Most investors understand the importance of diversifying their portfolios. However, there's no denying that technology stocks regularly outperform most other industries' stocks. That's why it wouldn't be entirely wrong to take on some additional exposure to these names and to the tickers leading the charge, in particular. Semiconductor stocks consistently rank among these leaders.
With that as the backdrop, here's a rundown of three semiconductor stocks that risk-tolerant growth investors may want to consider scooping up sooner rather than later.
1. Axcelis Technologies
If you think high-performance semiconductors are just the result of a clever usage of silicon, think again. Modern-day chipmaking is so much more scientific and complex. Semiconductor companies are now altering the physical properties of materials in order to make computing platforms perform even better.
Enter Axcelis Technologies(NASDAQ: ACLS). It manufactures ion implantation devices used in the process of chipmaking. Specifically, its Purion ion implantation machines are used to make silicon carbide, which is found in most consumer electronics devices, as well as in electric vehicles. Ion-implanted silicon carbide is rapidly becoming standard in several technology-based industries due to its capacity to handle large energy loads and continue operating at high heat levels without requiring a great deal of power.
However, ion implanters aren't cheap. Axcelis Technologies implanters start out at a few million dollars each, and that price tag can quickly grow, depending on the system in question. Chipmakers can't simply purchase this equipment without a well-thought-out return on investment calculation or perhaps without borrowing money to make it happen. That's why the company's revenue growth is slowing in the shadow of the current economic lethargy after its recent swell. Companies are cautious and unsure if such big investments will pay off enough to justify the purchase. This is a big reason Axcelis' top line is expected to shrink nearly 7% this year.
Take a step back and look at the bigger picture, though. Between the mainstreaming of EVs and the advent of energy-intensive artificial intelligence platforms, demand for the equipment that makes these technologies possible is going to continue growing. While this market may only be set to grow at a single-digit pace, William Blair's estimate that Axcelis Technologies controls roughly three-fourths of the silicon carbide ion implanter market means it's poised to capture a large share of this growth.
Axcelis is also exposed to the NAND and DRAM markets as well as the image sensor market, meaning it's also going to benefit from the ongoing technological growth of just about everything. To this end, Axcelis Technologies' top line is expected to begin recovering next year with more than 16% growth.
2. Intel
Semiconductor outfits like Intel(NASDAQ: INTC) already rely on ion implantation systems to make chips, but don't be surprised to see the company's need for this (and other) tech ramp-up in the foreseeable future.
In-the-know investors will likely recall that the past few years have been tough ones for Intel. The company struggled on the R&D front, allowing rivalAdvanced Micro Devices to bring the world's first 7-nanometer processors to the market. Intel's design and fabrication woes haven't ended in the meantime, either. Its foundry arm lost $7 billion in 2023, and there's no relief in sight for 2024.
As was the case with Axcelis Technologies, however, investors may want to look down the road.
Intel isn't getting out of the branded hardware business. However, it is diving all the way into the third-party chipmaking business. That just means it will soon be manufacturing semiconductors designed and marketed by other technology names. To date, it's committed about $30 billion to these plans, which should begin production in 2026. Microsoft has already signed on as a customer, in fact, well before chip production has begun.
It's a big deal simply because the chip foundry business is set to double in size soon, growing from roughly $100 billion per year now to more than $200 billion by 2032. There's seems to be much growth in store for the company.
In the meantime, despite its struggles, Intel remains the market-share leader in the computer processor space. Data from researcher Canalys indicates that the company still controls a hefty 78% of the computer processor market and a similar three-fourths share of the data center (including AI) market, according to numbers from Mercury Research. Tough business or not, there's still a reason Intel is leading these slow-growth markets that aren't apt to shrink anytime soon.
Intel shares are down more than 50% from their 2021 peak thanks to continually renewed worries about its waning competitiveness and the cost of venturing into the chip foundry business. The pullback, however, is ultimately a great entry opportunity into its reinvention story.
3. Broadcom
Last but not least, add Broadcom(NASDAQ: AVGO) to your list of millionaire-maker semiconductor stocks.
At first blush, it looks too similar to Intel to bother owning them both. Like Intel, Broadcom makes chips -- processors, in particular.
The two companies' product lineups don't actually overlap all that much, though. Broadcom's technological specialty is communications tech. You'll find its wares in wireless fidelity hardware, computer network infrastructure, fiber optic connections, and the like. It's proving particularly useful to artificial intelligence data center operators, who are increasingly finding they're handling more digital data than they can effectively deal with. The company also offers software that gets the most functionality and performance out of its hardware.
The core of the bullish argument for owning a stake in Broadcom at this particular point in time, however, is rooted in AI.
It's rarely compared to the industry's titan, Nvidia, and rightfully so. After all, Nvidia is the undisputed king of AI-processing tech. High-performance data crunching done within a data center isn't the only aspect of artificial intelligence, though. Just as practical (if not more so) is the infrastructure that connects these large banks of individual processors.
That's where Broadcom enters the picture. It's been developing a bunch of tech specifically for the back end of the AI evolution. Take, for example, its ethernet switches specifically designed to handle the intense data delivery and energy-consumption needs of AI data centers. Its Trident 5-X12 switch boasts its own on-chip neural network that can identify data traffic patterns that might otherwise go unnoticed and respond to these patterns by routing this data more efficiently. The end result is a 25% reduction in the amount of power needed to handle this duty.
The company, which is already a leader in optical networking, also recently unveiled the industry's first-ever 200G/lane vertical-cavity surface-emitting laser (VCSEL). In simplest terms, this product raises the standard for the high-speed interconnects usually required by large-scale generative AI computing platforms.
So, Broadcom isn't a threat to Nvidia, but it doesn't need to be in order to become a great investment choice. Its tech will largely be used in conjunction with Nvidia's, and both companies are well positioned to capitalize on the annualized growth rate of 26% that Mordor Intelligence foresees for the AI hardware market through 2029. In this vein, analysts expect Broadcom to report 41% revenue growth this year, followed by growth of another 14% next year. However, that's just a taste of what's to come.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
