AI and the CHIPS Act: 3 Semiconductor Stocks to Watch in 2024

Stock Market

Chip stocks, especially those that would benefit from the artificial intelligence (AI) craze, had an amazing rally in 2023. Notably, Nvidia (NASDAQ:NVDA), the chipmaker most critical to designing high-end chips for training large language models (LLMs), saw its share price increase by more than 239% last year. The CHIPS Act, another notable piece of legislation passed by the Biden Administration, will help lower manufacturing costs for chipmakers setting up factories in the United States. Below are three chip stocks benefitting from those broader trends investors should watch in 2024.

Advanced Micro Devices (AMD)

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Advanced Micro Devices (NASDAQ:AMD) is slated to officially enter the AI chip race in 2024. Given the chipmaker’s ability to make great products and undercut rivals, I stress investors do not count this stock out in terms of having a great impact on AI. Last year, the chipmaker announced how it would tackle the AI market. In particular, in its second-quarter earnings report, the chipmaker finally announced the MI300x GPU chipset, which will compete directly with Nvidia’s A100 and H100 chips used to train LLMs. The chipmaker announced it expects to sell $2 billion in AI chips this year.

AMD’s shares more than doubled last year due to the hype around its upcoming MI300 chipset and the improving macro environment. Although AMD’s valuation certainly appears stretched, its future inroads into AI chip-making could drive shares even higher. The company definitely deserves to be on many traders and analysts’ watchlists.

Taiwan Semiconductor Manufacturing (TSM)

Taiwan Semiconductor Manufacturing (NYSE:TSM) is the world’s largest contract chipmaker and has to be a part of the portfolio of any investor betting on the next chip revolution. The contract chip manufacturing produces chips for clients such as Apple (NASDAQ:AAPL), Qualcomm (NASDAQ:QCOM) and Nvidia. TSM specializes in advanced manufacturing processes, such as 5-nanometer and 3-nanometer technologies, which enable smaller, faster and more power-efficient chips. Due to its competencies in chip manufacturing, the company also plays a key role as a supplier of AI chips for ChatGPT.

Last year, I noted how a recent earnings report showed TSM not only boosted revenue guidance but also predicted the chip slump is coming to an end. That fact and TSM still being courted to build manufacturing facilities in the United States will keep the stock on many watchlists in 2024. Not to mention, its shares trade at an attractive multiple of 16 times forward earnings, well below many of its semiconductor counterparts.

Intel (INTC)

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Although it may seem odd to include Intel (NASDAQ:INTC) on the same list as AMD, I believe there’s good reason for it. Although Intel’s stock had a rough go of it in 2023, the company’s stock price ended the year nearly double its value at the start. Intel also remains dominant in the PC space. According to Mercury Research, as of the second of 2023, the company commanded 68.4% of the x86 CPU market share, while AMD had 31.6%. Intel’s share grew about three percentage points, while AMD’s actually declined by about the same. INTC is pressing on in advancing its chip manufacturing process and expects to maintain its leadership by launching the 7nm Meteor Lake processors it announced in September. The company expects to release even more efficient chips, the Arrow Lake and Lunar Lake series, this year.

It’s important to remember that in the past, Intel got bogged down in its relatively expensive manufacturing process, causing it to fall behind TSM in fabrication capacities. However, the CHIPS Act, with its focus on U.S. manufacturing, could help Intel regain its crown as America’s undisputed top CPU manufacturer. Investors should take notice here.

On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

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