This article was published using a series of cloud-based applications that are hosted in centralized data centers, and you’re likely reading it on a mobile device or computer. None of those applications, data centers, mobile devices, and/or computers would be able to provide this everyday experience without advanced semiconductors (chips). These chips are called on to power an increasing number of our everyday experiences.
The semiconductor industry is already in high demand, but new advances in technologies like artificial intelligence (AI) are putting it on the swell of an even bigger demand wave. And a quick check shows that some of the leading semiconductor producers are already reaping the benefits.
Let’s look at four of these chip stocks poised to deliver plenty of upside for your portfolio over the next 10 years.
Nvidia (NASDAQ: NVDA) is one of the world’s leading producers of graphics processors (GPUs) for personal computing and gaming applications. But this year, it has become synonymous with artificial intelligence thanks to its powerful data center chips. It holds a dominant position in that market despite competition gradually ramping up, and it just released a new chip called the H200, which will extend its advantage over other providers.
The H200 is the first data center GPU with 141 gigabytes of HBM3e memory at 4.8 terabytes per second, which is almost twice the capacity of its prior H100 hardware (which was already leading the industry). Simply put, it will enable AI developers to train models significantly faster, which speeds up their time to market.
Data center chips have become a primary growth driver for Nvidia. They accounted for 76% of the company’s total revenue during the recent fiscal 2024 second quarter (ended July 30), bringing in $10.3 billion in sales, which was a mind-blowing increase of 171% year over year.
It’s the reason Nvidia stock has rocketed higher by 239% in 2023 so far, but considering this company is at the forefront of the next technological revolution, it isn’t too late to buy in now and hold on for the next decade.
Unlike Nvidia, Axcelis Technologies (NASDAQ: ACLS) doesn’t produce or design chips at all. It’s a service provider for the semiconductor industry, manufacturing leading ion implantation equipment that is critical to the chip fabrication process.
It has recently experienced strong demand for its Purion systems, which are used in the production of power devices, especially for automotive applications. The Purion line is capable of producing a high volume of silicon carbide power devices, which are more efficient than traditional silicon-based hardware. This allows electric vehicles, for example, to recharge faster and squeeze more mileage from each charge.
Longer-term, Axcelis is also preparing for a demand wave driven by AI, because the technology requires substantially more memory (DRAM) and storage (NAND) capabilities, which means those chips are more complex to manufacture.
Axcelis has delivered $820 million in revenue through the first nine months of 2023, an increase of 25% compared to the same time last year. But it also amassed a $1.2 billion order backlog that will buoy the company’s growth going forward. Finally, Axcelis stock is one of the most attractively valued in the entire semiconductor industry.
I mentioned above that AI requires substantially more memory (DRAM) and storage (NAND) capacities from semiconductor hardware. Well, Micron Technology (NASDAQ: MU) is one of the world’s leading producers of chips in those categories, and it’s set to benefit significantly from the widespread adoption of AI.
While the company experienced softness in its data center segment recently, it saw strength in its AI-related server hardware. Plus, its lineup of data center chips focused on AI workloads continues to improve. The new D5 memory chip, for example, can deliver twice the performance of its prior D4 iteration, which allows developers to process large data sets far more quickly.
Micron is nursing substantial weakness in the rest of its business, though. In fact, its total revenue for fiscal 2023 (ended Aug. 31) plunged 49% compared to the prior year, to $15.5 billion. It was triggered by slowing demand for mobile devices and computers from consumers, amid broader economic weakness caused by elevated inflation and rising interest rates. However, the company says the worst of its inventory and pricing struggles is now over, and it predicts sequential top-line growth in the upcoming quarter.
Now could be a great time for investors to take a long-term position in Micron stock, because its business is on the cusp of an upswing after one of the sharpest downturns in recent memory.
Advanced Micro Devices (NASDAQ: AMD) has also suffered from deteriorating demand for computers and devices over the last 12 months. Its industry-leading chips are found in some of the most popular consumer products including Microsoft‘s Xbox Series X and the infotainment systems inside Tesla‘s electric vehicles.
AMD’s data center segment is far smaller than Nvidia’s, but the company is gearing up to ship high volumes of its new MI300 line of chips, which are designed specifically to handle AI workloads. In October, it began shipping the MI300A variant to the Lawrence Livermore National Laboratory for the new El Capitan supercomputer, which will be the most powerful in the world when it comes online next year.
It won’t be easy to dent Nvidia’s market share in the AI data center segment, but this is an important first step.
AMD is also working on other segments of the AI hardware space. Its new Ryzen AI series of chips already powers 50 notebook designs with more on the way thanks to a collaboration with Microsoft. Those chips will allow users to process AI on-device rather than relying on external data centers, which can result in faster processing times and a better user experience.
In the recent third quarter of 2023, AMD’s revenue returned to growth after shrinking in the first half of the year. The rebound was actually driven by the new Ryzen 7000 chips, which include the AI variants, so they are already making a clear financial contribution.
Next to Nvidia, AMD might be one of the best semiconductor stocks to own for the next 10 years thanks to the AI revolution.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
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