The Top AI Semiconductor Stocks to Buy Right Now
Key Points
Micron and Taiwan Semiconductor are capitalizing on multi-year growth trends.
Nvidia and Broadcom are both seeing huge demand for their cutting-edge chips.
Semiconductor stocks are the top way to play the AI arms race, in my opinion. Nobody knows what fully profitable generative AI businesses will look like, and many of these companies are private, so investors don't have access to current financials. However, one incredibly obvious thing is the amount of money these companies are spending on computing equipment.
This vaults semiconductor stocks into the leadership role on how to invest in this space. The best part is, these companies are making a boatload of money right now, making them far less risky than some other ways to invest in AI. I think these four stocks are among the best ways to invest.
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Taiwan Semiconductor Manufacturing
Starting with the most neutral way to invest in AI semiconductor stocks, Taiwan Semiconductor Manufacturing (NYSE: TSM) should be an easy pick for nearly every investor in this space. Taiwan Semiconductor is the world's leading chip fabrication company, providing logic chips to nearly every company competing in the AI arms race. Because it's positioned as a neutral provider, it has deep ties with several companies that would be considered competitors.
TSMC, as it's also known, expects the AI chip market to continue booming, and has guided for a mid- to high-50% compound annual growth rate (CAGR) between 2024 and 2029. To meet that demand, the company is spending between $52 billion and $56 billion on capital expenditures this year. That should give investors some confidence that the AI buildout is far from over, and Taiwan Semiconductor will be a leader along the way.
Micron
Micron Technology (NASDAQ: MU) is similar to Taiwan Semiconductor, except it makes memory chips. Memory chips for AI computing units have been in a massive demand crunch, and this has caused prices for them to skyrocket. While those prices have cooled off a bit thanks to Google's TurboQuant algorithm that reduces memory needs, the reality is that the high-bandwidth memory (HBM) bottleneck will still be there, as AI developers will find other ways to use that memory.
From 2025 to 2028, Micron expects the HBM market to expand from $35 billion to $100 billion. That's a huge multiyear growth trajectory, and makes Micron a strong buy, especially after the market realizes that memory chips will still be in huge demand over the next few years.
Broadcom
Moving to the next type of company, Broadcom (NASDAQ: AVGO) is another genius AI semiconductor play. While Broadcom doesn't manufacture semiconductors, it designs the devices that utilize them. One of the biggest innovations to land in the AI sector is the rise of custom AI chips, which are specifically designed for a certain workload. These chips can produce better results than a more broad-purpose computing unit, such as those made by Nvidia (NASDAQ: NVDA).
The popularity of these chips is spiking, and Broadcom is going to benefit massively as a result. By the end of 2027, these chips could produce more than $100 billion annually. With Broadcom generating $68 billion over the past 12 months companywide, that indicates huge growth ahead.
Nvidia
Nvidia and Broadcom are similar investment types, as they are both chip designers that turn the manufacturing capabilities of Micron and Taiwan Semiconductor into usable products. Nvidia's GPUs are the industry standard in the computing world, and nothing looks to change that, especially with the massive growth expected for this year.
The average Wall Street analyst estimates Nvidia's revenue will rise 71% this year and 30% next year. Despite that, Nvidia's stock trades for a mere 20.2 times forward earnings. For reference, the S&P 500 trades for 20.4 times forward earnings.
This is a rare buying opportunity to scoop up a generational growth stock for cheap, and investors would be foolish to let this opportunity slip away.
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Keithen Drury has positions in Alphabet, Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Micron Technology, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
