Artificial intelligence (AI) has become a buzzword in the stock market after companies specializing in the industry saw robust growth. Many corporations announced efforts to use AI and generative AI to increase their productivity and enhance their products.
AI remains in its early innings. Its tools are showing up in more places, offering investors an attractive opportunity. Various AI tools need semiconductors to operate. Semiconductor firms have even offered chips exclusively for artificial intelligence tools.
Therefore, investors looking to ride the AI rally may want to consider these top semiconductor stocks.
Supermicro (SMCI)
Supermicro (NASDAQ:SMCI) is an emerging leader in the AI industry that seems destined to be added to the S&P 500 index this year. Investors have bid up the stock by 700% over the past year as the company’s leading position in AI becomes more well-known.
Supermicro produces servers that can handle the intense workload of AI tools. Rather than producing AI chips, Supermicro’s solutions complement these chips nicely.
Corporations that want to tap into artificial intelligence will have to turn to companies like Supermicro. The firm has experienced heightened demand from its current customers and even more interest from new customers.
Supermicro delivered an exceptional 103% year-over-year (YOY) revenue growth rate in the second quarter of fiscal 2024. The stock is having its Nvidia (NASDAQ:NVDA) moment which can get extended due to its low valuation and market cap.
SMCI’s market cap is roughly $38 billion, and the equity trades at a 52 P/E ratio. Also, the stock has a 0.76 PEG ratio. A PEG ratio under one indicates that a stock is undervalued.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is a semiconductor and software giant that has rewarded shareholders for many years. Between dividend growth, appreciation, and stock buybacks, Broadcom has outperformed most equities over the past five years. AVGO has had a 355% gain during that time.
The company’s Trident 5-X12 chip can lead to more market share and financial growth. This chip uses 25% less power per 400G port than the current market-leading Trident 4-X9. In other words, it is a more efficient chip that can help corporations that want to harness the power of AI. Broadcom delivers a wide portfolio of chips to address customers’ needs.
Also, the firm delivered good financials in the third quarter of fiscal 2023. Broadcom announced 5% YOY revenue growth and 7.4% YOY net income growth in the report. And, the company’s net profit margin was 37.2%.
Therefore, Broadcom’s industry strength and exposure to multiple growth opportunities make it an enticing pick for long-term investors.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) is recovering after a few challenging quarters. The company wrapped up 2023 on a high note with 10% YOY revenue growth. Also, AMD rebounded from low profits in Q4 2022 by posting $667 million in net income during Q4 2023.
The equity has outperformed the stock market over the long run to the tune of a 628% gain over the past five years. Momentum remains strong with this stock based on its 112% gain over the past year.
Advanced Micro Devices can continue its ascent because of AI tailwinds. The semiconductor giant is prepared and has a portfolio of AI chips such as the Instinct MI300X Accelerators, Ryzen Processors and Radeon Graphics Cards.
While Nvidia is the leader in the industry, AMD can gain market share and achieve meaningful revenue growth in the years to come. AMD has the potential to become a trillion-dollar stock.
On this date of publication, Marc Guberti held long positions in SMCI and AVGO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
