3 Under-the-Radar Chip Stocks Worth Buying in 2024
As the engine of artificial intelligence (AI) models and applications, stocks of microchip and semiconductor companies remain red hot. The iShares Semiconductor ETF (NASDAQ:SOXX) has risen 45% in the last 12 months, including a 6% increase this year.
Many of the better known chip stocks, such as Advanced Micro Devices (NASDAQ:AMD), have seen their share price more than double over the past year. And the gains look likely to continue as global demand for the microchips needed to power AI continues to swell and earnings move steadily upwards. According to Allied Market Research, the global AI chip market was valued at $14.9 billion in 2022, and is projected to reach $383.7 billion by 2032, growing at a compound annual growth rate (CAGR) of 38.2%.
That’s strong growth and it should continue to underpin the rise of chip stocks over the near term. Here are three under-the-radar chip stocks worth buying in 2024.
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ASML (ASML)
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ASML (NASDAQ:ASML) is a European company that doesn’t get the attention it deserves considering that it is one of the most important semiconductor-equipment makers in the world. Its stock has largely trailed the gains seen in other chipmakers, having risen only 33% in the last 12 months.
However, that underperformance now looks to be changing with ASML stock having gained 22% so far in 2024. A strong earnings print delivered recently and growing demand for its AI microchips is fueling the stock’s rally.
Due to surging demand for its microchips that power AI models, ASML posted fourth quarter results that crushed analyst expectations, including revenue of €7.2 billion ($7.82 billion U.S.) versus €6.90 billion that was expected. The company’s Q4 profit totaled €2.05 billion vs €1.86 billion that was expected. ASML’s revenue for all of last year rose 30% from 2022. ASML has an advantage in that it makes a machine called an “extreme ultraviolet lithography” that is required to make the world’s most advanced chips.
Applied Materials (AMAT)
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While better known than ASML, Applied Materials (NASDAQ:AMAT) still flies under the radar compared to other microchip and semiconductor companies. Applied Materials, which supplies the materials and equipment needed to make microchips and semiconductors, has seen its stock rise 47% in the last 12 months. While that’s a strong return, it pales in comparison to the double and triple share price returns seen in other chip stocks over the same time period.
Demand for Applied Materials’s products has never been stronger and that has helped the company’s earnings. In November of last year, Applied Materials reported earnings per share (EPS) of $2.12, which was well ahead of the $1.99 expected on Wall Street. Revenue came in at $6.70 billion, which was also above analysts’ expectations of $6.50 billion. The company is next due to report earnings on Feb. 15 and has forecast revenue with a midpoint of $6.50 billion.
Texas Instruments (TXN)
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For a beaten down chip stock that looks undervalued, consider Texas Instruments (NASDAQ:TXN). The legacy chipmaker’s share price is down 10% over the last 12 months, including a 5% pullback year to date. Trading at 22 times future earnings estimates, TXN stock looks cheap compared to most other microchip and semiconductor securities. Texas Instruments also pays a dividend of $1.30 per share, giving the stock a yield of 3.24%. Any dividend from a chip stock is pretty rare.
TXN stock has been knocked lower in recent weeks after it issued forward guidance that missed Wall Street targets. The company cited softness in the automotive and industrial sectors as the reason for the soft guidance. Texas Instruments makes microchips that go into products in nearly every sector of the American economy, from motor vehicles to consumer electronics. In time, the company and its stock should bounce back. Meanwhile, there’s that dividend payment.
On the date of publication, Joel Baglole held a long position in AMAT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
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