The intersection of artificial intelligence (AI) and semiconductor technology are producing some of the most dynamic changes in the technology industry today.
On that note, three Motley Fool contributors who cover technology and AI stocks have come together to highlight their top stock picks among AI-focused semiconductor stocks today. They proposed the pioneer of memory technology Micron technology (NASDAQ:MU)industry legend Intel (NASDAQ:INTC)and leader in AI chip design Broadcom (NASDAQ:AVGO).
Read on to find out how these chip titans are benefiting from today’s rise in AI.
Intel aims to catch up with Nvidia and TSMC in one fell swoop
Billy Duberstein (Intel): Intel has lagged other AI companies in recent years and into 2024, with the stock down more than 25% for the year so far. Nasdaq increased by almost 8%.
This is somewhat justified: after all, Intel is currently trying to catch up over several years. Semiconductor manufacturing in Taiwan in terms of its ability to produce cutting-edge chips. Success would not only mean that Intel-designed chips would once again become market leaders, but that Intel would also become a successful and profitable foundry for third parties.
Achieving process technology leadership and winning new customers is long, hard work, but Intel has shown good progress over the past year, hitting milestone after milestone on its projected timeline to reach five chip nodes in four years.
And last week, Intel unveiled its new Gaudi 3 chips, the accelerators Intel hopes to compete with. Nvidia GPU. To everyone’s surprise, Intel management claimed that the new Gaudi chips outperformed the current Nvidia H100 on several key parameters. With Nvidia already looking ahead to its new Blackwell chips later this year, Gaudi has the potential to capture a small share of the AI market, which is turning out to be a very big market.
Besides simple hardware chops, Intel is also leader of large consortia aiming to form open source solutions to AI programming software, targeting Nvidia’s CUDA software gap, as well as to AI Ethernet, challenging Nvidia’s Infiniband solution.
Intel also just presented financials for its product and foundry segments separately, giving investors an idea of what Intel could generate in profits without the burden of all its foundry capital. Outside of Intel’s foundry, its chip products generated operating profit of about $12.4 billion last year. That’s not too bad, considering Intel has fallen behind in processing technology in recent years and it doesn’t represent a large portion of Gaudi’s revenue. This also means that Intel’s valuation is not demanding, with a market capitalization of only $160 billion.
Of course, Intel’s foundry lost a whopping $7 billion last year alone. But that’s not entirely surprising, given the huge capital expenditures and depreciation that must be absorbed before Intel generates revenue.
Will Intel succeed? The company is investing heavily in this effort, purchasing the first high-NA EUV machine from ASML Securities in portfolio. Not only that, but Intel has also locked down the majority of ASML’s high-NA EUV machines for this year – an aggressive investment to try to get ahead of TSMC in 2025.
For those looking for AI winners that haven’t yet taken off, Intel could be a contrarian play. However, this is also riskier and much more reliant on strong execution. Still, success over the next couple of years could lead to the stock rising significantly – likely more than other stocks already in progress.
Micron is a great bet on AI, no matter who wins the accelerator war
Anders Bylund (Micron Technology): All the designers of sodium silicate chips worthy of the name now offer powerful AI accelerator chips. If you can’t beat the raw performance of Nvidia’s H100 and Blackwell chips, perhaps you can offer a more power-efficient solution, or a cheaper chip, etc. There is enough demand for AI systems and solutions to create all kinds of exploitable niche markets.
Micron Technology is taking a different approach to the AI opportunity.
As a leading memory hardware provider, Micron benefits from the AI-driven rise of high-performance computing. Every high-end number crunching machine needs a ton of fast DRAM, and most also rely on vast arrays of solid-state storage devices (SSDs) built around NAND memory chips.
The memory industry as a whole is on the rise, but Micron is going even further.
Currently, main rivals Samsung and SK Hynix I don’t have an answer for the power efficiency of the company’s latest high-bandwidth memory (HBM) products. This should make Micron the best choice for situations where a very large amount of high-speed DRAM is needed, such as supercomputers that drive AI engines using accelerators from Nvidia and its competitors.
In fact, Nvidia’s Blackwell AI accelerators come with up to 192 gigabytes of Micron HBM per module. In other words, Micron is following in Nvidia’s footsteps in an incredibly literal way.
Today, Micron investors have seen these growth catalysts arrive and the stock is trading just below all-time highs. Micron’s valuation ratios are also high. If you’re looking for a low-cost discount deal, this stock isn’t for you.
But it’s a different story if you believe that the memory market is evolving at a deeply fundamental level, placing Micron in a golden age of technology leadership in the midst of a revolutionary AI boom. With this in mind, Micron’s high valuation may well be “the new normal”, with potential for further gains over the next couple of years.
You must therefore review your tolerance for market risk and act accordingly. For growth-oriented investors with a strong appetite for risk, Micron offers direct investment in the AI frenzy without having to pick a winner in the accelerator chip wars.
Big Tech AI Chips Are Really About This Top Semiconductor Stock
Nicolas Rossolillo (Broadcom): It’s been a busy week in AI and semiconductors, with Alphabet announcing a new Arm holds-processor based. Google also explained how its latest tensor processing units (TPUs) train Google AI. Metaplatforms announced its latest custom AI chip to process some of its data center computing. And even Intel tried to get in on the action with the launch of its latest Gaudi 3 AI chip.
At this point, all of the tech giants that make up the “Magnificent Seven” have, at the very least, hinted that they are working on something in the name of competition with Nvidia.
In reality, these companies aren’t so much looking to compete with Nvidia as looking for a way to save money.
Regardless, what few investors realize is that most of these big tech chip designs aren’t exactly of their own making. They actually have to tap the semiconductor industry itself to design these AI systems, which they can do with their considerable financial resources.
The biggest custom AI processor design house at this point is none other than chip titan Broadcom, which is responsible for helping Google with its custom TPUs, as well as doing the heavy lifting of design for Meta , and a third as-yet-unnamed tech giant. on another AI project.
As a result, approximately 35% of Broadcom’s semiconductor sales in 2024 are expected to come from AI.
These days, the market is focused on how Broadcom can integrate and unlock profitability from its mega-acquisition of critical cloud software VMware. But AI chips could really be a game-changer in the long term. At 28 times forecast earnings per share for the current fiscal year, Broadcom stock could actually still represent decent long-term value.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anders Bylund holds positions at Alphabet, Intel, Micron Technology and Nvidia. Billy Duberstein holds positions in ASML, Alphabet, Broadcom, Meta Platforms, Micron Technology and Taiwan Semiconductor Manufacturing. Nicolas Rossolillo holds positions at ASML, Alphabet, Broadcom, Meta Platforms, Micron Technology and Nvidia. The Motley Fool holds positions and recommends ASML, Alphabet, Meta Platforms, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel. The Mad Motley has a disclosure policy.
3 Top Semiconductor Stocks to Watch in This Stage of the AI Revolution was originally published by The Motley Fool
