Tuesday, October 3, 2023

3 Semiconductor Stocks to Invest in as Demand for AI Chips Surges 

Investors can’t help themselves as they see the hype behind artificial intelligence (AI). It has them looking for semiconductor stocks for AI demand — as demand continues to scorch higher.

That said, we’re at a weird part of the rally.

On the one hand, we know there’s a multi-year catalyst ahead for many of these companies. At the same time though, we’ve seen monstrous rallies. Nvidia (NASDAQ:NVDA) has more than quadrupled from its 52-week low made in October.

So now investors are trying to balance what they’re seeing — high growth semiconductor stocks — with what the market has already priced in. At the end of the day, we’re still looking for AI chip stocks to buy.

With that in mind, let’s look at a few leading semiconductor stocks for AI demand.

Semiconductor Stocks for AI Demand: Nvidia (NVDA)

An image of NVIDIA logo seen on a phone screen

Source: sdx15/Shutterstock

Nvidia has become the fave of the semiconductor stocks. AI demand seemingly starts and ends with this name and those that have been following Nvidia’s journey over the years knew this was the eventual outcome.

However, very few likely realized when and how it would materialize for the stock price.

Shares of Nvidia fell about 67% from its all-time high to the 52-week low. It was a stunning decline for an otherwise miraculous company. Even amid the bounce, shares ran out of momentum in December and looked likely to retest the lows. A five-month surge and several hundred percent later and Nvidia stock is up more than 300% from its 52-week low.

CEO Jensen Huang has referred to Nvidia as having its iPhone moment due to the AI revolution. More specifically, he said Nvidia is “seeing incredible orders to retool the world’s data centers… You’re seeing the beginning of… a 10-year transition to basically recycle or reclaim the world’s data center.”

That said, investors are not crazy for wanting a pullback first.

AI Chip Stocks to Buy: Advanced Micro Devices (AMD)

In this photo illustration, the AMD logo is shown on a smartphone screen.

Source: Pamela Marciano / Shutterstock.com

Advanced Micro Devices (NASDAQ:AMD) is an interesting one. One the one hand, it and Nvidia have become the formidable one-two punch in the GPU world. These two have displaced Intel (NASDAQ:INTC) in the semiconductor space and have become AI chip stocks to buy for the long term.

That said, AMD isn’t one of the semiconductor stocks for AI demand…yet.

AMD reported earnings in early May, a few weeks before Nvidia. Shares slumped about 10% in the next session, as the quarter and outlook were not enough to impress investors. However, a day later reports surfaced of AMD working with Microsoft (NASDAQ:MSFT) on an AI chip and the stock quickly regained its bullish momentum.

Then Nvidia issued blowout guidance and AMD stock surged on that as well.

I don’t know when AMD will start churning out its own robust guidance due to swelling AI chip demand. I just think it’s likely it will happen in the future.

Leading Semi Stocks: Broadcom (AVGO)

broadcom (AVGO) logo outside office building

Source: Sasima / Shutterstock.com

Broadcom (NASDAQ:AVGO) is an under-loved and seemingly under-the-radar chip stock. It had a high dividend yield, low valuation, solid growth and strong margins. That’s why we liked it so much.

Now though, investors have gotten a whiff of what Broadcom is all about. In just 11 trading sessions, shares enjoyed a huge rally, climbing 46.6% in that span. While the stock did cool off, the company’s solid earnings results were enough to draw in the buyers and shares have crept back to the upside.

The reason why? “The company predicted that sales linked to AI would double this year — reaching $1B per quarter.”

It’s now clear that Broadcom has gone from a leading semiconductor stock to one of the more fundamentally sound semiconductor stocks for AI demand.

Because of its big rally, the dividend yield is down to “just” 2%, while shares trade at 22.5 times this year’s earnings. However, long-time owners of this name are fine with that, as the stock has enjoyed a huge run this year, up 55%.

On the date of publication, Bret Kenwell 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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