Chip stocks have been on a rather rocky ride over the past few weeks, as a range of headwinds have hit this sector hard. From new trade restrictions on foreign companies to regulatory probes and weak macroeconomic data, investors have had plenty to factor in when it comes to these companies’ growth trajectories and outlooks moving forward.
Of course, the semiconductor sector is an increasingly important one, given the role of technology in our day to day lives. The companies that can produce the most efficient and high-performance chips are clearly winning today. On this list are three of the best-quality chip stocks long-term investors want to consider on this facet of their business alone.
That said, these companies are also strong buys for a range of reasons that have little to do with their underlying AI exposure. Here’s why these three stocks are on my list as top ways to play this particular high-growth space right now.
Key Points About This Article:
- The search for top chip stocks to buy to capture the upside of technological progress is on, with these three leading chip stocks among the best AI plays in the market.
- That said, there are a number of other reasons why investors may want to consider these gems at current levels.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) continues to dominate the AI discussion in the chip world, holding an incredible 98% share of the data center GPU market as of last year. A pioneer in developing the highest-performance chips out there, with its latest Blackwell chip set to reshape the market in a number of ways, there’s a lot to like about Nvidia’s upside in reference to its AI potential.
But with recent delays of its Blackwell chips, and underwhelming guidance for this particular segment, investors have sought fit to start selling Nvidia stock. And that was before the Department of Justice reportedly starting looking into the company with respect to its past agreed upon AI acquisitions, concerned about the company’s potential to monopolize what could be a very lucrative space long-term.
We’ll have to see how these issues will be ironed out in upcoming quarters. But there’s good reason to see why Nvidia stock is holding up relatively well in the face of these concerns.
Teh company’s core data center revenue absolutely skyrocketed 427% year-over-year to $22.6 billion in Q1, driven by its AI investments. So long as Nvidia continues to put its money where the growth is, investors will continue to reward this stock over time.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) stock fell 24% over the past month, lagging behind Nvidia’s 112% gain. After struggling with AI and gaming businesses and reporting weaker-than-expected sales, the stock has showed some signs of recovery. In the company’s second quarter, data center revenue grew 115% (it’s not Nvidia-level growth, but that’s still pretty darn impressive), also seeing a 49% increase in CPU sales. A diversified player that’s making some inroads into the AI chip market, AMD could be viewed as a potential beneficiary of this trend, but many investors still value this company on its core business, which has performed well.
The thing is, it hasn’t performed well enough to push the stock higher on a year-to-date basis, with the stock giving up all of its AI-driven gains earlier this year, and then some. We’ll have to see how incoming data comes in over the next few quarters. I, for one, remain optimistic the company can make its necessary investments while ratcheting up growth in its core business lines. That’s partly due to the fact that major server manufacturers like Dell and Super Micro are incorporating AMD’s Instinct platform. With higher-margin data center revenue expected to drive profit growth, AMD also acquired Europe’s largest private AI lab, Silo AI, to enhance its generative AI capabilities.
Nvidia’s Blackwell platform flaw delays new chips by three months, potentially opening the door for AMD to gain market share. This setback, amid GPU shortages, could impact Nvidia’s stock and financials, while AMD’s $220 billion market cap might see significant gains if it exceeds forecasts and capitalizes on data center growth.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor (NASDAQ:TSM) commands over 60% of global semiconductor manufacturing and 90% of advanced chip production, including 3-nanometer and high-tech packaging. Its dominance has been driven by key partnerships with firms like Apple, Nvidia, and even Intel, which could expand the company’s reach into a more brand-focused business model. That’s one I’ve long thought the company could pursue, and is one that could obviously be a net negative for other major chip players.
But as a global foundry giant, Taiwan Semi maintains strong growth, driven by the sort of secular tailwinds many investors want to play. Indeed, from a trading standpoint, this is a stock I think best represents the health and outlook of the overall chip space, about as close to an ETF as investors can get. Accordingly, for those bullish on the health of this sector long-term, TSMC’s move into Europe and the U.S. markets could position the company to become an even bigger global powerhouse in this space, and one that continues to gain even more market share over time.
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