As you look at semiconductor stock picks for 2024, it’s important to understand the state of the sector. Semiconductors are in the early stages of a super cycle that may have several years to run. That’s good news for investors who are not currently invested in this sector.
The seeds for this rally were planted in 2020 when companies and consumers realized how dependent they were on these tiny chips from everything from smartphones to automobiles. As chip stocks tend to do, they surged as companies boosted demand, then fell off as companies had all the chips they needed.
But there are two wildcards that are reshaping the cyclical nature of semiconductor stocks. One is the emergence of artificial intelligence (AI) and specifically generative AI. The other catalyst is the CHIPS and Science Act of 2022. The purpose of this legislation is to reward companies that will bring research and development of technologies like semiconductors to the United States.
And with the first tranche of funding just released in December 2023, chip stocks are moving higher. Here are seven semiconductor stock picks that are expected to stand out in 2024.
Nvidia (NASDAQ:NVDA) was one of the top semiconductor stock picks for 2023, and there’s no reason to believe it won’t be another strong stock in 2024. According to some estimates, Nvidia had about 80% of the data center market prior to the AI boom. And it was quickly apparent that the company’s graphic processing units (GPUs) had the speed to handle the demands of AI applications.
Nvidia’s launch of the H200 chip is proof that the company isn’t resting on its laurels. It’s also another reason to believe that the company will remain at the top of the chip sector for some time. However, skeptics point out that the company simply can’t meet the insatiable demand for AI chips, at least not quickly. That will open the door for other competitors.
It also calls into question the company’s valuation. The company currently trades at 65x earnings and 44x forward earnings. Putting that aside, analysts are projecting 65% earnings growth with a price target of $668.11. That’s a 34% increase from the current price. And, out of 52 analysts that have issued a rating on NVDA stock in the last three months, 42 give the stock a Strong Buy rating.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) is well-positioned to take market share from Nvidia. The company’s new MI300 chips have the processing power and memory that will allow it to compete with Nvidia in the data center and AI markets. AMD Chief Executive Officer (CEO) Lisa Su believes the MI300 could contribute $2 billion to the top line in 2024. Many analysts believe that may be too conservative.
One reason for that optimism is the company’s partnerships with some of the biggest names in big tech such as Meta Platforms (NASDAQ:META), Amazon (NASDAQ:AMZN), OpenAI, Microsoft (NASDAQ:MSFT), and Oracle (NYSE:ORCL). These companies are all saying they will support both AMD and Nvidia GPUs.
AMD stock is up 130% in 2023 and much of that has come in the last three months with the stock surging over 45%. In December, Bank of America (NYSE:BAC) upgraded AMD to a Buy rating with a price target of $165.
Intel (NASDAQ:INTC) is another one of the top semiconductor stock picks for 2024. Even before the CHIPS Act was proposed, Intel was planning to build two chip fabrication plants in the United States.
But INTC stock lagged the chip sector in 2023, largely because it didn’t have an AI offering. That’s about to change. Intel will launch the Gaudi 3, its 3rd generation AI accelerator in 2024. The expectation is that it will outperform Nvidia’s H100 chip in data center and deep learning applications.
The company is also planning to launch its Falcon Shores GPU in 2025 which will merge the company’s GPU and Gaudi capabilities in a single product.
Of all the stocks on this list, INTC stock presents the cloudiest picture. As of this writing, analysts believe the stock’s price will come down significantly in 2024. But in December, the company has been receiving bullish upgrades from at least four analysts. If the company can match analysts’ expectations with solid earnings results, the stock may present an attractive combination of growth and value.
Taiwan Semiconductor Manufacturing (TSM)
Taiwan Semiconductor Manufacturing (NYSE:TSM) presents investors with a different way to invest in semiconductor stocks in 2024. The company manufactures chips for many tech giants. It also partners with chip designers like Nvidia. In fact, the company has 58% market share in the third-party semiconductor manufacturing space.
One headwind for TSM stock is geopolitical concerns stemming from a speculated invasion of Taiwan by China. Under that scenario, the chairman of Taiwan’s National Security Bureau remarks that TSMC would be unable to do business due to U.S. sanctions that “prevent Chinese chipmakers from accessing tools they need to produce leading-edge devices.”
That threat, along with the CHIPS Act, are key reasons why TSMC is investing heavily to build a fab plant in Arizona. That’s eaten away at earnings in 2023, but analysts expect over 20% earnings growth over the next five years.
And unlike many of the stocks on this list, you can buy TSM stock at just 21x forward earnings.
Micron Technology (MU)
I recently put Micron Technology (NASDAQ:MU) on a list of three tech stocks projected to take off in 2024. All the arguments I made in that article are also reasons that Micron will be a key semiconductor stock to own in 2024.
Micron is the leader in dynamic random-access memory (DRAM) chips. Memory chips will be critical as AI applications require tremendous amounts of memory. The “smart” products that are available today will be dwarfed by what is coming from AI in coming years.
In late 2023, Micron launched its HBM3E memory-chip module. The chip design offers 10% more output and 30% less power consumption than competing hardware, making it an ideal choice for the requirements of AI and supercomputing. The company expects to be producing the chips at scale early in 2024 which will deliver several hundred million dollars to the topline in 2024.
Analysts are looking past the company’s revenue which on an overall basis was flat in 2023. Instead, they’re focusing on the company’s recent quarter in which it posted strong growth in the data center market. Combined with the expected comeback in the company’s core business sectors and you’ll see why 25 out of 39 analysts give MU stock a Strong buy rating.
Analysts continue to bid MU stock higher. More than a dozen analysts have boosted their price target for the stock since the earnings report. And out of 39 analysts, 25 give the stock a Strong Buy rating.
Applied Materials (AMAT)
Applied Materials (NASDAQ:AMAT) makes this list of semiconductor stock picks because of the essential role they play in chip manufacturing. Applied Materials is a pick-and-shovel stock because it makes the equipment that chip manufacturers need. Semiconductors lead economic growth, and companies like Applied Materials leads that charge.
That’s why it could be slightly concerning that the company’s revenue growth for fiscal year 2023 was around 3%. However, earnings per share (EPS) growth was a more impressive 8%.
With AMAT stock trading near the top of its 52-week range as of this writing, investors can expect a pullback. However, with analysts giving the stock a Moderate Buy rating, that will be a good opportunity for investors who are on the sideline to enter a position in one of the essential companies in the semiconductor sector.
Skyworks Solutions (SWKS)
Yet another way to invest in the semiconductor sector is with Skyworks Solutions (NASDAQ:SWKS). The company isn’t a player in the AI chip market. Rather, it’s focused primarily on creating chips that are needed for wireless devices.
But one of the company’s largest customers is Apple (NASDAQ;AAPL). Say what you will about Apple, but the iPhone remains one of the most sought-after mobile devices which should put a floor on SWKS stock.
The question may be what is the ceiling? SWKS stock is up 25% in 2023 despite quarterly revenue and earnings that are falling on a year-over-year basis. Nevertheless, analysts still have a Moderate Buy rating on the stock with a $116 price target. That’s only about 1% above the stock’s price as of this writing. That makes it likely that there will be an opportunistic pullback that investors can capitalize on.
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.