Artificial intelligence (AI) has been around for longer than many investors may think. However, the launch of ChatGPT in 2023 initiated the generative AI phase. Generative AI not only enables two-way communication between humans and their devices but also facilitates the creation of original content in various formats, including more than just speech and text.
Developing generative AI applications requires training (in the form of data) far beyond conversational AI. This requires a significant investment in AI infrastructure, which starts with semiconductor chips.
This sector was already surging, as chips are needed to power various devices, such as Internet of Things (IoT) devices and electric vehicles. Generative AI is taking this demand to another level and includes areas like data centers.
The good news for investors is that generative AI is still in its early stages. And the best place to start right now is in the companies making the chips that will move AI forward. In this special presentation, we're looking at seven chip stocks that are leading the AI revolution and have a chance to move significantly higher.
Quick Links
- NVIDIA
- Advanced Micro Devices
- Taiwan Semiconductor Manufacturing
- Broadcom
- Onsemi
- Qualcomm
- Lam Research
#1 - NVIDIA (NASDAQ:NVDA)
As the leader in generative AI chips, NVIDIA Corporation (NASDAQ: NVDA) is an obvious choice for this list. NVIDIA is estimated to have over 85% market share in the coveted data center market. As the company noted in its first quarter 2024 earnings report, it simply can’t make chips fast enough to keep up with demand.
And NVIDIA is not resting on its laurels. The company has already launched its H200 generative AI chip as part of its HGX AI supercomputing platform.
On June 10, 2024, NVDA shares began trading at their split-adjusted price. And it didn’t take analysts long to start bidding the stock higher. The NVIDIA forecasts on MarketBeat show that, as of June 12, 2024, at least four analysts have raised their price targets, with the lowest being $135 and the highest being $150.
About NVIDIA
NVIDIA Corporation provides graphics and compute and networking solutions in the United States, Taiwan, China, Hong Kong, and internationally. The Graphics segment offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; virtual GPU or vGPU software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building and operating metaverse and 3D internet applications.
Read More - Current Price
- $134.70
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 40 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $164.15 (21.9% Upside)
#2 - Advanced Micro Devices (NASDAQ:AMD)
Heading into March 2024, Advanced Micro Devices Inc. (NASDAQ: AMD) appeared to be catching up with its high-flying competitor, NVIDIA. Since then, it’s been more of a struggle for AMD stock, which has been down over 20% in the three months ending June 12, 2024.
Analysts and investors are concerned that AMD may be unable to catch up to NVIDIA's lead in the data center market. However, with so many companies looking for alternatives to NVIDIA, counting AMD out of that market may not be wise. To that end, the company spent approximately 26% on research and development in AI in 2023, and is promising that number will go up as demand for AI continues.
The company has much more market share in the central processing unit (CPU) and graphic processing unit (GPU) markets. Both markets are expected to have a refresh cycle that will stir demand for AMD products.
About Advanced Micro Devices
Advanced Micro Devices, Inc operates as a semiconductor company worldwide. It operates through Data Center, Client, Gaming, and Embedded segments. The company offers x86 microprocessors and graphics processing units (GPUs) as an accelerated processing unit, chipsets, data center, and professional GPUs; and embedded processors, and semi-custom system-on-chip (SoC) products, microprocessor and SoC development services and technology, data processing unites, field programmable gate arrays (FPGA), and adaptive SoC products.
Read More - Current Price
- $119.21
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 27 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $191.96 (61.0% Upside)
#3 - Taiwan Semiconductor Manufacturing (NYSE:TSM)
Taiwan Semiconductor Manufacturing (NYSE: TSM) is a foundry that makes NVIDIA's AI chips. Its customer base also includes Advanced Micro Devices and Apple, among others. If you’re looking for a pure-play semiconductor stock, TSM is the one.
The company is projected to be a significant beneficiary of the Chips Act passed by Congress in 2022. In April 2024, the Biden administration announced plans to give Taiwan Semi $6.6 billion to help it build three foundries in Arizona.
TSM stock is up 62% in 2024 and 67% over the last 12 months. That has it butting up against its current consensus price target. However, the company’s revenue, which came in at $70 billion in 2023, is expected to climb to $100 billion in fiscal year 2025. And the stock trades at around 27x forward earnings, which means investors are not paying too high of a premium on TSM stock.
About Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing Company Limited, together with its subsidiaries, manufactures, packages, tests, and sells integrated circuits and other semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally. It provides a range of wafer fabrication processes, including processes to manufacture complementary metal- oxide-semiconductor (CMOS) logic, mixed-signal, radio frequency, embedded memory, bipolar CMOS mixed-signal, and others.
Read More - Current Price
- $197.21
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 4 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $214.00 (8.5% Upside)
#4 - Broadcom (NASDAQ:AVGO)
Broadcom Inc. (NASDAQ: AVGO) may be the company that analysts believe most closely resembles NVIDIA at this point in the chip cycle. The company’s product portfolio of networking solutions is critical as companies need to transmit the vast amount of data required for AI applications.
The company's acquisition of VMware in 2023 was a significant reason that its revenue skyrocketed 34% year-over-year. And with $11.6 billion in revenue in the first quarter, Broadcom is well on its way to hitting its target of $50 billion in consolidated revenue in 2024.
Another way that Broadcom is like NVIDIA is its current price, which is over $1,800 per share. That is fueling speculation that the company may issue a stock split of its own sometime in 2024. Even if the company doesn’t split its stock, investors can capture a dividend that has been growing for 10 years.
About Broadcom
Broadcom Inc designs, develops, and supplies various semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products worldwide. The company operates in two segments, Semiconductor Solutions and Infrastructure Software.
Read More - Current Price
- $220.79
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $221.88 (0.5% Upside)
#5 - Onsemi (NASDAQ:ON)
Onsemi (NASDAQ: ON), formerly ON Semiconductor Corporation, is one of the worst-performing chip stocks at this point in the cycle. The stock is down 15% in the last 12 months and over 8% in 2024. The bearish short-term results and the bullish long-term outlook for ON stock comes down to its positioning.
While the company isn’t absent from the data center market, the bulk of its solutions are in the renewable energy sector and electric vehicles (EVs). These stocks have struggled as inflation impacts demand, and higher interest rates create a more challenging environment for companies that need access to capital. Onsemi also has exposure to other sectors including aerospace and medical technology (medtech).
However, the headwinds could quickly turn to tailwinds when the Federal Reserve begins to lower interest rates. That may not happen until November 2024 or even 2025. In the meantime, investors can pick up shares while the stock trades at an attractive 20x forward P/E.
About Onsemi
onsemi is engaged in disruptive innovations and also a supplier of power and analog semiconductors. The firm offers vehicle electrification and safety, sustainable energy grids, industrial automation, and 5G and cloud infrastructure, with a focus on automotive and industrial end-markets. It operates through the following segments: Power Solutions Group, Advanced Solutions Group, and Intelligent Sensing Group.
Read More - Current Price
- $65.50
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 16 Buy Ratings, 5 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $85.87 (31.1% Upside)
#6 - Qualcomm (NASDAQ:QCOM)
The bullish case for Qualcomm inc. (NASDAQ: QCOM) is linked to Apple Inc. (NASDAQ: AAPL). That’s because, in a move that surprised some investors, Apple announced that Qualcomm will continue to provide chips for the iPhone through 2026. That’s two years longer than previously expected.
With that in mind, it’s not surprising that QCOM stock bounced higher after Apple’s worldwide developer conference (WWDC) in June 2024. Investors became enthusiastic that “Apple Intelligence” will ignite a new super cycle for the iPhone.
Qualcomm supplies chips for other smartphone manufacturers as well. Counterpoint Research estimates the company will capture approximately 80% of the emerging generative AI smartphone market for the next two years.
QCOM stock is up 70.7% in the 12 months ending June 12, 2024, and up 44% in 2024. So, at $214 a share as of this writing, is Qualcomm still a buy? The analyst forecasts on MarketBeat show that firms are starting to bid the stock higher, with Bank of America setting the highest price target of $245.
About QUALCOMM
QUALCOMM Incorporated engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on 3G/4G/5G and other technologies for use in wireless voice and data communications, networking, computing, multimedia, and position location products.
Read More - Current Price
- $152.89
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 14 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $208.00 (36.0% Upside)
#7 - Lam Research (NASDAQ:LRCX)
Lam Research Corp. (NASDAQ: LRCX) is a wafer fabrication company. That means it makes the equipment that chip makers need. Simply put, if chips are the tip of the spear when it comes to AI, companies like Lam Research are the sharp point.
LCRX has been on a heater, as the kids like to say. The stock is up 59% in the last 12 months and 27% in 2024. That has it trading at a price of over $1,035 per share with a forward P/E ratio of around 34x.
Investors may see that as too richly valued. However, the company announced a 10-for-1 stock split on May 21, 2024, which will go into effect on October 3, 2024. Is this a reason to get involved with the stock?
Stock splits don’t change the valuation of a company, but they can make the stock psychologically more attractive for investors. That may be why an analyst from Evercore initiated coverage of LRCX stock in April with a $1,200 price target.
About Lam Research
Lam Research Corporation designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers ALTUS systems to deposit conformal films for tungsten metallization applications; SABRE electrochemical deposition products for copper interconnect transition that offers copper damascene manufacturing; SOLA ultraviolet thermal processing products for film treatments; and VECTOR plasma-enhanced CVD ALD products.
Read More - Current Price
- $71.79
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $97.24 (35.4% Upside)
It's important for investors to get clarity around AI's significance. Many investors (possibly some who missed the generative AI catalyst) will say AI is a bubble that's bound to burst. Others are genuinely concerned about what the unregulated growth of AI may mean for society.
Those questions will be debated for years. In the meantime, the most important takeaway for investors is that AI isn't going away. Companies have invested too much in the technology, and even the most basic AI applications are the least impressive examples of what this technology can offer.
But you don't have to be concerned about whether AI is a friend or foe when investing in chip stocks today. The one thing you need to know is that billions of dollars are going into this space and that investment will show up in stock prices.
If you're not ready to invest in individual chip stocks right now, MarketBeat will provide real-time updates for any stock on your watchlists. Plus, there are several exchange-traded funds (ETFs) that invest in a basket of the top chip stocks.
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