There are multiple reasons that investors should be highly interested in some appealing chip stocks at the moment. Several factors suggest that the semiconductor industry is poised to skyrocket in 2024.
The first tranche of funding from the CHIPS Act was released at the end of 2023. The strong government subsidization of chips is one such factor. Of course, 2023 was a seminal year for AI, deeply tied to semiconductors. Continued monetization of generative AI, in particular, will play a strong role.
Further, it’s reasonable to anticipate that we are early in a super cycle benefiting the semiconductor industry overall.
Appealing Chip Stocks: Taiwan Semiconductor Manufacturing (TSM)
It would have been best to own Taiwan Semiconductor Manufacturing (NYSE:TSM) stock before mid-January. That’s true because the company forecast 2024 revenue growth as high as 25% on Jan. 18. Those who owned shares then saw an immediate bump of roughly 10%.
However, investors should still consider Taiwan Semiconductor Manufacturing. One reason to believe so is that the company is still expected to contract in the fourth quarter. That forecast will continue to cause trepidation around investing in the company’s shares.
Taiwan Semiconductor Manufacturing expects revenue growth to occur in each quarter following Q4. In short, investors are highly optimistic about the strong 2024 guidance but likely remain cautious. That means investors will have an opportunity to choose between Q4 earnings and Q1 earnings.
During that period, there will be ample opportunity for share prices to rise as the company provides more information regarding projected revenue growth. Given how integral TSM is to the semiconductor industry, it’s a bet worth making.
Nvidia (NVDA)
Every investor knows that Nvidia (NASDAQ:NVDA) has been the biggest winner in the emergence of AI. Every investor also struggles with the idea that NVDA stock is currently overpriced. Those cautious investors continue to assume that a downturn is bound to ensue. The simple logic is that what goes up must come down.
However, Nvidia continues to prove more conservative investors wrong. 2024 was supposed to start off with a correction to Nvidia’s price. It hasn’t happened. Share prices began 2024 below $500 and have since eclipsed $600.
Part of that continued optimism directly results from TSMC’s bullish outlook. It’s also due to Nvidia’s dominant position. Nvidia has massive leverage overall. That is reflected in demand and high prices for its h100 chip throughout 2023. The company will release its H200 chips this year. Expect firms to scramble to secure their supply of those chips as well.
Nvidia’s management knows that to be the case. Demand is solid. Further, Nvidia has monetized AI like no other firm has. That is the most substantial reason investors dismiss the notion that it is overpriced.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) is the other most salient chip stock.
Multiple factors continue to suggest that Advanced Micro Devices will continue to grow.
For one, the market is highly receptive to its competitive offering. The company is positioned to be Nvidia’s strongest challenger over the coming years. Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META), the two biggest buyers of Nvidia’s chips, signaled they would switch to AMD.
That news has catalyzed Advanced Micro Devices’ stock to new highs. Many investors have felt that they missed the boat on the opportunity. That isn’t the case. Multiple Wall Street houses recently Increased their target prices for AMD.
AMD CEO Lisa SU projects AI data center chip spending to reach $400 billion by 2027. Even if AI data center spending only reaches 200 billion, that would equate to a 25% annual increase. That has led some on Wall Street to project a rapid adoption scenario that promises to quadruple AMD’s price over that period. It is also why I think it is one of the most appealing chip stocks.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) remains a strong AI stock investment for more conservative investors. QCOM shares offer a dividend – an indication of stability – last reduced in 2003.
Qualcomm is approaching the artificial intelligence opportunity differently than many of the more prominent players. Generative AI has been the dominant factor in the emergence of AI overall. Data center opportunities are not far behind.
Qualcomm sees a lot of its opportunity in AI coming from a slightly different space: Automotive use cases. That’s where CEO Cristiano Aman said he sees opportunities when he spoke at the Davos World Economic Forum recently. In particular, electric vehicles. EVs require roughly 3,000 chips per vehicle, whereas on average, internal combustion engine vehicles use half that.
Qualcomm is clearly making a run at establishing a strong position in that sector. Though the electric vehicle industry is going through growing pains, it continues to grow. The opportunity is not going to die. Qualcomm is positioning itself to take advantage of the proliferation of chips in those vehicles. Its overall stability and growth opportunities create a robust investment opportunity.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) had a tough year in 2023. The memory chip stock was subject to a downturn in demand for memory chips that hurt the sector overall.
The memory chip sector itself is known to be highly volatile. Analysts note that though the sub-sector is prone to rapid deterioration, the opposite is also true. Wedbush analyst Matt Bryson said as much while noting that he believes the memory sector is in the early stages of a rebound.
That opinion substantiates projections from Samsung and SK Hynix – the world’s two largest memory makers – that demand weakness bottomed out in late 2023.
Cyclicality characterizes the semiconductor industry. The artificial intelligence super cycle may just be getting started despite how impressive 2023 was. Now, it appears that the memory chip subsector is also entering an upward cycle.
Micron Technology is one of the better-known choices in that sub-sector. It is also one of the most appealing chip stocks, in my view.
ASML (ASML)
The recent performance of ASML (NASDAQ:ASML) stock is very telling of its continued investment opportunity. A Barron’s article characterized ASML’s recent blowout earnings as a sign of better times ahead. Revenues grew by a full 30% in 2023, and 4th quarter earnings were even stronger than anticipated.
Revenues at ASML reached €7.24 billion, besting expectations of €6.68 billion in sales for the quarter.
Earnings, too, were better than anticipated.
Expectations from ASML management are not as optimistic as those in Barron’s headline. CEO Peter Wennick expects 2024 to be similar to 2023 and offers a conservative outlook. He believes 2025 will be a particularly strong year for the company, marked by significant growth.
It’s an interesting comment because ASML has been volatile price-wise over the last 12 months. It is also the only firm capable of doing what it does. No other firms can match its technological prowess or produce the complex lithography machines ASML uses in chip manufacturing. The fact that Taiwan semiconductor manufacturing recently gave such strong guidance for 2024 suggests that lithography machine sales could indeed jump substantially before 2025.
Applied Materials (AMAT)
Applied Materials (NASDAQ:AMAT) Is another picks-and-shovels stock In the chip industry. Like ASML, Applied Materials plays an essential role in chip Manufacturing. It provides the equipment required in the chip manufacturing process.
One of the primary reasons to believe that demand will be strong in 2024 relates to Taiwan Semiconductor Manufacturing’s recent comments. A 25% increase in TSMC sales should spur equipment sales overall.
As my colleague Terel Miles recently noted, Applied Materials had a very strong year in 2023. Share prices increased dramatically as the company bested multiple metrics during the year. The company further cemented its position as one of the leading suppliers to the chip industry, which is positioned to grow. Applied Materials didn’t see its top line grow much during 2023, but it did increase efficiency with earnings growth that outpaced sales growth by a factor of three. AMAT shares remain a solid choice.
On the date of publication, Alex Sirois did not have (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.
