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In 2024, the semiconductor industry is experiencing a remarkable surge, driven by the escalating demand for advanced technologies such as artificial intelligence (AI) and data center solutions. Global semiconductor sales reached $149.9 billion in the second quarter of 2024, marking an 18.3% increase compared to the same period in 2023. This growth trajectory is expected to continue, with total global sales projected to hit $588 billion by the end of the year, representing a 13% increase from 2023.
Among the key players in this booming sector, NVIDIA (NVDA), Broadcom (AVGO), and ARM Holdings (ARM) have emerged as standout performers. These companies are not only industry leaders, but also play a unique role in driving innovation and growth in the semiconductor space.
NVIDIA, in particular, has solidified its position as a market leader, with a staggering market capitalization of $2.97 trillion. Separately, Broadcom and ARM are also gaining attention for their strategic moves and robust market positions.
A set of new "outperform" ratings from William Blair for all three semiconductor stocks underscore their potential as long-term investments. As the semiconductor industry continues to expand, driven by innovations in AI and other cutting-edge technologies, these stocks present compelling opportunities for investors looking to capitalize on future growth.
Let's take a closer look at each company's strategic positioning to see how they're driving this fast-changing sector forward.
Semiconductor Stock No. 1: NVIDIA Corporation (NVDA)
NVIDIA (NVDA) is the dominant name in the semiconductor industry right now, known for its cutting-edge graphics processing units (GPUs) and AI computing platforms. The company's products are essential in gaming, professional visualization, data centers, and automotive solutions, driving innovation in AI and deep learning tech.
In 2024, NVIDIA's stock has been on a tear, with a year-to-date (YTD) increase of 149.4% and a 52-week jump of 192.5%. Thanks to its massive market cap, NVIDIA is now one of the most valuable companies in the world.
Even with its relatively high absolute valuations - like a forward price/earnings (P/E) ratio of 44.66 - NVDA stock still looks like a reasonable buy, based on its strong growth potential.
The company reported record quarterly revenue of $30 billion during the second quarter, a whopping 122% increase from the previous year, while GAAP earnings per diluted share were $0.67. A significant driver of this growth is NVIDIA's dominance in the GPU market, where it commands an 88% market share.
Looking ahead, NVIDIA expects third-quarter revenue to hit $32.5 billion, with gross margins in the mid-70% range. This positive outlook shows NVIDIA's confidence in continued demand for its products and technologies.
Analysts are overwhelmingly positive about NVIDIA. Out of 40 analysts, 35 recommend a “strong buy,” 2 suggest a “moderate buy,” and 3 say to “hold” the stock. The average price target is around $149.49, showing a significant upside potential of 21% from current levels.
Semiconductor Stock No. 2: Broadcom Inc. (AVGO)
Broadcom Inc. (AVGO) is a worldwide tech powerhouse that designs, develops, and provides a wide range of semiconductor and infrastructure software solutions. The company's products are essential components of various electronic devices and data centers, catering to diverse markets like wireless communications, enterprise storage, and industrial applications.
AVGO stock has delivered impressive growth, with a year-to-date (YTD) return of 57.2% and a remarkable 52-week increase of 110.5%.
This strong performance has pushed Broadcom's market cap to around $813.8 billion. The stock is valued at a forward P/E ratio of 36.04 - a premium to its tech sector peers, but priced lower than the likes of NVDA. Broadcom also offers a dividend yield of 1.22%, with the most recent quarterly dividend being $0.53 per share.
In its third-quarter fiscal 2024 report, Broadcom announced revenue of $13.07 billion, marking a 47% increase from the previous year. This growth was mainly driven by the strong demand for AI semiconductor solutions and the successful integration of VMware. The company reported a GAAP net loss of $1.88 billion, with non-GAAP net income of $6.12 billion. Adjusted EBITDA reached $8.22 billion, representing 63% of revenue.
Looking ahead, Broadcom projects fourth-quarter revenue of approximately $14 billion, including contributions from its VMware acquisition, signaling continued growth.
Broadcom recently launched Rally Anywhere, an on-premises version of its enterprise agility platform, catering to organizations with strict data sovereignty and security requirements. Additionally, the company introduced VMware Tanzu Platform 10 and Tanzu AI Solutions, enhancing its cloud-native application offerings and supporting the development of AI-powered applications.
Analyst sentiment towards Broadcom is strongly positive. Out of 33 analysts covering the stock, 30 recommend a “strong buy,” while 3 suggest a “hold.” The average price target is $192, indicating a potential upside of 9.4% from current levels.
Semiconductor Stock No. 3: Arm Holdings plc (ARM)
Arm Holdings plc (ARM) is a top player in the semiconductor world, focusing on designing and licensing the tech behind silicon chips. Their business is all about creating CPU architectures and other tech that power many modern gadgets, especially in mobile and embedded computing.
ARM stock has impressed with its price action, up nearly 95% year-to-date and 168.9% over the past year.
With a market cap of about $150.2 billion, Arm is clearly seen as a growth leader. With a forward P/E ratio of 92.50, the shares are priced at a premium, but are also expected to deliver outsized earnings growth.
Arm reported record revenue of $939 million in the fiscal first quarter, up 39% from last year. License revenue soared 72% to $472 million due to strong demand for Arm's tech in AI applications, while royalty revenue increased by 17% to $467 million, thanks to solid smartphone sales.
Arm is branching out beyond mobile, developing processors for AI tasks to compete with big names like NVIDIA. This focus on AI fits well with industry trends and positions Arm to take advantage of the growing need for AI-ready hardware. Their tech is increasingly used in cloud computing, automotive, and IoT systems.
Analysts generally have a positive view of Arm, with a "moderate buy" consensus. Out of 27 analysts, 17 suggest a “strong buy,” 1 recommends a “moderate buy,” and 9 say “hold.” The average price target is $138.18, a discount to Wednesday's close, while the Street-high target of $180 implies expected upside of 22.9%.
Conclusion
In summary, NVIDIA, Broadcom, and Arm are three leading semiconductor companies that have been performing exceptionally well in the stock market. With their advanced technology, strategic positioning, and strong financial performance, these companies look poised for further growth in the future.
Although their valuations aren't cheap, the strong support from analysts and their robust growth potential in the thriving AI and semiconductor industries make them attractive long-term investment prospects. If you're considering adding prominent technology companies to your portfolio, these three chip giants are definitely worth considering for the long term.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
