Saturday, December 2, 2023
Stocks To Buy

Looking for Growth? Start With These 3 Chip Stocks

Numerous strategies exist to maximize gains in the stock market. However, investing in progressive growth stocks is among the most effective. Companies with developed business models and solid growth engines make some of the best long-term investments for those seeking capital appreciation. I tend to look at sectors with strong growth trends, such as the semiconductor space, where a number of high-profile chip stocks to buy for growth can be found in spades.

Like all sectors, there’s nuance to the semiconductor industry. Not all chip stocks are equal. Plus, while there is competition in this sector, there are a few companies which really dominate certain, and very profitable, niches.

With that said, here are the three top chip stocks I’ve got on my watch list right now.

Nvidia (NVDA)

Nvidia (NASDAQ:NVDA) is a well-known semiconductor chip maker and market leader. The company’s stock has witnessed an impressive surge of almost 90% in 2023, causing the market capitalization to peak at around $689 billion. With a focus on developing chips that offer high-quality graphics, Nvidia’s products are widely sought after for computer gaming.

Nvidia is making impressive advancements through its association with the popular ChatGPT online chatbot developed by OpenAI. OpenAI uses Nvidia’s chips to train its extensive language models. Moreover, Nvidia has extended its reach by offering its DGX Cloud platform online, making it accessible to a broader range of businesses to develop artificial intelligence tools. With these exciting developments, the possibilities for NVDA are boundless.

After a considerable decline in 2022, NVDA shares rebounded and are performing well in 2023. Nevertheless, the stock is still trading approximately 30% lower than its peak in November 2021. While the stock’s valuation remains high, Wall Street analysts are cautiously optimistic about investing in NVDA. It has received a strong buy consensus rating from analysts. These ratings have led to an average analyst estimate of $256.39 per share for NVDA stock, suggesting a possible upside of around 10%.

Nvidia maintains its fundamental growth drivers, positioning it as one of the most lucrative companies for investors to assign a higher-than-market multiple. Its robust fundamentals and growth tailwinds suggest this is among the best chip stocks to buy for long-term growth.

Advanced Micro Devices (AMD)

Advanced Micro Devices (NASDAQ:AMD), a company that prides itself on semiconductor innovation, periodically faces price drops that can be seen as a blessing. Financial traders need not panic during these dips. Instead, such dips present an opportunity for investors to consider adding to their holdings of AMD stock.

Like Nvidia, AMD stock surged in March. Indeed, this dramatic increase of approximately 25% last month may not be repeatable in April, especially given how the month has started. Though, it’s important for investors to keep in mind that this is a stock that peaked out around $155 in November 2021. Thus, there is still an opportunity for AMD stock to rise in value, if investors believe new all-time highs are on the horizon from here.

The question is whether AMD stock represents a solid bet, in the sea of options in this space. Accordingly, it’s important to assess AMD’s business model and valuation for insight.

Investors like Advanced Micro Devices due to its next-generation chips. In fact, the company just introduced its fourth-generation EPYC Embedded CPUs, putting the company in an enviable position in the sector.

It’s expected growth from these next-generation chips could lead to significant profitability over time. While AMD has lagged behind Nvidia in this department, it’s also a stock that’s more fairly valued. Currently, AMD stock trades at a trailing price-earnings multiple of around 110 times, compared to Nvidia’s multiple of more than 150 times.

Taiwan Semiconductor (TSM)

Rounding out this list of chip stocks to buy is perhaps the best option of them all. Taiwan Semiconductor (NYSE:TSM) is the largest global player for producing advanced semiconductors.

There are many reasons why investors look to Taiwan Semi as one of the best options in this space. Of course, size matters. Accordingly, TSM stock provides investors with the size and scale that’s extremely difficult to build, especially in a complex space like semiconductors.

Notably, Taiwan Semi and grown its revenue by 18% annually, on a compounded basis, since 1994. This is the kind of growth companies of Taiwan Semi’s size shouldn’t be able to produce. However, a continuation of growth is expected moving forward, as global chip demand provides sustained revenue growth momentum into this year.

Who knows what will happen in this sector. However, TSM stock does appear to provide solid value right now, trading around 13.5 times trailing earnings. Accordingly, for those looking for chip stocks with size, scale, profitability and growth potential, TSM stock could be the best pick of them all.

On the date of publication, Chris MacDonald 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 Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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