Developing semiconductors is one of the most complex and expensive forms of technology. With the speed at which computing power is growing, building a chip from scratch will take years and billions of dollars. China has been looking to generate its own chips but failed to beat the United States in advanced chips. Such entry barriers make Artificial Intelligence (AI) semiconductor stocks a worthy investment.
However, note that semiconductor stocks are cyclical. Technology has a short product lifecycle. Whenever a new tech trend comes, you see an upgrade cycle. As soon as the industry finishes upgrading, chip stocks enter a down cycle. Semiconductor stocks surged in 2021 as the work-from-home mania, electric vehicle demand, crypto bubble, and generative AI frenzy drove demand for chips.
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Three top AI semiconductor stocks for August
The Nasdaq saw a correction in early August as a few tech giants released tepid earnings, and U.S. job data fueled fears of recession. None of these events have anything to do with the AI revolution shaping the future of technology. However, the bear market has created an opportunity to buy AI semiconductor stocks, which can give assured returns.
Nvidia stock
Nvidia (TSX:NVDA) stock has slipped more than 20% since mid-June amid market weakness. It is also seeing some delays in its AI chip Blackwell due to design flaws. However, these delays are unlikely to impact Nvidia’s competitiveness as there is still significant demand for its existing AI semiconductor chips. Moreover, Nvidia is more than just a chip designer. It offers a full stack of AI hardware/software solutions with different libraries that serve as the foundation models for deploying artificial intelligence.
Nvidia has built these libraries over the years, working with different verticals to understand their workings and integrate artificial intelligence into their systems. It has worked with automakers, healthcare providers, product and building architects, and movie makers to develop software stacks compatible with its AI chips. This AI infrastructure is what makes Nvidia sticky and a market leader.
So far, generative AI has only unleashed the data centre potential. Upcoming technologies of robotics, omniverse, and autonomous cars will create new growth cycles, and Nvidia will be a key beneficiary. It is a stock to buy on the dip and hold even if its valuation seems high because the growth is exponential.
Broadcom and AI
Broadcom (NASDAQ: AVGO) is picking up on the AI trend. It learned that semiconductors alone are not enough. Today’s technology needs a full stack of hardware and software solutions to give businesses a headstart in AI applications. Thus, it acquired cloud solutions provider VMWare to build on its cloud capabilities and make its networking and storage chips more relevant.
Broadcom is working on a custom AI ASIC (application-specific integrated circuit) with Meta Platform and Alphabet’s Google. It expects artificial intelligence chips to represent a US$150 billion opportunity. The company is playing on its strengths and upgrading its technology with time. It is seeing an increasing demand for its networking switches as companies upgrade to AI. Broadcom stock could help you ride the AI cycles from time to time.
AMD stock
Advanced Micro Devices (NASDAQ: AMD) is another semiconductor stock you can bank on to ride the AI wave. It has a comprehensive portfolio of central processing units (CPUs) for pre-AI computing, graphics processing units (GPUs) for parallel computing power, and fixed programmable gate arrays (FPGAs) for accelerators.
AMD has compiled all its chip capabilities to build an end-to-end AI infrastructure. Like Nvidia, AMD has been investing in building software capabilities and libraries to make the adoption of its chips in various applications easier. While Nvidia is still a leader, AMD’s AI solutions are also in demand as they are cost-effective and give companies a good alternative.
