Hot Stocks: The 3 Best Opportunities for Investing in Semiconductors

Stocks to buy

Computer chips or semiconductors are an indispensable part of our lives, silently powering the technology that shapes our daily routines. Semiconductors spearhead the digital transformation, powering everything from autonomous vehicles, telecom, artificial intelligence, and whatnot. Moreover, wagering on high-potential semiconductor stocks becomes imperative, with the chip wars intensifying following the burgeoning demand for AI offerings and escalating U.S.-China tensions.

Discussions surrounding chip makers have peaked following the illustrious rise of AI technology. Additionally, with the growing demand for more powerful, efficient, and smaller chips, the semiconductor space will only get bigger over time. Moreover, these chips are powering some of the most novel emerging technologies, which could potentially blow up in the not-so-distant future. Therefore, investing in semiconductor stocks becomes an imperative for the savvy investor.

Semiconductor Stocks: Applied Materials (AMAT)

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Applied Materials (NASDAQ:AMAT) is a top semiconductor equipment manufacturer that has been an incredibly rewarding pick-and-shovels player in the chips space. In the past five years, it has returned an eye-popping 426% in total returns to its investors, dwarfing the S&P 500’s 99% return.

AMAT continues to benefit from the secular demand for semiconductors, having grown its top line by more than 150% in the past seven years. Moreover, it has topped analyst estimates on both lines by hefty margins in the past seven quarters. Recent results have shown that the contraction in smartphone and PC sales is slowing down while demand for AI and IoT continues to grow rapidly. Its first quarter (Q1) report showed revenues at a whopping $6.71 billion, roughly $220 million higher than analyst estimates. Similarly, its EPS of $2.13 beat estimates by 22 cents. Additionally, AMAT recently announced it is raising its dividends by 25%, payable in June, having generated record free cash flows of $7.6 billion last year.

Advanced Micro Devices (AMD)

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Advanced Micro Devices (NASDAQ:AMD) is known for its advanced semiconductors and boasts a leadership position in its niche. It has been a monstrous success over the years with its unique ability to continue pushing processing power and speeds while marginalizing costs. Moreover, it continues to gain ground over its competition by catering to high-ticket clients and offering customized solutions.

Like its competition, AI has been a massive growth driver for AMD. Its CEO, Lisa Su, recently raised revenue expectations for its data center GPU products due to the success of its MI300 AI chips. Previously expecting to deliver $2 billion in sales from the segment, Su forecasts MI300 sales to surpass the $3.5 billion mark.

The guidance bump isn’t surprising, as tech giants such as Meta Platforms (NASDAQ:META) and Microsoft (NASDAQ:MSFT) plan to switch to MI300 chips. Moreover, from a financial perspective, AMD killed it again with its Q4 earnings report, stunning Wall Street analysts with $6.17 billion in sales and a 77-cent EPS.

Intel (INTC)

Chip giant Intel (NASDAQ:INTC) seems to be experiencing a resurgence of sorts. INTC stock fell out of favor with investors when it cut its dividend payout to its lowest level in over a decade last year. However, with the AI catalyst in motion and encouraging developments in its foundry business, its stock is now ticking in the green.

Intel wants to lead the wave of in-house chip manufacturing in the U.S. with its dynamic IDM 2.0 strategy. It aims to become the second-largest external foundry within the next six years, boasting agreements with more than 40 partners in various domains. The move is imperative to cater to the supply/demand gap for AI chips and other cutting-edge technologies.

From a fundamentals perspective, the company is progressing in the right direction. Revenues jumped 15.4 billion, up a healthy 10% on a YOY basis. These results point to positive momentum for the company based on solid product offerings and healthy market demand.

On the date of publication, Muslim Farooque 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 Publishing Guidelines.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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