Top AI semiconductor stocks have been hot through 2023, and so far this year, they’re showing no signs of cooling off as the newest slate of generative AI technologies continues to impress. OpenAI recently showcased Sora, an AI video generator that’s been the talk of the town over the past week.
Undoubtedly, one can’t help but think that products such as ChatGPT and Sora OpenAI are going to put many folks out of a job. Perhaps most impressive is that ChatGPT and Sora can only get better from here. I think that just having a look at the videos Sora generated is enough to make an AI believer out of any investor.
As OpenAI’s top boss, Sam Altman, looks to raise as much as $7 trillion (yes, that’s a trillion with a “t”) to give the global semiconductor industry a boost, it seems like semiconductor demand could continue to outweigh supply as we enter AI’s second year of mass adoption. Let’s take a peek at three overlooked semiconductor stocks to watch closely as they continue their ascent.
Semiconductor Stocks: Qualcomm (QCOM)
For those who may have missed out on the semiconductor boom of 2023, Qualcomm (NASDAQ:QCOM) definitely stands out as a catch-up play that’s nowhere near as hot as some of its high-flying peers. At around $152 per share, Qualcomm is still down just over 19% from its 2022 all-time high. Given the ongoing AI boom, it’s hard to envision a semiconductor stock with AI exposure that’s not melting up to new highs.
Though, there are some question marks clouding Qualcomm’s future. Most notably, what happens when Apple (NASDAQ:AAPL) successfully creates its own modem, a move that would essentially give Qualcomm’s modem the boot from a future iPhone model?
As it turns out, making cellular modems is no easy feat. And with Apple extending its modem deal with Qualcomm through 2026, it seems like Apple’s foray into modems has been a tad rockier than anticipated. Only time will tell if Apple is able to replace Qualcomm in a few years. Regardless, expect Qualcomm to be less reliant on Apple over time as it looks to make a deeper dive into the world of AI.
At 21.8 times trailing price-to-earnings (P/E), QCOM stock certainly looks cheaper than most other semiconductor stocks hogging the headlines of late.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor (NYSE:TSM) found itself flirting with all-time highs before slipping by around 5% over the past week and change. As critical as the firm is to the future of the AI chip market, you wouldn’t expect the firm to be overlooked. Undoubtedly, it’s the uncertain geopolitical risks making shares of TSM a tough hold, even as the firm itself continues firing on all cylinders in a market that couldn’t be hotter.
It’s the same deal with owning Chinese stocks; there are a lot of geopolitical risks with these investments. And though TSM stock’s valuation may be depressed, it’s tough to tell just how much of a discount warrants a potential bear-case scenario that sees China invade Taiwan.
On the plus side, Taiwan Semiconductor is doing a great job of expanding beyond Taiwan. The world’s largest foundry is set to build a second factory in Japan, a move that could take a little bit of the China-Taiwan risk off the table.
Arguably, it’ll take much more than just another factory opening to ease this risk. In any case, I view any potential escalation in China-Taiwan tensions as a risk, not just for Taiwan Semiconductor but the entire tech sector. With that in mind, I view TSM stock as incredibly cheap at just 24.5 times trailing P/E.
AMD (AMD)
The secret is out: AMD (NASDAQ:AMD) is the AI chip bet for investors who want a suitable alternative to the great Nvidia (NASDAQ:NVDA). Though AMD isn’t overlooked anymore, after recently surging to new all-time highs, I think a strong case could be made for why the stock deserves more attention than top rival Nvidia as they look to battle it out at the front lines in the so-called AI war.
Over the past year, AMD stock has been white-hot, up more than 121%. As jaw-dropping as the gain is, the performance still comes up short of Nvidia, which has more than tripled over the same time span. With the better chips, the better past year of performance, and the better valuation (96.2 times trailing P/E for NVDA stock vs. 334.4 times trailing P/E for AMD stock), why bother going with player number two (AMD) over the top dog (Nvidia)?
AMD seems to be giving its all to challenge its AI chip rivals with an arsenal of new chip releases (like the Strix Point APUs for 2024).
Further, the company’s sheer hunger for Nvidia’s massive slice of the pie ought to be enough to justify diversifying into if you’re overweight in any single AI stock. Whether AMD can grab a big slice of Nvidia’s lunch remains to be seen. In any case, fellow InvestorPlace contributor Chris MacDonald has high hopes for AMD as it looks to continue its “aggressive” move into AI chips.
On the date of publication, Joey Frenette owns shares of Apple. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
