According to Wall Street, there are two super semiconductor stocks to buy by hand

By | March 17, 2024

Nvidia (NASDAQ: NVDA) is the role model for the artificial intelligence (AI) revolution. The company is worth a whopping $2.2 trillion at the time of writing, with $1.5 trillion of that added in the last twelve months alone. Nvidia’s recent success comes down to its data center chips designed to handle AI workloads, which continue to attract incredible demand.

But despite attracting the lion’s share of investor attention, Nvidia isn’t the only option in semiconductors. According to The Wall Street JournalAnalysts have a consensus overweight (bullish) rating on two other names: Advanced micro devices (NASDAQ: AMD) And Axcelis Technologies (NASDAQ:ACLS).

This is why owning shares of AMD and Axcelis could also be a fantastic idea.

1. AMD is emerging as a competitor to Nvidia in data centers

AMD’s chips power some of the world’s most popular consumer electronics, including Sonythe PlayStation 5, Microsoft‘s Xbox Series X, and even the infotainment systems in Tesla‘s electric vehicles. However, investor attention is now focused on the data center.

The company has started shipping its latest MI300 series data center chips designed for AI workloads – hardware that competes with Nvidia’s industry-leading H100 graphics processing unit (GPU). The MI300 comes in two configurations: the MI300A combines GPU and CPU hardware to create an accelerated processing unit (APU), while the MI300X is a pure GPU.

The MI300A was selected by Lawrence Livermore National Laboratory to power its new El Capitan supercomputer, which is expected to be the fastest in the world when it comes online this year. However, AMD is also experiencing strong commercial demand for the MI300 series from leading data center operators such as Oracle,Microsoft, and Metaplatforms.

The MI300 will likely skyrocket AMD’s data center revenues in the coming years. It won’t be easy to catch Nvidia in that segment. However, AMD has a 90% market share in AI-enabled personal computers. The Ryzen 700 series chips (Ryzen AI) are designed to handle powerful AI workloads on the device, leading to faster response times for the end user because requests do not travel back and forth to the data center.

Millions of computers from leading manufacturers such as Dell, PKAnd Asus (among others) already shipped with Ryzen AI chips. In the recent Q4 2023, Ryzen AI chips drove AMD’s Client segment revenue up 62% year over year. The company plans to launch a new processor that will be up to three times faster than previous iterations, so this company is just starting to heat up.

Combined with a projected $3.5 billion revenue contribution from the MI300 series in their first full year of sales, 2024 will be AMD’s biggest year yet. Not surprisingly, the majority of the fifty analysts followed this The Wall Street Journal have given AMD stock the highest possible Buy rating.

2. Axcelis Technologies is a crucial part of the chip manufacturing process

Axcelis Technologies is not a glamorous manufacturer of GPUs like Nvidia or AMD. In fact, it is relatively overlooked The Wall Street Journal only eight analysts covering the stock. Nevertheless, the majority of them have given the company the highest possible Buy rating, and it is currently trading at a very attractive valuation, which could entice investors to follow The Street’s lead.

Axcelis produces ion implantation equipment, which is crucial for the chip manufacturing process. Manufacturers of silicon carbide power devices – which control electrical current at high-current workloads – are currently a major source of demand for Axcelis, mainly driven by the electric vehicle industry. Silicon carbide chemistry is more efficient than traditional silicon chemistry, leading to more miles per battery charge and faster charging times.

The company is also preparing for growing demand from manufacturers of AI-related semiconductors. Last year, the company noted that AI requires significantly more memory and storage capacity, which could make the production of DRAM and NAND chips more complex and expensive.

Axcelis generated record revenue of $1.13 billion in 2023, representing a 22.9% increase year-over-year. But here’s the kicker: the company ended 2023 with an order book worth $1.2 billion, so 2024 will be another record year.

The stock is up more than 400% in the past five years, but has taken a breather in recent months, falling 44% from its all-time high. That could present an opportunity, because based on the company’s 2023 earnings per share of $7.43, the stock now trades at a price-to-earnings ratio of just 14.6. That is a discount of 59% on the price-earnings ratio of 35.6 iShares Semiconductor ETFAxcelis shares are therefore on average significantly cheaper than the rest of the chip industry.

Furthermore, when you consider Wall Street’s bullish stance on Axcelis stock, there are very clear arguments for buying the stock now.

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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, HP, Meta Platforms, Microsoft, Nvidia, Oracle, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.

Forget Nvidia: 2 Super Semiconductor Stocks to Buy on Hand, According to Wall Street Originally published by The Motley Fool

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