AI Optimism Driving Semiconductor Sales: 3 Stocks With Room to Run

NVDA, TSM and SMTC stocks currently have a strong buy, buy or hold recommendation: Learn why.

Semiconductor sales were $166B last quarter, up more than 23% year on year.

Register now to see our 7 Best Stocks for the Next 30 Days report - free today!

The global semiconductor industry is witnessing a strong recovery phase after sales suffered in 2023. The rebound is being fueled by advancements in artificial intelligence (AI) technologies, data processing, and a resurgence in electronics manufacturing, which are driving market demand.

Also, the semiconductor industry, which is part of the broader technology sector, is poised to grow further as the Fed goes for more rate cuts. Given the promising future, investing in semiconductor stocks like NVIDIA Corporation NVDA, Taiwan Semiconductor Manufacturing Company Limited TSM and Semtech Corporation SMTC should be a wise decision. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy) or #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Semiconductor Industry Association (SIA) said on Tuesday that global semiconductor sales totaled $166 billion in the third quarter, up 23.3% year over year and 10.7% sequentially.

Month over month, semiconductor sales jumped 4.1% in September, totaling $55.3 billion.

SIA President and CEO John Neuffer said, “The global semiconductor market continued to grow during the third quarter of 2024, with quarter-to-quarter sales increasing at the largest rate since 2016,” adding, “Sales in September reached the market’s highest-ever monthly total, driven by a 46.3% year-to-year increase in the Americas.”

The ongoing enthusiasm surrounding AI, especially generative AI, is driving demand for semiconductors. The robust performance by tech that has been responsible for this year’s broader market rally is largely fueled by NVIDIA, which has emerged as a market leader in the generative AI space, sparking a wave of interest and progress in this area.

Experts believe AI has significant untapped potential, with much more to be explored. The soaring enthusiasm is expected to drive further demand as more semiconductor manufacturers enter the AI market.

AI-specific chips have become crucial as their applications grow across various industries, from high-performance computing to everyday consumer devices. Also, memory components like NAND flash and DRAM have been witnessing a rebound in demand, meeting more specialized computing needs and supporting AI-heavy tasks.

According to Gartner, global semiconductor revenues are projected to hit $630 billion in 2024, increasing 19% year over year. NAND flash, which is key in AI systems, is expected to see a solid 12% jump in revenues by 2025, driven in part by continued supply shortage and growing demand for AI applications.

The Federal Reserve cut interest rates by 50 basis points in September, the first since March 2020. The current benchmark policy rate is in the range of 4.75-5%, the lowest level since April 2023. Market participants now are expecting the Fed to cut interest rates by 25 basis points today at the end of its November policy meeting. Lower interest rates generally benefit growth assets by reducing the opportunity cost of holding non-yielding assets, such as technology and semiconductor stocks.

NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, NVDA’s focus has evolved from PC graphics to AI-based solutions that now support high-performance computing, gaming and virtual reality platforms.

NVIDIA Corporation’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings improved 0.7% over the past 60 days. NVDA presently has a Zacks Rank #2.

Image Source: Zacks Investment Research

Taiwan Semiconductor Manufacturing Company Limited is the world's largest dedicated integrated circuit foundry. As a foundry, TSM manufactures ICs for its customers based on their proprietary IC designs using its advanced production processes. Taiwan Semiconductor Manufacturing Company Limited’s goal is to establish itself as one of the world's leading semiconductor companies by building upon the strengths that have made it the world's leading IC foundry.

Taiwan Semiconductor Manufacturing Company Limited’s expected earnings growth rate for the current year is 28%. The Zacks Consensus Estimate for current-year earnings has improved 2.8% over the past 60 days. TSM presently carries a Zacks Rank #2.

Image Source: Zacks Investment Research

Semtech Corporation designs, manufactures and markets a wide range of analog and mixed-signal semiconductors for commercial applications. SMTC’s product line comprises Signal Integrity Products, Protection Products, Power and High-Reliability Products, Wireless and Sensing Products, and Systems Innovation Group.

Semtech’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings improved 6.3% over the past 90 days. SMTC presently carries a Zacks Rank #3.

Image Source: Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

NVIDIA Corporation (NVDA) : Free Stock Analysis Report

Semtech Corporation (SMTC) : Free Stock Analysis Report

Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research