The semiconductor industry has become very dynamic and is rapidly growing. NVIDIA is the undisputed king of artificial intelligence (AI) chips in the current global technology landscape. The American chipmaker’s rise and induction to the US$2 trillion club was spectacular.
Many growth investors lament missing out on the wild ride and outsized gains. NVIDIA made history on February 23, 2024, when it became the third U.S. company, after Apple and Microsoft, to join the exclusive club. Its market cap rose by nearly US$50 billion on that day.
NVIDIA’s market cap stands at US$2.13 trillion as of this writing. However, if you invest today, the current share price of US$853.54 is more than double compared to $421.90 on October 18, 2023. If the price is too steep, the best chip stock you can buy and hold today is Celestica (TSX:CLS).
Comparable returns
Celestica is not strictly a semiconductor company but delivers comprehensive vertical solutions for the top semiconductor Wafer Fabrication Equipment (WFE) manufacturers. The $7.6 billion Toronto-based firm is one of the industry’s largest end-to-end capital equipment manufacturers.
This TSX mid-cap stock continues to outperform in 2024, and its performance, thus far, is comparable to NVIDIA. Besides the relatively cheaper share price ($63.84), the year-to-date gain is 64.49% compared to the American stock’s +72.36%. Moreover, Celestica’s overall return in three years is 492% versus NVIDIA’s +494%.
If you invested $10,000 in Celestica on April 9, 2021 ($10.79 per share), your money would be worth $59,165.89 today.
Solid revenue and profit growth
NVIDIA and Celestica benefit from the AI boom. For the Canadian company, advancements in AI, 5G, and the Internet of Things drive income and new investments in capital equipment systems. The competitive advantages include engineering expertise, an established supply chain, specialized vertical capabilities, and the ability to scale.
Management said Celestica finished strong in 2023, as evidenced by the solid performances of its two core business segments, Connectivity & Cloud Solutions (CCS) and Advanced Technology Solutions (ATS). According to Celestica’s president and chief executive officer, Rob Mionis, the team delivered one of the best years in the company’s 30-year history.
In 2023, revenue increased 10% to US$7.96 billion versus 2022, while net income rose 68% year over year to US$244.6 million. The CCS segment generated US$4.6 billion in revenue, representing 57.78 of total revenue. Mionis said there is a long-term opportunity for ATS businesses, and expansion is underway.
Note that Celestica’s net income has been consistently growing since 2020. It grew 71% and 40% in 2021 and 2022, respectively. An encouraging development is Celestica’s growing manufacturing and engineering footprint. The company is now among the top-of-mid choice of the world’s leading hyperscalers across core data center technologies.
Future ready
Mionis believes that Celestica has built a business poised for long-term success. “We ended 2023 in a position of strength, and as we chart the course for 2024, we will focus on staying “future ready,” he said.
By being “future ready,” Celestica will stay ahead of the curve, anticipate market shifts, and capitalize on emerging trends. NVIDIA was highly successful because of the same strategy.
