As we approach the new year, semiconductor stock picks are capturing the attention of investors. The sector is in the early stages of a super cycle, offering potential for sustained growth over the coming years. This trend could be particularly good news for those who have yet to dip their toes into this market.
The semiconductor industry witnessed a significant shift in 2020, as the world came to realize its reliance on these minuscule chips, from smartphones to automobiles. This realization triggered a surge in chip stock demand; however, as companies met their chip needs, the market witnessed a subsequent drop-off. The cyclical nature of semiconductor stocks appeared to be following its typical patterns.
Nevertheless, two key factors are disrupting this historical cycle. The first is the rise of artificial intelligence (AI), particularly generative AI, while the latter is the CHIPS and Science Act of 2022. This legislation aims to reward companies fostering research and development, particularly in the semiconductor realm, within the United States.
With the initial tranche of funding released in December 2023, chip stocks are on the ascent. Here are seven top semiconductor stock picks expected to shine in 2024.
Nvidia (NVDA)
Concluding 2023 as one of the premier semiconductor stock picks, Nvidia (NASDAQ:NVDA) is poised for another strong performance in 2024. Before the AI boom, Nvidia reportedly dominated approximately 80% of the data center market. The company’s graphic processing units (GPUs) proved to be well equipped to handle the demands of AI applications. The recent launch of the H200 chip serves as a testament to Nvidia’s commitment to innovation and position in the chip sector.
However, skeptics argue that the company may struggle to keep up with the insatiable demand for AI chips, potentially opening the door for competitors. Furthermore, questions concerning the company’s valuation loom large. Despite this, analysts project a 65% earnings growth, with a $668.11 price target, representing a 34% increase from the current price. Out of 52 analysts who have rated NVDA stock in the last three months, 42 have given it a Strong Buy rating.
Advanced Micro Devices (AMD)
Another heavyweight in the semiconductor arena, Advanced Micro Devices (NASDAQ:AMD), is well-positioned to seize market share from Nvidia. The company’s new MI300 chips boast the processing power and memory to compete effectively in the data center and AI markets against Nvidia. AMD’s CEO Lisa Su anticipates that the MI300 could contribute $2 billion to the company’s top line in 2024, a figure that many analysts view as conservative.
Optimism surrounding AMD is further bolstered by its partnerships with industry giants such as Meta Platforms (NASDAQ:META), Amazon (NASDAQ:AMZN), OpenAI, Microsoft (NASDAQ:MSFT), and Oracle (NYSE:ORCL). These partnerships indicate significant support for both AMD and Nvidia GPUs. Notably, AMD stock surged over 45% in the last three months of 2023, with Bank of America (NYSE:BAC) elevating its rating to Buy and setting a price target of $165 in December.
Intel (INTC)
Intel (NASDAQ:INTC) represents another top semiconductor stock pick for 2024. Prior to the proposal of the CHIPS Act, Intel articulated plans to construct two chip fabrication plants in the United States. However, INTC stock lagged in 2023, primarily due to the absence of an AI offering. This is expected to change with the impending launch of the Gaudi 3, Intel’s 3rd generation AI accelerator in 2024. Analysts anticipate this accelerator to outperform Nvidia’s H100 chip in data center and deep learning applications.
Intel is also gearing up to launch its Falcon Shores GPU in 2025, merging the company’s GPU and Gaudi capabilities into a single product. Although analysts foresee a significant decrease in the stock price through 2024, bullish upgrades from at least four analysts in December indicate potential for an attractive blend of growth and value, pending solid earnings results.
Taiwan Semiconductor Manufacturing (TSM)
Investors looking to delve into semiconductor stocks in 2024 can also consider Taiwan Semiconductor Manufacturing (NYSE:TSM). Operating as a key manufacturer for numerous tech giants, TSM partners with chip designers like Nvidia, boasting a 58% market share in the third-party semiconductor manufacturing sector.
However, TSM stock faces geopolitical concerns stemming from potential Chinese intervention in Taiwan. In the event of an invasion, the chairman of Taiwan’s National Security Bureau suggests that TSMC may face challenges conducting business due to U.S. sanctions, obstructing Chinese chipmakers’ access to crucial tools for producing cutting-edge devices.
Top Semiconductor Stocks to Consider for 2024
The semiconductor industry has been a turbulent sea for investors, but astute navigators have found opportunity amidst the waves. The CHIPS Act has upended the landscape and sparked fervent investment from industry behemoths. TSMC’s heavy investment in a fab plant in Arizona is a testament to the industry’s dynamism, though it has incited earnings turmoil. Analysts foresee a robust 20% earnings growth over the next half-decade, a beacon of optimism amidst the tempest.
Micron Technology (MU)
Micron Technology’s prowess as a leader in dynamic random-access memory (DRAM) chips positions it at the vanguard of semiconductor innovation, a crucial position in the AI renaissance. The exponential surge in memory demand driven by AI applications bodes well for Micron’s prospects. The launch of its HBM3E memory-chip module in late 2023, promising a 10% boost in output and 30% reduction in power consumption, underscores the company’s commitment to cutting-edge innovation.
While Micron encountered flat revenue in 2023, the company’s foray into the data center market exhibited pronounced growth, elevating analyst confidence. Buoyed by this performance and anticipating a resurgence in its core business sectors, 25 out of 39 analysts bet on MU stock with a Strong Buy rating. The resultant price target hikes and the company’s imminent chip scale production in 2024 underscore a positive outlook.
Applied Materials (AMAT)
Applied Materials assumes a pivotal role in semiconductor manufacturing, furnishing the indispensable equipment for chip fabrication. The company’s meager 3% revenue growth in fiscal year 2023 may raise eyebrows, yet its robust 8% earnings per share (EPS) growth underscores steady progress. As AMAT stock flirts near its 52-week high, potential investors may encounter an opportune entry point during an anticipated pullback. Despite the modest growth, analysts maintain a Moderate Buy rating, affirming the company’s indispensability in the semiconductor sector.
Skyworks Solutions (SWKS)
While Skyworks Solutions forgoes AI chip development, its focus on wireless device chips and major client, Apple, fortify its market position. Despite SWKS stock’s 25% ascent in 2023 amidst declining quarterly revenue and earnings, analysts retain a Moderate Buy rating with a $116 price target, indicative of potential for opportune investment following an anticipated pullback. The widespread appeal of Apple’s iconic iPhone provides a sturdy foundation for SWKS stock, assuaging concerns regarding its performance.
On the date of publication, Chris Markoch 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.
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