2 No-Brainer Semiconductor Stocks to Buy Right Now The Motley Fool

Today, only three foundries — Taiwan Semiconductor Manufacturing (TSM -1.44%), Samsung, and Intel — can manufacture the world’s smallest chips. TSMC is the largest and most technologically advanced of the three, and fabless chipmakers like AMD, NVIDIA (NVDA -1.15%), Qualcomm (QCOM -0.34%), and Apple (AAPL -0.06%) all rely on its plants to produce their newest 5nm and 7nm chips. In the past, many chipmakers manufactured their chips with their own fabrication plants, also known as fabs or foundries. So today I’ll walk you through four of the world’s most important chipmaking companies, and highlight why they could be great investments for the next decade.

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You can easily search and invest in semiconductor stocks on major stock exchanges with an online broker. These platforms give you access to advanced trading tools and educational resources to help you make investments that match your financial goals. Many companies in this sector struggle to cope with the industry’s cyclical nature.

Some companies may excel in developing cutting-edge technology but face operational challenges, while others might excel in production efficiency but lag in innovation. Diversification ensures that an investor’s portfolio can benefit from sector-wide growth while minimizing the impact of any company’s underperformance. The company’s commitment to continuous research and development ensures its technological leadership, maintaining its edge with processes as advanced as 3nm.

Its leadership position in chip manufacturing led the U.S. government to award TSMC $6.6 billion in funding as part of the CHIPS Act to build semiconductor factories in the U.S. The U.S. currently has no manufacturing ability to make the advanced chips needed for AI. Except for 2020, revenue and net income growth in recent years have been largely strong. With a current ratio running 4 to 8 times over the last few years, return on capital of 13.6% to 22.9%, return on equity of 26% to 49.3% and gross margins of 59.9% to 64.9%, NVDA is a strong performer. In fiscal year 2022, the company’s revenues ($660.4 million) and net income ($178.9 million) were up 28.1% and 27.1% year over year, respectively. The company is benefiting from the huge demand coming from AI chips, and is also set to benefit from any increased chip demand coming from a hardware and smartphone upgrade cycle, as more powerful devices are needed to run AI.

Micron Technology

The company also manages costs effectively, pushing up its Q3 gross margin to 57.8% compared to 54.3% in the previous year. “Like sands through the hourglass, so are the days of our lives,” says the familiar opening of NBC’s Days Of Our Lives. More than six decades later, the devices are everywhere, and rather than sand through an hourglass, life in the 21st century seems to be a series of encounters with an endless number of semiconductors. In 2024, Nvidia clocked new revenue records, driven largely by growth in their data center segment, which CEO Jensen Huang terms “AI factories.” Historically, Qualcomm has been a key Apple (AAPL -0.06%) supplier, having profited from the smartphone boom and Apple’s ecosystem over the past decade. As generative AI becomes more integrated into applications such as search engines, autonomous vehicles, and advanced robotics, the demand for high-performance chips will increase.

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In artificial intelligence (AI) chips, there is Nvidia and then there is everyone else. As a key player in the memory market, Micron has been instrumental in driving technological advancements that enhance the performance and efficiency of electronic devices. The company’s focus on innovation is evident in its contributions to developing next-generation memory technologies, including 3D XPoint, which significantly improves speed and endurance over traditional NAND. Although it has only been a few decades since semiconductors like microchips and processors have come into the mainstream market, it has quickly risen to become one of the most traded components worldwide. With many of these tech companies launching flagship products every year, you can expect significant growth in your wealth by investing in these stocks.

Meanwhile, despite the stock’s huge gains over the past few years, the stock remains attractively valued, with a forward price-to-earnings (P/E) of 33 times next year’s analyst estimates and a price/earnings-to-growth (PEG) ratio of just over 1. A PEG ratio of under 1 is usually viewed as undervalued, but growth stocks will often have multiples well above 1. And while its growth this past Forex adx year has been outstanding, there is reason to believe Nvidia will continue to grow strongly into the future. Customer demand remains strong, and as their AI models advance, they will need exponentially more computing power, which comes from Nvidia’s GPUs.

Neither the author nor editor owned shares in the aforementioned investments at the time of publication. Its Q3 balance sheet boasted total assets of $96 billion, including $38.5 billion in cash, cash equivalents, and marketable securities. This led to record revenue of $35.1 billion in its fiscal third quarter, ended Oct. 27, a 94% increase over the prior year. And thanks to unabated AI demand, Nvidia estimates sales growth will continue into the fourth quarter. It expects Q4 revenue to reach around $37.5 billion, a 70% increase over the previous year.

The company’s strong financial health and strategic positioning in high-growth markets suggest that Nvidia’s stock may offer significant upside potential for investors looking at 2024 and beyond. A brief look at the three stocks’ business model sheds light on the reasons behind their lackluster performance. The firm provides semiconductor manufacturing equipment such as those used in wafer cleaning, etching, and film deposition. This means that it has exposure to the broader and non-AI sectors of the downstream semiconductor industry as well.

These sectors demand increasingly powerful and energy-efficient computing solutions, areas oanda broker where Intel’s R&D and product innovation focus. Regarding valuation, AMD’s stock reflects the company’s growth trajectory and the market’s optimism about its future prospects. While AMD trades at a premium relative to some peers, this valuation is supported by its potential for further market share gains and its role in driving forward the high-growth segments of gaming, data centers, and AI computing. Investors are drawn to AMD for its current financial performance and strategic vision aligning with future technology trends.

• It expects Q4 revenue to reach around $37.5 billion, a 70% increase over the previous year.
• Intel’s innovations have powered decades of computing advancements, significantly contributing to developing desktop, laptop and server markets.
• Through strategic partnerships, research and development, and a customer-focused approach, AMD continues challenging the status quo, driving technological advancements and delivering competitive and cutting-edge solutions to the market.
• In fact, industry research firm International Data Corporation has predicted a long-anticipated return to growth for the semiconductor industry this year after raising its sales forecasts in November 2023.
• Additionally, when we talk about downstream stocks, then the markets that they cater to also play a role in the share price performance.
• Long-term debt is just $8.5 billion, which is less than a third of the $26 billion in cash and cash equivalents at the beginning of fiscal 2024.

What trends drive semiconductor stocks?

A company’s return on invested capital (ROIC) indicates how well it’s able to generate profit from the cash it raises via debt and equity it receives. A high ROIC means the company is likely innovating strategically, improving operations to increase efficiency, and targeting secular growth trends with new chip designs. These margins have largely held for the nine months ended March 31, 2024, suggesting, for now, that margin improvement is not going to drive earnings. Gross margin improvement may prove elusive because it contains, among other things, materials that get priced in markets over which SMCI has little control. The same can be said for manufacturing operations that rely on a supply chain and contract manufacturers. Nvidia’s GPUs are critical for driving the graphics in video gaming, but its application has expanded far beyond to include AI, deep learning and autonomous vehicle technologies, positioning the company at the heart of the AI revolution.

Financially, Micron demonstrates robust earnings growth and a strong balance sheet. daytrading definition Despite the cyclical nature of the semiconductor industry, Micron has managed to navigate market fluctuations successfully, maintaining healthy profit margins and cash flow. This financial resilience is crucial for sustaining high levels of investment in research and development and is essential for staying competitive in the fast-evolving tech landscape. Additionally, Micron’s strategic management of supply chain and production capabilities has helped it mitigate the impacts of global semiconductor shortages, underscoring its operational excellence. Diversification is particularly important when investing in semiconductor stocks. The industry encompasses various companies specializing in different segments, such as manufacturing, equipment and design.