AI stocks and chip companies have been the talk of Wall Street in 2023. Generative AI is the catalyst that has propelled those firms and their shares sharply higher this year. Artificial intelligence (AI) can now produce content, text, audio and images far faster than any human could ever hope to do — even if the quality is suspect.
The future efficiency gains and cost reductions simply mean the firms that make the chips required for generative AI are in great demand. Thus, massive upward price pressure exists for the companies leading the charge. Let’s look at the more obvious firms to consider.
Nvidia (NVDA)
It is time for Nvidia (NASDAQ:NVDA) to show the world just how much AI has benefited its stock. The company will release its earnings in a matter of hours depending on when you’re reading this.
The company shocked Wall Street back in May when it offered unexpectedly high guidance for Q2 revenues. Investors have $11 billion reasons to establish a position in NVDA shares before it releases those Q2 earnings. That’s the revenue number Nvidia has promised, shocking Wall Street investors who had previously anticipated $7 billion. The AI gold rush is on.
That Q2 revenue has dominated the conversation surrounding Nvidia for the past 3 months. Naturally, investors are curious, and some are fearful that Nvidia promised more than it will be capable of delivering. Honestly, I don’t see how the company could have been so careless as to overestimate that figure. Leadership is and was well aware of the ramifications of such a blunder. Shares will drop like a lead balloon if Nvidia doesn’t reach $11 billion in sales. That leads me to suspect that leadership was secretly expecting a much higher number all along.
AMD (AMD)
I think owners of AMD (NASDAQ:AMD) stock are in a prime position as Nvidia’s earnings call approaches. I’ll explain why, but let me just remind you that AMD is the second-most important AI chip producer after Nvidia.
Most pundits believe AMD chips are approximately 80% as powerful as those from Nvidia in relation to AI. They also believe AMD has a legitimate chance of closing that technical gap in time. Huge gains will follow for AMD if it can convince Wall Street and Main Street that it’s getting closer.
However, I also believe AMD shares will rise as long as Nvidia doesn’t fall drastically below $11 billion in sales for Q2. If Nvidia exceeds $11 billion, it’ll be a case of rising tides lifting all ships. If the figure ends up just below $11 billion (I don’t think it will), then AMD suddenly looks comparatively strong. The only way the stock falls is if Nvidia truly drops the ball, in which case the AI bubble is apt to pop. I definitely don’t think that will happen because Nvidia would have to have been reckless in the extreme to miss estimates.
ASML Holding (ASML)
It’s a good time to pick up shares of ASML Holding (NASDAQ:ASML) stock. The bullish narrative surrounding the Dutch semiconductor equipment systems manufacturer is incredibly straightforward: It is undervalued and continues to hold a monopoly over its niche.
The value argument is evidenced by consensus prices from Wall Street analysts anticipating ASML shares will gain roughly $100 over the next year or so. Second, the metrics-based website Gurufocus puts that upside even higher, roughly $200 above current share prices.
ASML provides extreme ultraviolet (EUV) lithography systems used to manufacture the world’s most complex chips at scale. Those bus-sized machines allow chipmakers like Nvidia and AMD to pack more and more transistors onto successive generations of semiconductors. ASML is the leading firm capable of producing EUV technology. Its competitors remain well behind the company. Generative AI chips are very advanced, and that creates demand for ASML’s EUV technology moving forward. Further, ASML shares include a dividend which only serves to increase returns.
On the date of publication, Alex Sirois did not hold (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 InvestorPlace.com Publishing Guidelines.
