Semiconductor stocks have rallied ahead of an expected rebound in overall chip sales in 2024.
Sales of chips for artificial intelligence and automotive applications were strong in 2023 and likely will remain so in the year ahead. But it's the expected return to growth of personal computers and smartphones that will help fuel broader chip industry sales, analysts say.
"Everything points to the slowdown we've just been through being over and things picking up," Bill Jewell, analyst with Semiconductor Intelligence, told Investor's Business Daily. "But people are cautious about the economy."
Research firm IDC predicts that PC shipments will rise 3.4% in 2024 after two consecutive years of declining sales. It sees smartphone shipments rising 3.8% in 2024, recovering from a 3.5% drop in 2023.
Meanwhile, AI remains a hot market. But it's a "niche area" that "is not going to carry the whole industry," Jewell said. By contrast, PCs and smartphones drive much greater chip unit volumes for the industry and impact more companies, he said.
Semiconductor Stocks Are Surging
Starting in early November, investors began snapping up semiconductor stocks ahead of the predicted broader chip market recovery.
The Philadelphia Semiconductor Index, or SOX, rose 65% in 2023. The SOX includes the 30 largest semiconductor stocks traded in the U.S.
Research firm Gartner predicts that worldwide semiconductor sales will rise 16.8% to $624 billion in 2024. In 2023, chip sales declined an estimated 10.9% to $534 billion, Gartner said.
Rival research firm IDC is even more bullish on prospects for the chip industry in 2024. It sees semiconductor sales rising 20.2% to $632.8 billion, after falling 12% to $526.5 billion in 2023.
IDC thinks the introduction of AI PCs and AI smartphones in 2024 will give both of those segments a lift. Industry officials say AI applications will begin shifting from cloud data centers to network edge devices.
AI Chips A Bright Spot In 2023
Chips for AI — especially the graphics processing units (GPUs) used in data centers — were a growth segment in another wise downbeat 2023 for semiconductor sales, Gartner says. That segment boosted sales for Nvidia, with rivals AMD and Intel looking to grab a share of the AI chip market in 2024.
However, one concern is that data centers might slow their purchases of GPU chips in the new year after a rapid buildup of AI systems.
Elsewhere, sales of memory chips tumbled 38.8% in 2023 because of sluggish PC and smartphone sales and high inventories. But Gartner forecasts a big rebound in 2024, with revenue up 66.3%. That's due mostly to the expected PC and smartphone resurgence along with strong demand from AI data centers.
Automotive Market Gets In Gear
Semiconductor executives see the automotive market as the most important segment driving revenue over the next year, according to an annual survey by consulting firm KPMG. Semiconductor stocks with high exposure to the automotive market include NXP Semiconductors, STMicroelectronics and Texas Instruments.
The reason chip industry executives are excited about the automotive sector is the increasing number of chips going into modern cars, Mark Gibson, national sector leader for KPMG's technology, media and telecommunications unit, told IBD.
"An automobile has two, three, four times as many chips in it today as it did just a couple of years ago," Gibson said. The trends of electric vehicles, advanced driver-assistance systems and self-driving are behind the heady increase in chip content in cars.
AI is the second-most-important revenue driver, the executive survey showed.
Executives More Optimistic About 2024
Some 85% of chip executives forecast the industry's revenue to grow in the coming year, compared with 64% in last year's survey, KPMG said.
"That is quite a bit more optimistic than it was a year ago," Gibson said. "They expect the economy to improve as interest rates stabilize and capital spending hopefully escalates."
Major cloud data-center operators likely will continue to spend heavily on their AI infrastructure buildouts in 2024, JPMorgan analyst Harlan Sur said in a recent client note.
Nvidia Among Winning Semiconductor Stocks
Nvidia will remain a key beneficiary among semiconductor stocks, Sur said. That's thanks to its market-leading GPUs as well as its InfiniBand and ethernet networking solutions, he said.
AMD should grab some market share with the launch of its Instinct MI300 data-center accelerators in the first half of 2024, Sur said.
However, Nvidia plans to stay a step ahead of the competition in the AI chip market, Morgan Stanley analyst Joseph Moore said in a recent client note.
As AMD launches its MI300 series accelerators to compete with Nvidia's current H100 series, Nvidia plans to release its H200 series in the second quarter. Also, Nvidia plans to hold a launch event for its next-generation GPU, the B100, in the first half of 2024.
"Continued execution from Nvidia has time and time again raised the bar for competitors," Moore said.
Meanwhile, the AI trend also will provide a tailwind for chip designer Arm Holdings as well as networking and custom AI-chip producers Broadcom and Marvell Technology, Sur said.
Cyclical Chip Stocks Look For Recovery
While AI created some big winners among semiconductor stocks, others muddled through a cyclical downturn in demand. But those companies exposed to industrial and consumer markets are poised for a rebound in 2024, analysts say.
"We are at the cusp of a semiconductor up-cycle (approximately four to six quarters of positive year-over-year growth)," JPMorgan's Sur said. Industry revenue turned positive in the fourth quarter and growth should continue through 2024 and into 2025, he said.
Semiconductor stocks battered by the cyclical downturn in 2023 included Analog Devices, Texas Instruments and Taiwan Semiconductor Manufacturing. Other hard-hit chip stocks include smartphone-exposed names like Qualcomm, Qorvo and Skyworks Solutions.
Micron Technology and other memory-chip makers also suffered from the downturn in the PC and smartphone markets. However, Micron and its peers are starting to see light at the end of the tunnel.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
