Artificial intelligence (AI) is driving markets higher.
For the past seven months, AI is the number one catalyst for equities. It’s also a major shot in the arm of technology stocks that were crushed throughout 2022 as the U.S. Federal Reserve steadily raised interest rates. AI taking markets by storm comes as no surprise. Given the potential growth opportunity in the technology that has provided chatbots and digital Copilots, it could potentially alter life as we know it.
Also, market research firms have been tripping over themselves in recent months to revise up their forecasts for the global AI market. Statista is forecasting that the global AI market should grow twentyfold between now and 2030, rising to $2 trillion from $100 billion this year.
Central to the growth forecasts are microchip and semiconductor companies that design and fabricate the chips that power AI applications. If the bullish outlooks prove accurate, it presents a massive opportunity for investors who pick the right AI-related stocks. If you can only buy one AI chip stock, it better be one of these three names.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) is the clear leader when it comes to artificial intelligence chips, as reflected in the company’s share price.
So far in 2023, NVDA stock is increasing at 220%, leading the S&P 500 index in gains during this year’s first half. This feat is propelling the company to a $1 trillion market capitalization. The upward momentum has been driven entirely by expectations around the company’s AI chips and their applications.
Also, at the end of May, Nvidia unveiled a suite of new products designed to power AI. Included among these are a robotics system, gaming capabilities, advertising services, and networking technologies. The company’s new AI supercomputer called “DGX GH200” will help technology companies create successors to chatbots such as ChatGPT. This new product reveal came only days after Nvidia’s stock jumped 26% higher due to Q1 results and forward guidance that blew analysts away. Thus, the momentum in NVDA stock continues.
Advanced Micro Devices (AMD)
Hot on the heels of Nvidia in the AI chip race is Advanced Micro Devices (NASDAQ:AMD). In Mid-June, the company introduced a new microchip designed specifically for AI called the “MI300X,” with plans to ship it to customers by year’s end.
AMD executives believe AI represents a strategic growth opportunity for the company. And they are moving quickly to capitalize upon it. The company’s newly-designed MI300X chip is for large language models and other generative AI applications.
They’ve developed their own software for its AI chips called “ROCm”. Rumors are hinting that the company is partnering with Microsoft (NASDAQ:MSFT) on the development of a new AI processor. Analysts agree that AMD is directly challenging Nvidia’s dominance in the AI space. They’ve specifically noted that the MI300X chip has 192 gigabits of memory, which is more than Nvidia’s rival H100 chip, supporting 120 gigabits of memory.
AMD stock is up 75% year to date and nearly 500% over the last five years.
Taiwan Semiconductor Manufacturing Co. (TSM)
Another leader of AI chips is Taiwan Semiconductor Manufacturing Co. (NYSE:TSM), which fabricates 60% of the microchips and semiconductors in the world today for companies which include Nvidia and AMD.
However, TSM stock dipped recently after the company issued a rare earnings miss, presenting a buying opportunity. Specifically, this is the first profit decline in four years. The poor result was blamed on weakening demand for consumer electronics.
Since the Q2 earnings print, TSM stock has dipped about 3%. However, even though the company’s latest results underwhelmed, AI chips are still expected to be a huge long-term catalyst for Taiwan Semiconductor. The company is reaffirming its revenue guidance for the current Q3 of between $16.7 billion to $17.5 billion, in line with analysts’ consensus forecasts. Taiwan Semiconductor continues to be among the most influential and strategically important microchip and semiconductor companies in the world.
On the date of publication, Joel Baglole held long positions in NVDA and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
