Are these the best semiconductor stocks to watch in Q4 2024?
A rundown of some of the best semiconductor stocks to watch. These are the four largest semiconductor stocks in the world by market capitalisation, with one smaller stock that has growth potential.
Semiconductor companies are those involved in the design, manufacturing, and distribution of semiconductor devices and related technology.
Semiconductors explained
Semiconductors — or microchips — are essential to the functioning of electronic devices and have recently seen particular investor interest given the rise of the AI sector. Without semiconductors, there would be no computers, smartphones, gaming, or a hundred other applications, all of which are essential to 21st century living.
OpenAI’s revolutionary ChatGPT chatbot, the growing political importance of AI development, and Nvidia’s dizzying rally are all testament to the importance of the sector. With significant growth in AI interest expected through the next decade and beyond, investing in semiconductor stocks within a diversified portfolio could be an attractive proposition.
For context, giants including Intel and ASML consider that annual global spending on semiconductors will rise to $1 trillion by 2030, up from just $570 billion in 2022. It’s also worth noting that China and the US are both attempting to harm each other’s ability to use advanced semiconductors to develop AI technology; the US through export bans of certain semiconductors and China through export bans of certain critical minerals.
But remember, past performance is not an indicator of future returns.
Best semiconductor stocks to watch
Before delving into some of the most popular individual semiconductor shares, it’s worth highlighting that there are many popular, diversified ETFs which offer exposure into multiple companies on a low cost basis.
For example, the Vaneck Vectors Semiconductor UCITS ETF holds 25 of the world’s largest semiconductor companies and is a common choice for investors who want broad exposure to the sector without the need to conduct additional research.
In terms of individual shares, the five stocks listed below are widely considered to be the largest AI companies in the world by market capitalisation right now. However, analysts disagree on what exactly constitutes a semiconductor stock, and further, these may not be the best value opportunities.
1. Nvidia
Nvidia shares have been on a dizzying rally nearing a $3 trillion valuation, rising by 2,750% over the past five years. The microchip behemoth is anticipated to be one of the most popular semiconductor stocks in 2024 — though of course, popularity does not mean it is the best investment available.
Nvidia CEO and founder Jensen Huang recently enthused that ‘accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations…NVIDIA RTX, introduced less than six years ago, is now a massive PC platform for generative AI, enjoyed by 100 million gamers and creators.’
The company have recently released its new Blackwell series of processors which are already sold out and customers who have not yet placed an order won’t receive them until late 2025.
Fiscal Q2 results saw Nvidia’s revenue rise by 122% year-over-year to some $30 billion, including record data center revenue of $26.3 billion, up by 154%.
Although there may be some competition from other companies looking to build chips which solve more specific problems in the future, for now NVIDIA can continue to enjoy its dominant position in the semiconductor market.
Nvidia reports Q3 results on 21 November 2024.
Market capitilisation $3.31T
2. Broadcom
Broadcom may not be the most fashionable name in the semiconductor world, but the company’s designs and manufacturing acumen underpins masses of data centre, networking, software, broadband, wireless, storage, and industrial markets.
In fiscal Q3 results, Broadcom saw revenue rise by 47% year-over-year to just over $13 billion, with 37% of this figure — or $4.8 million — in free cash flow.
President and CEO Hock Tan enthused that ‘Broadcom's third quarter results reflect continued strength in our AI semiconductor solutions and VMware. We expect revenue from AI to be $12 billion for fiscal year 2024 driven by Ethernet networking and custom accelerators for AI data centers’ and the integration of VMware ‘is driving adjusted EBITDA margin to 64% of revenue as we exit fiscal year 2024.’
Our analysts have given the stock a strong buy rating with an average price target of $199 in the next 12-month period, up 11% from its current price.
Broadcom shares now up by 110% over the past year.
Market capitalisation: $867.28B
3. Taiwan Semiconductor Manufacturing Company
While Nvidia is touted as the ‘picks and shovels’ semiconductor stock, this crown could arguably belong to Taiwan Semiconductor Manufacturing Company. Most chip producers — including Nvidia — outsource actual production to the Taiwanese company, with the country responsible for making circa 90% of the world’s most advanced chips.
TSMC shares have continued to perform well throughout 2024 with revenue rising by 39% year-on-year during Q3. This strong performance was mostly driven by AI demand, its colossal manufacturing capacity and the wide economic moat surrounding starting up any sizeable competitor.
However, Taiwan’s complex political status, including its relationship with China remains a long-term risk. The company recently announced plans to build a second semiconductor manufacturing plant in Japan.
TSMC shares are up 95% over the past year.
Market capitalisation: $819.57B
4. ASML
ASML is a world leader in chip-making equipment. It’s a common misconception that the company actually makes semiconductors; it does not. It designs and manufactures the lithography machines that are an essential component in microchip manufacture and is therefore indispensable within the wider supply chain. Customers include TSMC, Samsung and Intel.
You could argue that ASML is an even more crucial to the manufacturing line than TSMC, but the stock has only risen by a comparatively small 20% over the past year.
In Q3 of this year, sales increased by 11.9% to €7.5 billion with system sales and service revenues with double digit growth. Operating profit also grew reaching €2.4 billion.
Our analysts have given the stock a strong buy rating with an average price target of $917 over the next 12-month period, up 26.88% from its current price.
Market capitalisation: $326.96B
5. Allegro MicroSystems
Although it has a smaller market cap than the other stocks, Alegro MicroSystems is seen to have good growth potential. The company are responsible for designing and manufacturing sensor and power integrated circuits which enable energy saving technologies and automation within the automobile industry.
The company reported strong Q1 results bringing in $167 million in sales, towards the upper end of market expectations and low double-digit sales growth is expected in Q2 with net sales reaching up to $192 million.
Our analysts have given the stock a strong buy rating with an average price target of $32.20, up 61.14% from its current price.
Market capitalisation: $4.35B
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Top semiconductor stocks summed up
Given the increased adoption of AI, which is only expected to accelerate, the demand for powerful semiconductors is expected to rise and semiconductor stocks could perform very well.
Nvidia, Broadcom, Taiwan Semiconductor Manufacturing Company, ASML are some the best performing semiconductor stocks based on market cap and whilst slightly smaller Allegro MicroSystems has growth potential.
These are just a selection of some of the best semiconductor stocks available. Always do your research and remember past performance is not a guide for future returns.
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