Semiconductor stocks recently received news that bodes poorly for the sector overall: Taiwan Semiconductor Manufacturing (NYSE:TSM) is now predicting a 10% sales slowdown in 2023. That figure was pegged at 5% only months ago. Given that TSMC is the foundry to most of the chip industry the slowdown has clear implications across the industry. However, there are still several semiconductor stocks to watch.
Chipmakers in the automotive, cell phone, and industrial sectors are expected to be affected negatively. However, AI chip sales are expected to be the lone bright spot in which growth should continue. The logical conclusion is that AI-oriented chip firms remain investment worthy which is exactly the thesis for the firms in this article on top semiconductor stocks to watch.
Semiconductor Stocks to Watch: ASML (ASML)
ASML (NASDAQ:ASML) has already performed very well this year. The company is the leader in a niche market that includes few competitors at all and none which can match its technological capabilities. The result is that its shares can likely move even higher.
ASML’s extreme ultraviolet technology is applied to its massive lithography machines used for the manufacture of the world’s most complex chips. No other firms are as capable as ASML in this regard. That means it essentially has a monopoly on the production and sale of these machines that cost hundreds of millions of dollars.
AI chip production is an order of magnitude more difficult which only gives ASML a greater advantage. Its lithography machines are going to continue to be in higher demand as firms look to produce AI chips en masse. That’s part of the reason ASML is confident that sales will increase by 30% in 2023. In turn, that confidence serves as a signal to investors that ASML stock is a buy at this time.
Semiconductor Stocks to Watch: Synopsys (SNPS)
The current race to design and produce AI chips benefits Synopsys (NASDAQ:SNPS). The company provides design automation software for the semiconductor industry. Synopsys’ DSO.ai product is an AI integration into the design software that searches for optimization targets in the design phase of chip manufacturing. The appeal of the product is obvious: Firms want optimized chips and Synopsys’ AI-driven software allows that to occur. Synopsys also has AI integrations for the verification and test phases of chip production, VSO.ai, and TSO.ai.
Synopsys saw its revenues increase in the most recent quarter and in the most recent trailing 6 months. However, net income fell slightly as higher costs eroded margins. It hasn’t much-affected share prices at all. Instead, they’ve risen quickly following the release as it exceeded guidance. It remains one of the lesser-discussed chip stocks but one which is very much worth considering for its overall utility within the sector.
Semiconductor Stocks to Watch: Applied Materials (AMAT)
Applied Materials (NASDAQ:AMAT) provides manufacturing equipment to the chip industry. Share prices for AMAT stock have fallen following the TSMC news, creating an opportunity.
Applied Materials is a more conservative semiconductor investment overall. It includes a dividend with a yield approaching 1%. During the most recent quarter, Applied Materials returned $219 million to shareholders via that dividend. The firm also repurchased an additional $800 million of shares. It’s clear that the company is more focused on shareholders than growth relative to younger chip firms. The point is that AMAT shares offer stability and price appreciation through the growing chip market opportunity.
Revenues increased by 6% while net income increased by 3%. Those metrics suggest Applied Materials is, again, a steady choice for more risk-averse investors. Like every other chip firm, Applied Materials recognizes the transformative power of AI for its business. The firm believes parallel innovation rather than serial innovation is the path forward. That means Applied Materials believes industry cooperation will push forward its progress.
Nvidia (NVDA)
As I write this, Nvidia’s (NASDAQ:NVDA) stock continues to fall the day after TSMC’s bad news. Meanwhile, the majority of other chip stocks have shown signs of a quick rebound. I think this is an obvious opportunity for Nvidia investors.
TSMC already noted that AI chips are the lone bright spot it sees in terms of revenues in 2023. And Nvidia is the biggest and best AI chipmaker. It’s really a very simple choice to be bullish on NVDA shares right now. Remember, Nvidia expects roughly $11 billion in sales in Q2 which is far greater than the $7 billion Wall Street had previously been expecting. That still remains and Nvidia won’t release those earnings until Aug. 21.
Shares are trading below $450 but analysts believe they could go as high as $767 in the next 12 months. Don’t be surprised if they rise dramatically again. Microsoft (NASDAQ:MSFT) is set to begin an AI subscription model for 365 Office which should increase revenues. Other firms are going to drive value from AI chips as well and that means Nvidia could see even higher demand soon.
AMD (AMD)
AMD (NASDAQ:AMD) offers a lot of potential for investors seeking a true breakout stock. Its breakout potential is all due to its competition with Nvidia in relation to AI chip dominance.
It’s no secret that Nvidia is winning to this point. Its chips are regarded to be the most advanced for AI applications which have caused share prices to skyrocket in 2023. For investors looking for a challenger to that dominant position, AMD is a clear choice. That pursuit could logically see AMD share break out at some point. As a result, purchasing now is probably a smart idea.
That said, let’s analyze AMD in relation to Nvidia and AI. MosaicML compared both firms’ second-best chips and found that AMD chips were roughly 80% as powerful as those from Nvidia. The company believes that further software updates should make the chips equivalent in terms of performance. The company went on to say that AMD excels at software whereas other firms have struggled. Importantly, software is one of the most powerful areas in which improvements to AI chips can be made. That further suggests that AMD is not very far behind Nvidia and that shares could soon benefit.
Marvell Technology (MRVL)
Marvell Technology (NASDAQ:MRVL) is a very heavily favored chip stock. The 30 analysts with coverage of the firm are in near unanimous agreement that it is a buy. There’s nearly 10% upside implied by those prices and Marvell Technology pays a dividend so returns could be even higher.
The company provides cloud-optimized chips and is one of the better data infrastructure firms in relation to semiconductors. Marvell Technology helps firms improve their data infrastructure either on-premise or through the cloud.
It is also one of the chip firms that has benefited from AI this year. CEO Matt Murphy earlier stated that AI revenues will accelerate in H2 of this year. The firm’s networking chips are its main AI product and manufacturing is just ramping up. The firm expects AI revenues to double next year after production comes online fully. That should set shares up for a breakout at some point.
Qualcomm (QCOM)
In some sense, Qualcomm’s (NASDAQ:QCOM) stock might seem like a chipmaker to avoid on the TSMC news. TSMC was clear that it sees a slowdown in mobile phone chip production but again sees AI chip sales improving.
Qualcomm is a major mobile phone chip provider. It is an integral partner of Apple (NASDAQ:AAPL) in particular. That relationship is set to continue to be strong through 2025 even as Apple begins to transition away from Qualcomm intending to bring production in-house.
iPhone sales aren’t slowing down. That means that Qualcomm should be fine. Its AI mobile phone chips are particularly strong and despite Apple’s desire to move away from Qualcomm, it isn’t that simple. Qualcomm has Apple cornered in that regard and as iPhone sales continue to be strong Qualcomm’s mobile chip sales should remain strong too. That seems to be what the market said the day after the TSMC news as shares rebounded by more than 4%.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.