Semiconductors have been essential to our lives for quite some time now. They power our computers, cars, smartphones, refrigerators, and even washing machines.
Many semiconductor stocks have performed exceptionally well, benefiting their stockholders. With the proliferation of Generative AI applications, semiconductors are becoming even more famous.
In this blog, we have discussed the top five semiconductor stocks in 2024 that you can consider investing in.
Why add Semiconductor Stocks to your portfolio?
The semiconductor industry is cyclical, tends to face constant shifts in demand, and is expected to grow exponentially by the early 2030s. The US and EU have committed billions of dollars to expanding regional semiconductor manufacturing.
The largest is the U.S. CHIPS and Science Act of 2022, which has $39 billion in grants and a 25% investment tax credit (plus $13.2 billion for research and development).
AI, IoT, green energy, driverless vehicles, and 5G+ networks are just a few of the critical technologies that will significantly impact the semiconductor business in the future. The need for semiconductor materials, manufacturing techniques, and chip layouts is driven by the growing need for quicker, more efficient, and more powerful computing systems.
Industry Overview
Investors need to understand current market trends and the future of semiconductor stocks to make sound decisions about investing in them.
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Current Market Trends:
Computer chips have their uses, but the upcoming semiconductor companies will focus primarily on these two areas for the coming decade:
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Internet Of Things (IoT):
The Internet of Things is a network of interconnected devices communicating and exchanging data. Semiconductors are essential to these devices because they supply the computing power and connectivity required. As IoT applications grow, the need for sophisticated, energy-efficient circuits to manage varied and high-volume data processing requirements will rise.
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Generative AI:
Machine learning and neural networks are examples of generative AI, a significant growth driver for semiconductor firms. These AI systems process massive volumes of data and sophisticated algorithms, which demand enormous computer power.
High-performance CPUs will become increasingly necessary as generative AI is incorporated into more applications, including advanced robotics, driverless cars, and search engines.
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Future Outlook:
The semiconductor industry is poised for robust growth, driven by several key trends. The increasing demand for advanced technologies like AI, 5G, electric vehicles (EVs), and cloud computing is expected to propel the industry forward.
Additionally, the growing need for chips in various sectors, from consumer electronics to industrial applications, highlights semiconductors’ integral role in modern economies.
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Investment Thesis:
Semiconductor stocks offer a gateway to high-growth areas of the economy. Although the industry is cyclical, the long-term outlook is solid. Some of the key investment considerations are diversification, valuation, geopolitical risks, and innovations.
What should you consider when choosing a semiconductor stock to invest in?
When choosing a semiconductor stock to invest in, certain factors should be considered:
- Semiconductor Share Price:
Assess the stock’s price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, and other relevant valuation metrics. Compare these with industry peers to determine if the stock is overvalued or undervalued.
- Growth Potential:
Look at the broader industry trends that drive growth, such as the adoption of AI, 5G, electric vehicles, and the expansion of data centers.
- Market Leadership:
Determine the company’s market share in its respective segment. Market leaders often have pricing power, stronger customer relationships, and better economies of scale.
- Financial Stability:
Examine the company’s financial health by looking at its balance sheet. A strong balance sheet with low debt and high cash reserves indicates financial stability and the ability to invest in future growth.
Top 5 Semiconductor Stocks to Invest in 2024!
Read along to find the top 5 semiconductors stocks that you can consider investing in after examining their portfolio and performance:
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Nvidia Corp:
Thanks mainly to its portfolio and the potent H100 Tensor Core GPU, Nvidia has established itself as the platform for all forms of AI, positioning it to explore new industries and increase revenue aggressively. Nvidia broke revenue records in 2024, primarily due to development in their data center business, which CEO Jensen Huang calls “AI factories.”
According to Huang, the need for generative AI training and inference is growing and accelerated, and these AI factories are essential to making AI a commodity. They are crucial for many businesses, including consumer internet, automotive, healthcare, and many more, whose models depend on intricate infrastructure.
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Advanced Micro Devices Inc:
AMD is introducing the MI300, a GPU processor regarded as one of the most sophisticated and potent currently available.
As of July 29, AMD’s performance has fallen short of Nvidia’s, declining 5.2% yearly. After a decline in earnings in 2023, analysts predict that growth will resume this year, with net income expected to increase by 32% to $3.49 per share.
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Taiwan Semiconductor Manufacturing Co. Ltd:
Even though Taiwan Semiconductor announced double-digit earnings growth in mid-July, the price and other chipmakers are correcting.
Although it faces competition from Intel Corp. (INTC), the stock price of which rose as the semiconductor sector faced uncertainty in July, and Samsung Electronics Co. (005930.KS), TSMC is a global leader in advanced logic chips.
The business just reported net income of $1.47 per share on revenue of $20.7 billion, above profit projections by 31% and 34%, respectively. High-performance computing, encompassing smartphones, automotive technology, and the Internet of Things, saw the most extensive growth.
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Arm Holding PLC:
Arm Holdings creates intellectual property for semiconductors in data centers, automobiles, and mobile devices.
Tech behemoths, including Microsoft Corp. (MSFT), Alphabet Inc. (GOOG, GOOGL), and Amazon.com Inc. (AMZN) are among Arm’s clients. Numerous businesses that offer massively distributed cloud computing services and infrastructure powering smartphones are powered by ARM chip technologies. In September 2023, Arm went public.
The company’s price has increased significantly after its initial public offering (IPO), making it more costly than some alternatives.
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Qualcomm:
Qualcomm (QCOM 1.23%) has long led the mobile chip design industry. Throughout the past ten years, Qualcomm (AAPL -0.05%) has benefited from the smartphone boom and Apple’s ecosystem, making it a significant supplier to the company. Demand for the recently released premium Android smartphones on Qualcomm’s Snapdragon 8 Gen 3 is high worldwide, particularly in China.
Qualcomm’s Snapdragon mobile platforms also make generative AI capabilities possible in high-end and luxury devices.
Bottom Line
Semiconductor stocks show a lot of promise. With the advancement of the Internet of Things and Generative AI, prices are expected to boom in the coming future. By including Semiconductor stocks in the portfolio, investors can make the most of the dynamic market.
Stay tuned to ABBO News for more updates on stocks and other financial instruments.
