In this piece, we will take a look at the 11 best semiconductor stocks to invest in for the AI boom. If you want to skip our introduction covering how without the semiconductor industry, and how it's essential to the development of artificial intelligence, then you can skip ahead to the 5 Best Semiconductor Stocks To Invest In for the AI Boom.
Earlier this year, OpenAI's co founder and chief executive officer Sam Altman demonstrated his ability to remain in the news after he estimated that the total funding required to build an independent supply chain of semiconductors to fund all possible use cases for artificial intelligence could require $7 trillion in capital. Altman's talk with investors in the UAE reported by the Wall Street Journal involved his vision of a massive boost to global chip making foundries, energy, data centers, and other infrastructure required to sustain the demand for graphics processing units (GPUs) needed to fund artificial intelligence applications all over the world.
While $7 trillion is more money than the annual economic output, or the GDP, of several countries, similar figures have been common in the semiconductor industry these past couple of months. In fact, it was semiconductor stock NVIDIA Corporation's (NASDAQ:NVDA) founder and CEO Jensen Huang who stated during the firm's earnings call for the second quarter of its previous fiscal year:
The world has something along the lines of about $1 trillion worth of data centers installed, in the cloud, in enterprise and otherwise. And that $1 trillion of data centers is in the process of transitioning into accelerated computing and generative AI. We’re seeing two simultaneous platform shifts at the same time. One is accelerated computing. And the reason for that is because it’s the most cost-effective, most energy effective and the most performant way of doing computing now. So what you’re seeing, and then all of a sudden, enabled by generative AI, enabled by accelerated compute and generative AI came along. And this incredible application now gives everyone two reasons to transition to do a platform shift from general purpose computing, the classical way of doing computing, to this new way of doing computing, accelerated computing.
Huang and Altman's comments show that at least when some of the most influential persons in the high computing and semiconductor design industries are concerned, the global semiconductor industry can grow by the trillions of dollars.
In fact, on the day that Huang made the comments, NVIDIA's shares were trading in the $450 - $460 range, and had you believed him when he'd said that artificial intelligence and the broader advances in data center computing carry the potential to take his firm to new financial heights and bought NVIDIA's stock, then your investment would have delivered a price appreciation of roughly 45%.
Quite impressive, but given that NVIDIA's stock is up by 230% over the past year, it does make one wonder where the rest of this growth comes from. Well, after its earnings press release for the first quarter of fiscal 2024 hit the wires, NVIDIA's shares gained 27% over the next couple of days. This was the first true surge in the semiconductor stock that is at the top of the food chain when we talk about artificial intelligence. Why did the shares jump more this time? Well, the press release saw Huang throw around the trillion dollar estimate for the first time.
However, Huang and Altman are not the only semiconductor executives who have commented on artificial intelligence. In fact, since it's now become a major global phenomenon, managements of other semiconductor stocks such as Intel Corporation (NASDAQ:INTC), Advanced Micro Devices, Inc. (NASDAQ:AMD), and the Taiwan Semiconductor Manufacturing Company (NYSE:TSM) have all weighed in. AMD's Su, whose firm is the only direct competitor to NVIDIA's products in non-Arm based GPU designs, believes that the artificial intelligence data center computing products market was worth $45 billion in 2023. Her remarks, made in December also shared the Santa Clara, California based chip designer's estimates that by 2027 end, this market will have grown to $400 billion.
Similarly, semiconductor stock TSMC's management confirmed that it had "witnessed the rising emergence of generative AI-related applications" in 2023. Likewise, Intel chief Patrick Gelsinger shared during the earnings call in January 2024 that not only had his firm witnessed "the AI workload as a key driver of the $1 trillion semiconductor TAM by 2030, but that Intel is the only company "able to participate in 100% of the TAM for AI Silicon logic."
The final bit of Gelsinger's comments is particularly important when we talk about semiconductor stocks that could benefit from AI-related tailwinds. This is because while chip stocks such as NASDAQ:NVDA, NASDAQ:INTC, NASDAQ:AMD, and NYSE:TSM are direct beneficiaries of the growth in AI, others like Lam Research Corporation (NASDAQ:LRCX) and Synopsys, Inc. (NASDAQ:SNPS) can also benefit from booming AI demand as their products are indispensable when it comes to designing chips.
Today, we'll talk about some such semiconductor stocks that hedge funds are buying in the era of artificial intelligence.
11 Best Semiconductor Stocks To Invest In for the AI Boom
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Our Methodology
To make our list of the best semiconductor stocks for the AI boom, we ranked semiconductor stocks that are directly or indirectly exposed to artificial intelligence by the number of hedge funds that had bought the shares during Q4 2023. Out of these, the top semiconductor stocks were chosen.
For these top semiconductor stocks for the AI boom, we have also mentioned hedge fund sentiment. Hedge funds' top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That's why we pay very close attention to this often-ignored indicator.
11 Best Semiconductor Stocks To Invest In for the AI Boom
Analog Devices, Inc. (NASDAQ:ADI) is an American semiconductor company that makes and sells chips that are used for power management, signal conversion, and other computing use cases. The shares are rated Buy on average, and the average analyst share price target is $206.
During last year's fourth quarter, 62 out of the 944 hedge funds part of Insider Monkey's database had bought and owned Analog Devices, Inc. (NASDAQ:ADI)'s shares. David Blood and Al Gore's Generation Investment Management was the firm's biggest investor due to its $864 million stake.
Along with NVIDIA Corporation (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Analog Devices, Inc. (NASDAQ:ADI) is a top hedge fund AI semiconductor stock pick.
ASML Holding N.V. (NASDAQ:ASML) is the backbone of the global semiconductor industry since it is the only firm in the world capable of making machines to manufacture the most advanced chips in the world. Investor infatuation with AI has also led to the firm becoming Europe's most valuable technology stock. However, the firm is entering 2024 amidst the constant global geopolitical tensions between the U.S. and China that have seen ASML warn that more sanctions could hurt its business.
After digging through 933 Q4 2023 hedge fund investment portfolios, Insider Monkey found that 62 had held a stake in the firm. The largest ASML Holding N.V. (NASDAQ:ASML) hedge fund shareholder is Ken Fisher's Fisher Asset Management as it owns $3.7 billion worth of shares.
Lam Research Corporation (NASDAQ:LRCX) is a backend semiconductor company whose products enable chip designers like NVIDIA to fine tune their AI products. Since it isn't a monopoly like ASML, the firm has spent 2024 fighting for dominance in the South Korean market where it is facing tough competition from Japanese rivals.
During 2023's December quarter, 67 out of the 933 hedge funds polled by Insider Monkey were Lam Research Corporation (NASDAQ:LRCX)'s shareholders. Ken Fisher's Fisher Asset Management owned the biggest stake which was worth $2.3 billion.
Applied Materials, Inc. (NASDAQ:AMAT) is an American semiconductor equipment manufacturing and design company. Like most other firms in its industry, the business has had to adjust itself against sanctions imposed on China by the U.S. due to national security concerns.
By the end of last year's fourth quarter, 70 out of the 933 hedge funds covered by Insider Monkey's research had invested in the firm. The largest Applied Materials, Inc. (NASDAQ:AMAT) shareholder out of these is David Blood and Al Gore's Generation Investment Management since it holds a $1.1 billion stake.
QUALCOMM Incorporated (NASDAQ:QCOM) is a key artificial intelligence semiconductor stock to watch especially as the AI industry matures. This is because its sizeable presence in the Android smartphone processor and GPU market provides QUALCOMM Incorporated (NASDAQ:QCOM) with solid footing to introduce AI processors such as neural processing units (NPUs).
As 2023's fourth quarter ended, 78 out of the 933 hedge funds tracked by Insider Monkey had piled into QUALCOMM Incorporated (NASDAQ:QCOM)'s shares. John Overdeck and David Siegel's Two Sigma Advisors was the biggest investor, owning 2.9 million shares that are worth $431 million.
Intel Corporation (NASDAQ:INTC) is the world's biggest semiconductor designer since it is able to target both processing and memory semiconductor markets. This was confirmed by a Gartner report in early 2024 that stated that as the memory market shrunk in 2023, Intel overcame Samsung to take the global chip making crown.
During Q4 2023, 86 out of the 933 hedge funds profiled by Insider Monkey were the firm's shareholders. Intel Corporation (NASDAQ:INTC)'s largest hedge fund investor is William B. Gray's Orbis Investment Management as it owns $801 million worth of shares.
Advanced Micro Devices, Inc. (NASDAQ:AMD), Intel Corporation (NASDAQ:INTC), NVIDIA Corporation (NASDAQ:NVDA), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) are some top hedge fund AI semiconductor stocks.
