster and more efficient than its rival’s H100 chip and was expected to be sold at a discount as well.
Investors should expect AMD’s data center business to continue rising at a smart clip in the years to come. There will be periods when there’s a lull. Any weakness in the stock price is an opportunity to buy.
Broadcom (AVGO)
Mobile chip stock Broadcom (NASDAQ:AVGO) is the next chip stock investors should be buying despite Intel’s weakness. It has a massive 80% share of the Ethernet switch market and is the major supplier for Apple (NASDAQ:AAPL) smartphone chips. The tech giant recently signed a multiyear, multibillion-dollar agreement for Broadcom’s 5G radio frequency components for Apple products. Apple represents 20% of the chipmaker’s revenue.
The big driver now and for the foreseeable future will be AI chips. Broadcom said generative AI represented close to $1.5 billion in the fourth quarter or 20% of total semiconductor revenue. Its AI accelerators from hyperscalers should drive networking revenue 30% higher in 2024. Now that it has completed its VMWare acquisition, software will be a future accelerator of its own.
Broadcom’s excellent operating margins help it generate significant cash flows. Last year it generated $17.6 billion in free cash flow. VMWare has it forecasting even greater cash flow growth going forward. That led the chipmaker to hike its dividend 14% to $5.25 per share. The payout yields 1.7% annually.
With AI spending rising and possibly growing exponentially, look for Broadcom to reap a large share of that money.
Qualcomm (QCOM)
Expect Qualcomm (NASDAQ:QCOM) to continue its leading performance amongst Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Android phones. While even management expected segment sales to be soft, demand for Android phones in China showed surprising strength. It suggests a recovery is underway. That bodes well for long-term growth for the chipmaker as revenue for the business was up 23% year-over-year. It also improved 16% sequentially.
Apple and Samsung each account for more than 10% of Qualcomm’s revenue. Analysts thought the iPhone upgrade cycle was over but it appears it’s on the next leg higher. Apple just had a record fourth quarter for sales in China where the iPhone gained market share, as well as record sales in India. There is robust growth elsewhere around the world too.
Although Samsung lost the crown of the world’s biggest phone seller to Apple, it bodes well for Qualcomm no matter who is on top. Because it owns the essential patents used in mobile handsets it should continue enjoying a steady stream of royalty income. Qualcomm is another chip stock to buy for long term wealth creation.
On the date of publication, Rich Duprey 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.
