The artificial intelligence (AI) boom that began with Chat GPT in November 2022 has sent ripples across the tech space. Every technology-related product and service company is experimenting with AI to avoid being left behind. The scenario replicates the 1899 gold rush, where people flocked to find gold. While only a few found gold, those who sold shovels to dig gold became rich. This logic could be applied to the AI rush. In the AI rush, three semiconductor stocks are selling the right tools to anyone who wants to harness the power of AI.
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Three AI semiconductor stocks to buy now
AI gives computers the power to think like humans by training from the data, inferencing real-time and adding more data. All this requires high-performance computing chips, and there is not much competition here due to the high cost and years of research that goes into chip making.
Nvidia stock
Nvidia’s (NASDAQ: NVDA) graphics processing units (GPUs) are unbeatable when handling AI workloads. GPU is the next era of high-performing computing progress. Nvidia’s data centre GPUs saw a surge in demand after the generative AI frenzy began. The company has been working on AI for more than a decade. It is ahead in the race, testing AI applications across various industries.
Nvidia is working with hospitals to diagnose diseases, automakers for self-driving cars, and edge devices (devices that offer entry points into core networks) to provide AI at the edge. For AI to work at the edge, it needs strong connectivity with the cloud. Hence, Nvidia also perfected its networking solutions. Its GPUs are also used in blockchain technologies and supercomputers. While AI has pushed Nvidia’s stock to sky-high valuations, the company has many more shovels to sell in the AI rush.
After the data centre, there is network equipment and self-driving car opportunities. Beyond that, there is an omniverse opportunity for virtual designing and planning of factories, buildings, and products. There could be a slowdown or even a decline in Nvidia’s revenue in the near term as the first batch of AI enthusiasts use its GPUs. But many more batches of AI enthusiasts will come as the world explores the potential of AI in everything. And Nvidia will work towards providing upgraded GPUs (shovels) that match the needs of these enthusiasts.
AMD stock
Advanced Micro Devices (NASDAQ: AMD) is a worthy contender of Nvidia in the end-to-end AI infrastructure. It has developed AI chips for the data centre, cloud, enterprises, PCs, and edge devices. The company is seeing an uptick in the data centre space. While it was slow to pick up on the AI revolution, it has started gaining momentum. And if Nvidia’s high valuation makes you apprehensive, AMD’s valuation, although high, is lower than that of Nvidia.
One thing that sets AMD apart is its extensive portfolio of GPUs, central processing units (CPUs) and Field Programmable Gate Arrays. Each of these chips has a different role in AI and gives AMD room to offer various chip solutions.
TSMC
While Nvidia and AMD are popularly called chip makers, they only design the chips and outsource the manufacturing to Taiwan Semiconductor Manufacturing Company (NYSE: TSM). TSMC has one of the most advanced fabrication facilities and makes advanced chips not only for AMD and Nvidia but also Apple, Qualcomm, and other companies. A surge in demand for chips bodes well for TSM. And with the AI future, the demand will only grow as semiconductor components are increasing in almost all electronic devices. TSMC strives to stay ahead in the manufacturing technology curve, as even one fallback could cause it to lose all its customers.
Investing tip
All three tech stocks have dipped 20-25% in the last month as the Nasdaq saw a correction over fears of a recession. Now is an opportune time to buy the dip and hold them for the long term. The data centre is just the beginning of AI. Think of it like the internet in the 2000s. Once it is available on edge devices, the opportunity will multiply. The above three semiconductor stocks will be at the forefront of this opportunity.
