Artificial intelligence (AI) and semiconductor chips are capturing the collective imagination of investors — and with good reason. Together, they are driving the technology of the future. Semiconductor chips are ubiquitous in our digital age, and AI has begun to transform the way we communicate with our machines in recent months. And where these two areas meet, anything can happen.
And for investors, it probably will. The Philadelphia Semiconductor Index, PHLX, which tracks the chip sector through the performance of the 30 largest semiconductor makers, has gained nearly 39% so far this year.
PHLX stands out for good reason. Semiconductors have been here for decades, and are found in almost everything in today’s digital world, but combined with AI, they will drive the technology of tomorrow. Investors have loved it and made the chip maker a favorite for AI stocks. They have been rewarded with strong stock appreciation in the first half of this year.
Now the question is, how much more room is there for AI chip stocks to grow? We Can Consult the Street’s Analysts — Many top stock pros are weighing in on AI and semiconductors, and their comments may shed more light on the sector. Let’s take a look at what they had to say, and which AI-related chip giants they’re recommending.
nvidia corporation (NVDA)
First up is Nvidia, a major name in the semiconductor industry, the eighth-largest chip maker by revenue. Nvidia is a leader in the production of graphics processing units (GPUs), and has built its reputation on these high-end chips. The chips are capable of handling the computing power requirements of many high-end, processing-intensive applications, including professional graphic design, high-end gaming — and AI. Demand for Nvidia’s GPUs, especially in postmarket applications, has driven the stock’s strong gains this year; Year-to-date, shares of NVDA are up nearly 190%.
Recent data shows that Nvidia’s performance is based on its AI products. OpenAI, the company that launched ChatGPT, has been using Nvidia’s GPUs to train its AI units since 2020 — up to about 20,000 chips. Looking ahead, OpenAI has indicated that it may need another 10,000 chips to maintain ChatGPT efficiency.
This is a strong foundation for Nvidia’s success, and the company’s strong position can be gauged from the solid wins it posted in its most recent Q1 financial results. The report showed total top revenue of $7.19 billion. Although this was down 13% from the previous year, it beat forecasts by an impressive $670 million. The bottom line figure, non-GAAP EPS of $1.09, was 17 cents per share better than estimated.
From an investor’s perspective, Nvidia’s guidance was even better. The company is forecasting sales of $11 billion in its fiscal second quarter, a huge increase from its previous estimate of $7.2 billion. Achieving this will result in a 41% year-on-year growth in quarterly revenue.
The company’s strength in AI forms the basis for upbeat comments from Morgan Stanley 5-Star analyst Joseph Moore, who writes: “NVDA trades at a premium to peers given the high potential for near-term upside correction should, but multiple premium vs. those peers have actually compressed meaningfully… Still, we’re seeing continued growth in the NVDA data center business on a multi-year trajectory, which on an aggregate basis outpaces all other compute players should be clearly above that, given that there is no offsetting or cannibalizing compute business outside of the AI business.
“As a result,” said the analyst, “we view NVDA as the cleanest story in AI hardware, and believe it deserves greater consideration from investors looking for AI exposure, regardless of the current valuation build and YTD.” Stock returns already reflect expectations that are higher than those of secondary or tertiary players.”
To that end, Moore has put in an Overweight (ie, Buy) rating on NVDA, which he has promoted as his top pick. In Moore’s view, NVDA will reach $500 by this time next year, representing an 18.5% upside from current levels. (To see Moore’s track record, Click here,
Nvidia has a Strong Buy rating from the Wall Street analysts’ consensus rating based on 33 recent reviews, reaching 30 Buys against just 3 Holds. Shares are trading at $422.09 and an average price target of $464.85 suggests modest 10% upside over the next 12 months. (Look nvda stock forecast,
Advanced Micro Devices (AMD)
AMD is one of the top ten largest chip makers by sales, and the total revenue for the last four quarters (from 2Q22 to 1Q23) has been $23.06 billion. The company boasts a market cap of $188 billion, and has a wide portfolio in the AI ecosystem, including high-performance chips and architectures.
AMD’s AI exposure includes several lines of chips including its Instinct GPU accelerator, Elvio Adaptive Accelerator and EPYC server processors, as well as its Ryzen AI Mobile processors and Versal AI Core Adaptive SoCs. AMD’s AI chips and accelerators are found in a wide range of applications from gaming to data centers to supercomputers, and provide the processing speed and capability needed for generative AI.
Statistically, the recent performance of the company has been better than expected. In the first quarter of this year, AMD showed total revenue of $5.35 billion. While it declined nearly 9% year-over-year, it beat forecasts by $40 million. The company’s non-GAAP EPS bottom line of 60 cents per share also beat estimates by 4 cents more than expected. On the downside, the company’s Q2 revenue guidance of $5.3 billion was considered weak, and was below expectations of $5.52 billion.
The company’s AI portfolio provides significant support for the firm. AMD is shifting its strategic focus to the emerging AI market, and is investing heavily in both networking and data center AI operations. Speaking of specifications, AMD’s new Ryzen 7000 series includes AI processing capabilities, and the MI300 chips are designed for both high-performance computing and AI applications. The latter track will be supported by the rapidly growing Generative AI field.
These are the main points behind Baird analyst Tristan Gera’s comments on AMD. Gerra, who received a 5-star rating from TipRanks, says about the company: “The Mi300x boasts best-in-class TCO performance for inference applications, and management has projected meaningful AI revenue starting in 4Q23 based on multiple hyperscaler engagements.” Reiterated my hope. AMD is projected to reach over 50% CAGR, $150B+ TAM for data center AI acceleration by 2027. Although its ecosystem is not as mature as Nvidia’s, in our view, AMD is well positioned to be a major beneficiary of AI secular growth trends over the medium term.
Based on the above, Gerra sets an Outperform (i.e. Buy) rating on AMD shares, and he gives the stock a price target of $170 to indicate upside potential of 54.5% over the 12-month horizon. (To see Gera’s track record, Click here,
Overall, the Street gives AMD a Moderate Buy consensus rating based on 29 recent analyst reviews, including 21 Buy and 8 Hold. The stock’s current trading price is $110.01, and its $134.31 average price target suggests 22% upside in the coming year. (Look amd stock forecast,
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ equity insights.
disclaimer: The views expressed in this article are solely those of the selected analysts. The content is to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Source: finance.yahoo.com
