Chip cycle bottoming signal emerges: Analysis of the top 10 semiconductor concept stocks to watch in 2024

Chips are hailed as the “neural network” of electronic manufacturing and play the role of “new oil” in the global economic digital transformation. They endow electronic devices with “intelligent life”—without them, electronic products can only perform repetitive tasks; with them, we can achieve information storage, transmission, and application.

As the network ecosystem continues to evolve, the application fields of semiconductors are rapidly expanding—Industry 4.0, cloud computing, 5G, new energy, electric vehicles, plus the AI wave ignited by ChatGPT at the end of 2022, the entire industry is experiencing unprecedented explosive growth. This wave has also driven the strong performance of semiconductor concept stocks.

In-depth Understanding of the Semiconductor Industry Division Model

The semiconductor industry originated in the United States in the last century, transmitted through Japan to Korea, Taiwan, and Mainland China, with industry division of labor continuously becoming more refined. From the initial vertical integration manufacturing (IDM) to today’s specialized division—chip design (Fabless), foundry (Foundry), packaging and testing (OSAT)—each mode operates independently.

Main division types and characteristics:

IDM Model (Samsung, Texas Instruments TXN, Intel INTC): Requires large scale and high management costs but offers strong controllability.

Chip Design (Qualcomm QCOM, Broadcom AVGO, NVIDIA NVDA): Asset-light operation, low initial investment, but bears market fluctuation risks.

Foundry (TSMC TSM, GlobalFoundries GFS): Requires continuous large-scale investment to maintain process levels, forming an oligopoly pattern.

Equipment and Materials Supply (Applied Materials AMAT, ASML, Lam Research LRCX): Needs substantial capital support and continuous innovation investment.

In the market environment, chip design, foundry, and semiconductor equipment sectors, characterized by “long slope and thick snow,” are most likely to generate investment opportunities.

Current Hot Semiconductor Concept Stocks Overview

Based on market capitalization ranking and subdivision development potential, there are currently 13 hot semiconductor concept stocks worth paying attention to:

(Data as of April 26, 2024)

10 Semiconductor Concept Stocks Worth Focusing on in 2024

From the above popular companies, the top 10 with the greatest investment potential are all leaders in their respective subdivisions, each holding core competitiveness, with impressive recent stock performance.

1. Texas Instruments (TXN): Fortress of Analog Chips

Company Overview: Founded in 1930, the world’s largest analog semiconductor company. Mainly serves industrial, automotive, communications, and consumer electronics sectors.

The nature of analog chips determines TI’s moat—products are difficult to replicate and surpass. Through a rich product portfolio, strong sales network, multiple industry acquisitions, and decades of R&D accumulation, TI has built an insurmountable competitive advantage.

This year’s stock price has risen by 5%, with a current PE of 27. Although valuation is high, driven by the AI wave, growth momentum remains strong. Coupled with scale capacity and cost control advantages, TI’s industry-leading position is unlikely to be shaken in the short term.

2. NVIDIA (NVDA): Winner in the AI Chip Era

Company Overview: Founded in 1993, started with graphics cards, now a global tech giant.

The popularity of ChatGPT ignited the flames of generative AI, with major tech companies racing to deploy. The biggest beneficiary is undoubtedly NVIDIA. According to TrendForce, GPU demand will reach 30,000 units, with NVIDIA holding an absolute advantage.

Despite the overall semiconductor market downturn last year, NVIDIA still grew against the trend. In 2024, as AI enters a new phase, NVIDIA continues to be a must-watch stock for investors. Year-to-date stock price has increased by 77%, but risks of a correction should be watched.

3. Broadcom (AVGO): Monopoly in Communication Chips

Company Overview: Founded in 1991, provides high-performance solutions in data centers, enterprise applications, cybersecurity, smartphones, telecommunications, and industrial automation.

By continuous acquisitions expanding product lines and market share, Broadcom has become an absolute leader in its niche. As of April 26, the stock price reached $1,344, up 21% year-over-year. With improving profitability, the company will leverage its technological and market advantages to maximize value in emerging fields like AI.

4. Qualcomm (QCOM): Leader in 5G Baseband Chips

Company Overview: Founded in 1985, a leading global wireless technology company, main businesses include mobile terminal chips (QCT), patent licensing (QTL), and IoT, automotive, computing fields.

As the largest supplier of 5G baseband chips, Qualcomm holds a 53% market share, with deep cooperation with global phone manufacturers, operators, and base station vendors. Its target market is projected to grow from the current USD 100 billion to USD 700 billion by 2030, continuing to benefit from AR/VR, vehicle networking, industrial IoT, and other emerging applications.

5. AMD: Dark Horse in CPU Market

Company Overview: Founded in 1969, gradually eroded Intel’s market share through deep collaborations with tech giants like Microsoft and Apple.

This year, stock price increased by 7%, currently at $157 (as of April 26). The growth rate has surpassed earnings growth. Future expansion will focus on 7nm and more advanced process products to further increase global market share, with promising growth prospects.

6. ASML: The Sole Source of Lithography Technology

Company Overview: Founded in 1984, specializes in lithography equipment development and manufacturing, with an absolute monopoly in EUV lithography machines, closely collaborating with Samsung, TSMC, Intel, and other core clients.

Annual stock price increased by 22%. Although revenue forecasts slightly lowered, as the only global EUV lithography machine supplier, industry demand ensures only ASML can provide this service. Strengthening global customer and supplier cooperation, stock price hitting new highs is only a matter of time.

7. Applied Materials (AMAT): The Brain of Semiconductor Manufacturing Equipment

Company Overview: Founded in 1967, the world’s largest provider of semiconductor manufacturing equipment and services, also a leader in materials engineering solutions for flat panel displays and solar PV industries.

Applied Materials emphasizes high quality, high efficiency, and cost-effectiveness, offering multi-specification platform systems to improve efficiency and reduce costs. Year-to-date stock price has risen 26%, current price $203 (as of April 26), PE of 23.93, valuation still room to grow.

Future benefits from rapid development in display, photovoltaic industries, and increasing demand in 5G, IoT, and AI fields.

8. Intel (INTC): Potential Rebound in PC Market

Company Overview: Founded in 1968, leading in desktop and mobile markets. Despite fierce competition, maintains an absolute advantage.

This year’s stock price fell 36%, current at $31.88 (April 26), PE of 32.87. The decline mainly due to lack of customers for wafer foundry products, self-production and sales, and huge R&D costs in TSMC competition, with limited results so far. However, this performance may present a buying opportunity.

Once overtaking succeeds, growth prospects are promising. Benefiting from smart car development and PC market recovery in 2024, time will reward investors.

9. Lam Research (LRCX): Precision Tool Supplier for Chip Manufacturing

Company Overview: Founded in 1980, specializes in equipment manufacturing, mainly revenue from etching equipment sales.

Annual stock price increased by 18.4%, current at $925 (April 26), PE of 34. Although valuation is high, the deposition, etching, and cleaning needed for AI chip manufacturing far exceeds traditional chips, leaving room for Lam Research to further grow. Investors are advised to buy on dips during market adjustments.

Recently benefiting from increased demand in storage, 5G, and AI, future performance will continue to benefit from recovery in storage demand.

10. Micron Technology (MU): Leader in Storage Chips

Company Overview: Founded in 1984, dominates in computing and networking sectors, with products including advanced storage technologies like 3D XPoint.

Market share in DRAM is 22.52% (third place), NAND flash memory 11.6% (fourth), NOR flash memory 5.4% (fifth). Year-to-date stock price increased by 34.7%, with market demand gradually recovering, ushering in an aggressive growth period. Despite setbacks last year, market rebound this year has driven further stock price growth.

Semiconductor Industry Cycle Analysis

Semiconductor end applications span various industries, with global demand mainly divided into computers, communications, automotive electronics, consumer electronics, etc. AR/VR will become an important application scenario, and with technological advances, more household appliances will be endowed with smart functions.

As downstream demand evolves with the times, the driving force behind the semiconductor industry also changes. Each technological iteration promotes downstream market updates, and supply-demand imbalances in different periods create the cyclical volatility characteristic of semiconductors.

Since 1990, the global semiconductor industry has experienced 8 major cycles, currently in the 9th cycle. Upstream raw materials show signs of bottoming out driven by base effects and recovery expectations, despite potential continued weakness in the consumer electronics market, demand in emerging fields like 5G and AI will continue to accelerate growth.

Key Timing to Seize Semiconductor Cycle Opportunities

The semiconductor industry cycle generally lasts 4-5 years. The last complete cycle was from December 2015 to June 2019 (3.5 years), and this cycle started in the second half of 2019, with a global chip shortage in the second half of 2020, peaking in October 2021.

Based on this, the bottom of this cycle is expected in Q3-Q4 of this year, with market funds typically reacting about half a year in advance. This indicates that now is the best time to gradually deploy semiconductor concept stocks and prepare for a new upward cycle.

Key Factors Affecting Semiconductor Stock Prices

Downstream terminal demand changes

The driving forces behind semiconductor development have shifted multiple times—from PCs and mobile phones to IoT, 5G, AI, and automotive electronics. In 2023, global 5G terminal shipments will reach 1.48 billion units (up 31.7% YoY), IoT devices up 38.5%, automotive electronics up 35.1%. Dynamic changes in downstream demand will continue to influence semiconductor concept stock prices.

Industry inventory level fluctuations

Global semiconductor inventory reflects supply-demand relations and market expectations. High inventory indicates weak demand or oversupply, exerting negative pressure on stock prices; low inventory suggests strong demand or insufficient supply, supporting prices.

Technological innovation as a competitive advantage

Technological progress brings new markets, new competitive patterns, and new profit spaces. Semiconductor companies with strong innovation capabilities will enjoy market premiums. Currently, AI chips’ diversification, specialization, and EUV lithography capacity upgrades are driving related stocks higher.

In the early stage of demand recovery, focus on semiconductor equipment suppliers ASML, Applied Materials, design companies NVIDIA, AMD, Broadcom, and leading semiconductor stocks like Texas Instruments.

Risks to Avoid When Investing in Semiconductor Concept Stocks

Macroeconomic uncertainties

Global economic instability, continued interest rate hikes, and other factors pose uncertainties to the semiconductor supply chain. Changes in Fed policies, banking system risks, etc., require ongoing monitoring.

Intense technological competition

The semiconductor industry demands continuous technological innovation and R&D investment to maintain leadership in design, manufacturing, and packaging. Breakthroughs or lagging behind can cause significant fluctuations in market share and stock prices.

Downstream demand recovery falling short of expectations

Whether consumer electronics demand will recover in the second half remains uncertain; the pace of data center cloud computing demand recovery, and the sustainability of AI chip demand all need further verification. These uncertainties may exert pressure on related stocks.

Investors should consider their risk tolerance and capital planning, and develop scientific deployment strategies based on a thorough understanding of industry cycles and risk factors.