The intersection of artificial intelligence (AI) and semiconductor technology is driving some of the most dynamic changes in the technology industry today.
With that in mind, three Motley Fool writers who cover technology and AI stocks put their heads together to highlight their top stock picks among AI-focused semiconductor stocks today. They have developed the cutting edge of storage technology Micron technology (NASDAQ:MU)Industry legend Intel (NASDAQ:INTC)and a leader in AI chip design Broadcom (NASDAQ:AVGO).
Read on to learn how these chip titans are benefiting from the ongoing AI surge.
Intel wants to catch up with Nvidia and TSMC at once
Billy Duberstein (Intel): Intel has significantly underperformed other AI companies in recent years and into 2024, with shares down over 25% year to date Nasdaq is up almost 8%.
This is somewhat justified – after all, Intel is currently in a multi-year attempt to catch up Taiwan semiconductor manufacturing in terms of its ability to produce cutting-edge chips. Success would not only mean that Intel-developed chips would regain market leadership, but that Intel would also become a successful and profitable manufacturer for third parties.
It’s a long, hard road to gain leadership in process technology and win new customers, but Intel has made good progress in the last year or so, reaching a milestone on its projected timeline of reaching five chip nodes in four years reached others.
And just last week, Intel introduced its new Gaudi 3 chips, the accelerators that Intel plans to compete with Nvidia GPUs. Surprisingly, Intel management claimed that the new Gaudi chips would outperform the current Nvidia H100 in several key metrics. While Nvidia is already moving to the new Blackwell chips later this year, Gaudi has the potential to capture a small share of the AI market, which is turning out to be a very large market.
Beyond pure hardware issues, Intel is also leading large consortia aimed at developing open source solutions for both AI programming software, with Nvidia’s CUDA software castle in its sights, and AI Ethernet networks, using Nvidia’s Infiniband Question the solution.
Intel also broke down its product and foundry financials separately to give investors an idea of what profits Intel could generate without the burden of all of its foundry capital. Outside of Intel’s foundry, its chip products generated about $12.4 billion in operating profit last year. That’s not bad considering Intel has fallen behind in process technology in recent years and that doesn’t include much of Gaudi’s revenue. This also means that Intel’s valuation is not demanding, with a market cap of just $160 billion.
Intel’s foundry, of course lost a whopping $7 billion last year alone. But that’s not entirely surprising considering Intel has to incur huge capital expenditures and depreciation before it generates revenue.
Will Intel make it? The company invests heavily in the effort and procures the first high NA EUV machine ASML Holdings. Additionally, Intel has also locked up the majority of ASML’s high-NA EUV machines for this year – an aggressive investment to try to stay ahead of TSMC in 2025.
For those looking for AI winners that haven’t yet taken off, Intel could be a contrarian play. However, it is also riskier and relies much more heavily on solid execution. Nevertheless, the success could lead to a significant increase in the share price in the next few years – probably more than the others that were already in the black.
Micron is a great AI bet no matter who wins the accelerator wars
Anders Bylund (Micron Technology): Any chip designer worth their salt is developing powerful AI accelerator chips these days. If you can’t beat the raw performance of Nvidia’s H100 and Blackwell chips, perhaps you can offer a more power efficient solution, or a cheaper chip, etc. There is enough demand for AI systems and solutions to create all sorts of viable niche markets.
Micron Technology is approaching the possibilities of AI differently.
As a leading provider of storage hardware, Micron is benefiting from the AI-driven boom in high-performance computing. Any high-end number crunching machine requires a lot of fast DRAM memory, and most also rely on large arrays of solid-state storage devices (SSDs) based on NAND memory chips.
The storage sector as a whole is on the rise, but Micron is taking it a few steps further.
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Currently the main competitors are Samsung and SK Hynix I don’t have an answer about the energy efficiency of the company’s latest High Bandwidth Memory (HBM) products. This should make Micron the best choice for situations that require a lot of high-speed DRAM memory – such as supercomputers that train AI engines using accelerators from Nvidia and its competitors.
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In fact, Nvidia’s Blackwell AI accelerators ship with up to 192 gigabytes of Micron HBM per module. In other words, Micron is riding on Nvidia’s coattails in an incredibly literal way.
Now Micron investors have seen these growth catalysts and the stock is trading just shy of all-time highs. Micron’s valuation metrics are also high. If you are looking for a great discount offer, this is not the stock for you.
But it’s a different story if you believe the memory market is changing at a deeply fundamental level, propelling Micron into a golden age of technology leadership amid a breakthrough AI boom. With that in mind, Micron’s high valuation may simply be “the new normal,” with the potential for further gains in the next few years.
You should therefore assess your tolerance for market risks and act accordingly. For growth-oriented investors with a strong appetite for risk, Micron offers a direct investment in the AI frenzy without having to pick a winner in the accelerator chip wars.
Big Tech AI chips are really all about this top semiconductor stock
Nicholas Rossolillo (Broadcom): It’s been a busy week in AI and semiconductors alphabet Announcement of a new one Arm stocks-based processor. Google also talked about how its latest Tensor Processing Units (TPUs) train Google AI. Metaplatforms announced its latest custom-made AI chip for some data center processing operations. And even Intel tried to get in on the action with the launch of its latest Gaudi 3 AI chip.
At this point, all of the tech giants that make up the “Magnificent Seven” have at least hinted that they are working on it something in the name of competition with Nvidia.
In reality, these companies aren’t trying to compete with Nvidia so much as they are looking for a way to save some money.
What few investors realize, in any case, is that most of these chip designs from the big tech companies weren’t necessarily developed by themselves. In order to design these AI systems, they actually have to rely on the semiconductor industry itself, which they can do because they have such extensive financial resources.
The current largest custom AI processor design house is none other than chip titan Broadcom, which is responsible for helping Google with its custom TPUs as well as doing the heavy design work for Meta and a yet-unnamed third tech giant on another AI project .
As a result, approximately 35% of Broadcom’s semiconductor sales in 2024 are expected to come from AI.
Today, the market is focused on how well Broadcom can integrate and capitalize on its mega-acquisition of cloud software-major VMware. But the AI chips could be a real game changer in the long term. At 28 times expected earnings per share for the current fiscal year, Broadcom stock could actually still represent decent value over the long term.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anders Bylund has held positions at Alphabet, Intel, Micron Technology and Nvidia. Billy Duberstein has held positions in ASML, Alphabet, Broadcom, Meta Platforms, Micron Technology and Taiwan Semiconductor Manufacturing. Nicholas Rossolillo has held positions at ASML, Alphabet, Broadcom, Meta Platforms, Micron Technology and Nvidia. The Motley Fool has positions in and recommends ASML, Alphabet, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel . The Motley Fool has a disclosure policy.
“3 Top Semiconductor Stocks to Watch During This Phase of the AI Revolution” was originally published by The Motley Fool