Will Semiconductor Stocks Continue To Rally in 2024?

🌟🌟🌟Semiconductor stocks staged a huge rally in 2023 with the surge in Artificial Intelligence. 

The Top performing Semiconductor stock is $NVIDIA Corp(NVDA)$ 

which is up a massive 245% year todate.  Nvidia produces the specialised AI chips that are in high demand for AI machine learning.  This leads to huge revenue and phenomenal profits.  Its 3Q23 financial  results surpassed analysts projections for revenue and income.  

Nvidia 's revenue grew a massive 206% year over year in 3Q23.  Net income was USD 9.24 billion or USD 3.71 per share, up from USD 680 million or 27 cents per share year on year.

Nvidia announced the GH200 GPU which has more memory than the current H100 and an additional Arm processor onboard.   The H100 chip alone costs about USD 40,000 and is in high demand.

Wall Street Analysts are bullish on Nvidia with a Buy rating, Target price of USD 650.00, an upside potential of 31%.

$Advanced Micro Devices(AMD)$ 

share price is up a huge 130% year todate.    In December, AMD unveiled the Instinct MI300X accelerator and the Instinct MI300A accelerated processing unit or APU which AMD said works to train and run Large Language Models or LLMs.  According to CEO Lisa Su, MI300X is the highest performing accelerator in the world.  She claimed that MI300X is comparable to Nvidia's H100 chips in training LLMs but performs better on the inference side - 1.4 times better than H100 when working with Meta's Llama 2, a 70 billion parameter LLM.

AMD also had an excellent 3Q23 earnings results with strong revenue and earnings growth driven by demand for its Ryzen 7000 series PC processors and record server processor sales.  3Q23 revenue was USD 5.8 billion, gross margin of 47%, operating income of USD 224 million, net income of USD 299 million and earnings per share of 18 cents.   On a non FAAP basis, gross margin was 51%, operating income was USD 1.3 billion, net income was USD 1.1 billion and Earnings Per Share was 70 cents. 

While Nvidia has the largest market share currently on the AI specialised chips, AMD is offering its customers a cheaper alternative.    AMD has partnered with Microsoft to put MI 300X in its Azure virtual machines.  Meta Platforms also announced that it will deploy MI300 processors in its data centers. 

$Intel(INTC)$  

has done well this year with its share price up 87% year todate.  Intel has been a beneficiary of the US Chips and Science Act enacted in August 9 2022.  The Act includes USD 39 billion in subsidies for chip manufacturing on US soil along with 25% investment tax credits for costs of manufacturing equipment and USD 13 billion for semiconductor research and workforce training with the aim of strengthening US supply chain resilience. 

In March 2023, Intel announced plans to build 2 new leading edge chip factories at its Ocotillo campus in Chandler Arizona. The project price tag of USD 20 billion constitutes the largest private sector investment in Arizona's history. 

Intel reported 3Q23 earnings that beat expectations for profit and sales even though its revenue declined from previous year quarter.   Revenue fell 8% from USD 15.33 billion a year ago.  However Intel expects its revenue to grow again in the next quarter.  Intel is also cutting costs by USD 3 billion this year.  It has now 120,300 employees, down from 131,500 last year. 

$VanEck Vectors Semiconductor ETF(SMH)$ is a great ETF that has done well this year with its share price up 74% year todate.    It includes all the best and strongest Semiconductor stocks all nicely packaged into 1 basket.  The Top 2 holdings Nvidia and TSMC constitute 31% of the ETF.  Total number of holdings is 26.  The expense ratio is 0.35%.  Dividends are paid annually.  The current dividend yield is 0.59%.

$Semiconductor Bull 3X Shares(SOXL)$  

is a great short term tactical play on the semiconductor stocks.   It seeks a return that is 300% of the return of its benchmark index for a single day.  It is currently up 235% year todate.  However it is not advisable to hold SOXL long term as its leveraged nature may cause a distortion in its returns. 

Will Semiconductor stocks continue to rally in 2024?  I believe that they certainly will!  Semiconductors are a critical component in every electronic equipment from EVs, Internet, communications, medical equipment and definitely required for AI machine learning. 

The Semiconductor market size is projected to grow from USD 573.4 billion in 2022 to USD 1.380 Trillion by 2029, with 12.2% CAGR during this period. 

I believe that it is important to include exposure to Semiconductor stocks to capture this phenomenal growth.  My favourite is SMH ETF as it includes all the great semiconductor stocks in just 1 trade to reap the rewards long term. 

As the legendary Charlie Munger loves to say the Big Money is in the Waiting, Not in the Buying and Selling. 

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