The battles within the semiconductor sector are always fierce. Even now, when the demand for AI chips is extremely high, multiple firms are competing to become the top rival to Nvidia (NASDAQ:NVDA), and NVDA is fighting to remain the undisputed champion in the space. Similarly, in autos, smartphones, servers, and PCs, competition within the sector is quite intense. However, some chip makers, by virtue of their superior technology, overall products, leadership, and current market share are almost certain to emerge as winners in the medium and long term.
And with the overall semiconductor market poised, according to one estimate, to expand at a compound annual growth rate of 12.2% from 2022 to 2029, the shares of the winners within this space are poised to deliver great returns in the medium term and the long term. With that said, here are three of the top semiconductor stocks that investors should consider buying at this point.
Intel (INTC)
Intel (NASDAQ:INTC) is poised to become a key manufacturer of chips for other semiconductor firms. That certainly became apparent on Feb. 22, when INTC announced that it had agreed to manufacture semiconductors for one of the world’s hugest tech firms, Microsoft (NASDAQ:MSFT).
Intel estimated that it would obtain over $15 billion of revenue from the deal. Also importantly, the chip maker indicated that it will manufacture semiconductors for two other major tech firms — Broadcom (NASDAQ:AVGO) and MediaTek.
The Street, which tends to be unimpressed with deals that will take a while to generate revenue, reacted by shrugging its shoulders. Specifically, Bank of America (NYSE:BAC) suggested that Intel may not be able to effectively manufacture chips despite the fact that Microsoft, Broadcom, and MediaTek trust it to do so, and INTC stock moved little on the news.
Still, given the large size of the Microsoft deal and the fact that Broadcom and MediaTek are also major companies, I am confident that chip manufacturing will positively move the needle for Intel and INTC stock over the longer term.
As I’ve pointed out in past columns, Intel’s “Gaudi 2 AI chips are competitive with (NVDA’s) top AI chip, the H100, in multiple categories,” while ” INTC’s backlog of orders for these chips reached $2 billion as of the end of last year, “
Given all of Intel’s huge opportunities, I view INTC as one of the best semiconductor stocks to buy now.
Broadcom (AVGO)
On Jan. 19, Goldman Sachs (NYSE:GS) resumed coverage of Broadcom with a “buy” rating. The bank believes that the sales of the chip maker’s “AI-related businesses” can grow by high “double-digit” percentages, Seeking Alpha reported. Goldman predicts that the sales of the firm’s products that are not connected to AI can also increase rapidly due to a “cyclical recovery.” More specifically, the bank expects AVGO to get a lift from higher “IT spending” and lower inventories. Also noteworthy is that Goldman predicts that Broadcom will receive a boost from cost reductions enabled by its acquisition of VMware.
Additionally, as I pointed out in a previous column, JPMorgan is also upbeat on Broadcom’s opportunities in the AI space, while AVGO is partnering with tech giants Meta Platforms (NASDAQ:META) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Given the latter two firms’ huge size and their tremendous investments in AI, those alliances should prove to be very lucrative for AVGO over the longer term.
Investor’s Business Daily gives AVGO a stellar Composite Rating of 96 out of 99, and the shares have a very high Relative Strength score of 95, indicating that they have outperformed the market by a huge margin over the last 12 months. I expect the name to continue to outpace the market over the next year.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) is by far the leading supplier of AI chips, an achievement that has caused NVDA stock to explode higher since the AI Revolution began in earnest in early 2023.
Nvidia’s Q4 results, reported on Feb. 21, were very impressive, as its top line rocketed 265% higher versus the same period a year earlier while its bottom line surged an incredible 769% year-over-year.
What’s more, CEO Jensen Huang has said that the AI Revolution has a long way to go, and I agree with that assertion. Also importantly, NVDA’s forward price-earnings ratio of 38.8 times is not at all high, given the firm’s extremely rapid growth.
In the past, I’ve told investors to avoid Nvidia’s shares because it sells graphics cards used in crypto mining, and I view crypto as a bubble that will eventually burst. Additionally, I had been worried that Nvidia’s competition from AMD (NASDAQ:AMD), Intel and others in the AI chip space would intensify going forward, causing the sky-high prices that firms are paying for Nvidia’s offerings to drop sharply.
Obviously, I’ve been very wrong about NVDA stock, partly because I underestimated the popularity of the firm’s AI chips. I now believe that the firm’s competitive advantages in the space, along with the strength of the AI Revolution, should enable NVDA stock to eventually overcome any challenges due to massive declines in the prices of cryptos and/or its AI chips.
As a result, I view NVDA as a buy at this point, but I recommend that investors not allow it to constitute more than several percentage points of their portfolios at this time.
On the date of publication, Larry Ramer held a long position in INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
