A consumer technology glut that precipitated during the pandemic years had created headwinds for several semiconductor companies (and their share prices). However, last year’s market craze around artificial intelligence (AI) has created an uplift in activity in the sector.
2024 is turning out to be a similar story. The tech-heavy Nasdaq has risen 11.88% from a year-to-date (YTD) perspective, and AI continues to be a major component of that. Even if the rally ceases, investors should be keen to buy up shares of these three semiconductor stocks.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) is a semiconductor giant specializing in the design of sophisticated central processing units (CPUs) and graphics processing units (GPUs). The fabless nature of AMD’s business has helped it rise to become a viable alternative to Intel (NASDAQ:INTC) in terms of CPU power.
The next test for this semiconductor firm is its ability to snap up market share in the AI computing market. In 2023, there was a string of announcements regarding AMD’s advanced chips for large language models (LLMs), which would ostensibly compete with Nvidia (NASDAQ:NVDA). The MI300x accelerators are meant to handle generative AI workloads, and Microsoft has even called the chip “the most cost-effective GPU out there right now for Azure OpenAI.”
Moreover, as AMD enters the AI chip market, it will have to compete on costs, just as it did with Intel in the CPU space. If AMD does this successfully, it will become an AI champion. For 2024, AMD shares have only risen 12.29% on a YTD basis, while at one point in early March, the stock price had risen as much as 43.40%.
With demand for AI reaching new heights, AMD is a semiconductor stock to buy on the dip.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is less of a household name like AMD or Nvidia. However, the Palo Alto-based semiconductor firm also has an important role to play in the world of artificial intelligence. Broadcom designs a variety of chips for network data processing. As cloud technology has proliferated, demand for Broadcom’s infrastructure technology has risen in turn.
Underscoring the firm’s competencies, in April, Alphabet (NASDAQ:GOOG) subsidiary, Google, awarded Broadcom two awards for “2024 Google Cloud Technology Partner of the Year” for both networking and virtualization.
Furthermore, the demand for AI chips has also created new opportunities for Broadcom’s networking products. AI computing results in oceans of data that need to be pushed through a network, and Broadcom’s network chips provide the power to do that efficiently. The company expects to generate around $10 billion in revenue from chips related to artificial intelligence.
Broadcom’s share price has risen 25.26% since the start of the year. While trading at only 27.7x forward earnings, AVGO is still among the semiconductor stocks to buy if the market slips again.
Nvidia (NVDA)
The last entry on this list is AI chip behemoth Nvidia (NASDAQ:NVDA). The chipmaker had risen to prominence years ago due to its innovations in GPU computing technology. Since 2023, enterprises have sought Nvidia’s advanced chips for their ability to power LLMs. The demand for AI chips has caused Nvidia’s GPU sales to balloon.
Strong sales and net income growth off the back of AI demand has continued into 2024. Highlights from Nvidia’s first quarter earnings report for fiscal year 2024 are a testament to that. Not only did the chipmaker beat revenue and earnings estimates by a significant margin, but its data center business unit, which is a core piece of the firm’s AI revenue, expanded 427% YOY to $22.6 billion in revenue. Demand for the Hopper graphics processor (H100s) was key to unlocking this unprecedented growth.
Nvidia’s stock looks like it will continue to soar in the coming months as it becomes more accessible through a 10-to-1 split. Strong demand for its AI chips across the board is why investors should consider buying more NVDA shares if it dips.
On the date of publication, Tyrik Torres 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.
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.