Nvidia — one of the largest suppliers of artificial intelligence (AI) hardware and software — has had an incredible run over the past year, witnessing its stock shoot up by 238% and by another 16% during the past five days. (At press time, it was trading at an insane $781.94 a share.)
Did you miss out on that wave? Yeah, we did too... and while investors can still reap rewards in Nvidia, here are at least four other promising semiconductor stocks to add to your portfolio.
For investors who want to diversify their portfolios into other tech companies as competition heats up, four other semiconductor companies are also promising as industries use more AI for its machine learning capabilities in industries such as data centers, vehicles and the cloud.
“People fail to realize how important semiconductors are in our economy,” Angelo Zino, an equity analyst at CFRA, a New York-based investment research company, told Cheddar. “From a market context — semiconductors make up 9% of the S&P 500 and are bigger than most sectors in terms of weighting of the index."
In other words, chips are a good bet. Here are our top picks for the "next" Nvidia.
1. Advanced Micro Devices (AMD)
While companies like Advanced Micro Devices — which makes chips used in laptops, servers and for graphics processing — were out of favor for a while, AMD saw its shares increase by 126.5% and the company will be a “second alternative for companies that need GPU capability,” Zino stated.
“We love that name and AMD is now getting into the AI accelerator space by selling GPUs to cloud companies,” Zino said. “We think there is considerable upside because of the AI theme attached to more accelerators given the greater compute capabilities needed in data centers.”
2. Marvell Technology (MRVL)
When investors think about which companies have the AI capabilities to upgrade the network in data centers, Marvell is the company to invest in, he said. Shares of the company rose at a slower pace during the past year at 53.1%, but is still a large gain.
“The name is gaining a lot of steam,” Zino said.
Marvell, which makes chips used in data centers, also has a play in providing custom silicon chips to cloud companies manufacturing their own semiconductor chips such as Microsoft and Amazon.
“They can leverage their IP to help create internal chips and Marvell has a big pipeline on the networking and custom silicon side to make AI more affordable,” he said.
Oppenheimer analyst Rick Schafer included Marvell as one of its top choices for stocks this year, giving the company an outperform rating and a target price of $70.
“AI-related led growth in 2023 and remains our top theme for 2024 as companies push to monetize their AI strategies,” he wrote.
3. Micron Technology (MU)
Investors should also take a look at Micron Technology, which should have a “big run in 2024,” Zino said.
Even though companies that manufacture computer memory and data storage chips like Micron Technology have been out of favor, 2024 will be a “big recovery year for the memory market,” he said.
AI requires high bandwidth memory since its workload needs six to eight times the amount of content in certain situations, Micron will be a “big beneficiary,” Zino said. The chip maker's stock increased by 58.9% during the past year.
4. Broadcom (AVGO)
Exposure to Broadcom, a semiconductor, enterprise software and security solutions company whose shares skyrocketed by 118% in the past year, is also a good strategy since the company recently acquired VMware — the cloud computing and virtualization technology company.
“They are more of a total solutions company and have cost synergies from VMware,” he said. “There is significant earnings upside here since the company is attached to a networking play like Marvell because it produces Ethernet server adapters and switches for AI inside data centers. Broadcom also has exposure to companies like Apple and Alphabet in terms of supplying components from its semiconductor business to them.”
Broadcom has several major tech companies as its customers — including Microsoft and Meta Platforms. For instance, the chip maker designs custom chips for AI for Google that are called Tensor Processing Units (TPUs).
Harlan Sur, a J.P. Morgan analyst, initiated coverage on Broadcom again on February 6 and gave the company a price target of $1,550 because of the company’s potential in its AI-related products.
“We are particularly constructive on the cloud datacenter end market, with Broadcom’s leadership in switching/routing, its custom chip (ASIC) opportunities across datacenter and artificial intelligence opportunities,” he wrote. “Broadcom has codesigned every generation of Google’s TPU processor family with a stellar track record of execution and, more importantly, we believe that Broadcom has won/already designing Google’s next gen v6 TPU.”
5. Nvidia (NVDA)
The chip maker’s success has been buoyed by a rise in the demand of Nvidia’s graphics processing units or GPUs that are used to train artificial intelligence. Despite the stock's price gains, it’s still a good chip company to buy, according to Zino.
“It’s not too late to buy Nvidia even though you definitely missed on a lot of the gains,” Zino said. “There’s still a lot of money to be made since Nvidia is going to be the poster child for AI of the next decade. Their pipeline for the next four to six quarters looks good and the end market for their chips is enormous with investments going through the roof for cloud computing giants.”
