Are these the best semiconductor stocks to watch in Q3 2024?

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 seen particular investor interest in 2023 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.

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
2. Taiwan Semiconductor Manufacturing Company
3. Broadcom
4. Samsung
5. ASML

Nvidia

Nvidia shares have been on a dizzying rally to a $2.3 trillion valuation, rising by 2,080% over the past five years. The microchip behemoth was arguably the most popular semiconductor stock of 2023 — 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.’

Fiscal Q4 results saw Nvidia’s revenue rise by 265% year-over-year to some $22.1 billion, including record data centre revenue of $18.4 billion, up by 409%.

However, there are risks. Super Micro Computer is deeply tied to Nvidia as it makes the titan’s servers — and Super Mico's recent results saw the company miss revenue estimates. Nvidia also has a huge price-to-earnings ratio, alongside significant exposure to a faltering Chinese economy and rising Sino-US export tensions.

Nvidia reports Q1 results on 22 May.

Taiwan Semiconductor Manufacturing Company

While Nvidia is touted as the ‘picks and shovels’ semiconductor stock for 2023, 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 did well in 2023, and have continued to rise by more than a third in 2024, given the AI-driven 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.

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 Q1 results, Broadcom saw revenue rise by 34% year-over-year to almost $12 billion, with 39% of this figure — or $4.7 billion — in free cash flow.

President and CEO Hock Tan enthused that he is ‘pleased to have two strong drivers of revenue growth for Broadcom in the first quarter and fiscal year 2024. First, our acquisition of VMware is accelerating revenue growth in our infrastructure software segment, as customers deploy VMware Cloud Foundation. Second, strong demand for our networking products in AI data centers, as well as custom AI accelerators from hyperscalers, are driving growth in our semiconductor segment.’

The company has retained its fiscal year 2024 guidance for consolidated revenue of $50 billion and adjusted EBITDA of $30 billion.

Broadcom shares now up by 108% over the past year.

Samsung

Samsung is a South Korean titan that is well-known as one of the world’s largest producers of electronic devices — ranging from appliances to digital media devices, semiconductors, memory chips, and integrated systems.

In Q1 results, revenue came in at a health KRW91.9 trillion, driving operating profit to KRW6.61 trillion. And the company expects global IT demand and the general business environment to improve in the second half the year — with a specific focus on generative AI demand.

Samsung hopes to increase the supply of its HBM-related chips threefold in 2024 — mass production of the latest version only recently began, with the semiconductors expected to be used predominantly in AI applications.

Samsung also signed a supply deal with Nvidia in September, and further collaboration remains a key opportunity in 2024.

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 40% over the past year.

In 2023 full-year results, the semiconductor stock delivered €27.6 billion in net sales, on a gross margin of 51.3% Accordingly, it delivered a significant €19.91 of earnings per share.

However, the company noted that bookings fell by 61% sequentially in Q1.

How to invest or trade in semiconductor shares with us

1. Learn more about semiconductor shares
2. Open an account with us or practise on a demo
3. Select your opportunity
4. Choose your position size and manage your risk
5. Place your deal and monitor your trade

You can either invest in shares directly or trade using spread betting or CFDs to benefit from leverage.

Keep in mind, leverage means you can gain or lose money faster than expected. Because your position size is far greater than your deposit, you could lose more money than you put in. Be aware also that past performance is not an indicator of future returns.

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