Growth logic of semiconductor stocks: A guide to the strategic layout of 10 industry leaders

In the process of global economic digitalization, semiconductors play the role of the “new oil.” As the “brain” of electronic devices, they determine the development ceiling across fields such as Industry 4.0, cloud computing, 5G, new energy, and electric vehicles. Without semiconductors, electronic products can only execute simple programs; with semiconductor chips, information can be “stored, transmitted, and applied,” giving electronic devices their “life.”

Since the launch of ChatGPT at the end of 2022, AI applications have exploded, and the demand for semiconductors has surged dramatically. This article will delve into the structure of the semiconductor industry, identify the most promising listed companies, and analyze the current investment timing.

The Three Major Division Systems of the Semiconductor Industry

Originating in the United States and propagated through Japan, South Korea, and Taiwan, the semiconductor industry has evolved into today’s global division of labor pattern. The industry structure has shifted from early vertical integration manufacturing (IDM) to three main branches:

Chip Design (Fabless): Companies like Qualcomm, Broadcom, NVIDIA operate with an asset-light model, bearing market volatility risks but with relatively low operating costs.

Foundry: TSMC, GlobalFoundries, and others require continuous massive investments to maintain process leadership, forming an industry oligopoly.

Semiconductor Equipment and Materials: Applied Materials, ASML, Lam Research provide manufacturing tools, requiring substantial capital and technological accumulation, with high volatility risks.

From an investment perspective, the three sectors—‘Chip Design,’ ‘Foundry,’ and ‘Semiconductor Equipment’—are characterized by ‘long-term growth with substantial accumulation,’ making them more likely to capture long-term growth opportunities.

Industry Map of Semiconductor Stocks: 13 Mainstream Companies Benchmarking

Based on current market capitalization and segment positioning, here is an overview of listed semiconductor companies (data as of April 26, 2024):

Detailed Analysis of the 10 Most Promising Semiconductor Stocks in 2024

From the above companies, these 10 firms stand out due to their segment leadership, core competitive advantages, and recent stock performance, warranting focused attention.

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

Company Overview: Founded in 1930, the world’s largest manufacturer of analog semiconductors. Major clients span industrial, automotive, communications, and consumer electronics.

TI’s moat stems from the unique nature of analog chips—low substitutability and difficulty to replicate. Decades of R&D and product accumulation have established an unshakable market position. Coupled with global wafer fab deployment and scale-driven cost control, its advantages will continue to strengthen.

Stock Performance: Up 5% this year, PE at 27, slightly high valuation, but growth expectations driven by AI provide support.

2. NVIDIA: Absolute Dominator of AI Chips

Company Overview: Founded in 1993, started with graphics cards, now a leader in AI chips. Main revenue from data centers and gaming.

The explosive popularity of ChatGPT has triggered a global AI application wave, with GPU demand soaring. TrendForce forecasts that generative AI will require 30,000 GPUs annually, with NVIDIA holding a market share far exceeding competitors.

Despite the overall semiconductor downturn last year, NVIDIA grew against the trend. This year, stock price surged 77%, but investors should be cautious of valuation risks.

Stock Performance: Up 77% annually, continuously hitting new highs, worth monitoring for risks.

3. Broadcom (AVGO): The Hub of Communication Chips

Company Overview: Founded in 1991, mainly engaged in data center networking, storage, enterprise applications, smartphone components, and telecom solutions.

Broadcom has become a leader in multiple segments through high-performance solutions and strategic acquisitions. Its profitability continues to improve, and investments in AI and emerging applications provide future growth momentum.

Stock Performance: Up 21% annually, current price at $1,344 (as of April 26), expected to benefit from AI investments and IoT expansion.

4. Qualcomm (QCOM): The King of 5G Baseband Chips

Company Overview: Founded in 1985, a leader in wireless technology innovation. Main businesses include mobile terminal chips (QCT), patent licensing (QTL), and IoT solutions.

Qualcomm holds 53% of the 5G baseband market, with deep cooperation with major global phone manufacturers and operators. The target market is projected to grow from current $100 billion to $700 billion by 2030, also benefiting from AR/VR, vehicle networking, and industrial IoT.

Stock Performance: Steady growth driven by 5G and IoT demand.

5. AMD: Challenger in the Processor Market

Company Overview: Founded in 1969, mainly earning from gaming division. Has deep collaborations with Microsoft, Apple, and other tech giants.

AMD leverages advanced process innovations like 7nm to nibble away at Intel’s market share. This year, stock rose 7%, current price at $157 (April 26). Future expansion based on more advanced processes will continue to grow global market share.

Stock Performance: Up 7% annually, with growth rate surpassing earnings, indicating potential.

6. ASML: The Sole Player in Lithography Machines

Company Overview: Founded in 1984, a global leader in lithography equipment R&D and manufacturing. Holds an absolute monopoly in EUV lithography machines, supplying core equipment to TSMC, Samsung, Intel, etc.

ASML’s monopoly status is unshakable—only ASML can supply EUV lithography machines. As long as industry demand persists, only ASML can do this business. Strengthening cooperation with global clients will make new highs in stock price just a matter of time.

Stock Performance: Up 22% annually, despite some revenue forecast adjustments, its monopoly guarantees long-term steady growth.

7. Applied Materials (AMAT): The Double Oligopoly in Semiconductor Equipment

Company Overview: Founded in 1967, the largest global supplier of semiconductor manufacturing equipment, also serving flat panel display and solar PV industries.

Known for high quality, efficiency, and cost-effectiveness, Applied Materials benefits from diversified product offerings that reduce customer investment costs. Up 26% this year, current price at $203 (April 26), PE at 23.93, with room for further growth. Will continue to benefit from expanding demand in 5G, IoT, and AI.

Stock Performance: Up 26% annually, with broad application fields providing ample growth drivers.

8. Intel (INTC): Investment Opportunity in Transition Period

Company Overview: Founded in 1968, a long-time leader in PC processors. Despite intensifying competition, maintains absolute advantages in desktop and mobile markets.

Intel’s stock fell 36% this year, current price at $31.88 (April 26), PE at 32.87. The main reason is the lack of customer support for its foundry business, with self-production dragging profits, and high costs in competition with TSMC with no clear results yet.

However, the decline itself is an opportunity—if the transition succeeds, growth prospects are promising. With developments in smart cars and a recovery in the PC market, 2024 could be a turning point.

Stock Performance: Down 36% annually, PE at a historic low, with rebound potential.

9. Lam Research (LRCX): The Exclusive Business of Etching Equipment

Company Overview: Founded in 1980, a leader in etching equipment. Main revenue from manufacturing equipment sales.

Advanced process nodes used in AI chips require larger-scale deposition, etching, and cleaning, directly boosting Lam Research’s equipment demand. Up 18.4% this year, current price at $925 (April 26), PE at 34. Despite high valuation, growth driven by demand for advanced processes supports stock price.

Stock Performance: Up 18.4% annually, investors are advised to buy on dips during market corrections.

10. Micron Technology (MU): The Rebounder in Storage Chips Market

Company Overview: Founded in 1984, mainly engaged in computing and networking products. Holds 22.52% of the DRAM market (third place) and 11.6% of NAND flash memory (fourth place).

Micron’s stock surged 34.7% this year as market demand gradually recovers, reigniting growth momentum. Despite last year’s impact causing declines in stock and profits, the market rebound trend is clear, with further growth potential.

Stock Performance: Up 34.7% annually, driven by storage demand recovery.

Seizing Investment Opportunities in the Semiconductor Cycle

The semiconductor industry is highly cyclical, with end-market demand (computers, communications, automotive electronics, consumer electronics) fluctuations directly affecting upstream industries. Since 1990, the global semiconductor industry has experienced 8 major cycles, currently entering the 9th.

Historical data shows each cycle lasts about 4-5 years. The last cycle started in late 2019, cooled in 2020, peaked in October 2021. Based on this pattern, the bottom of this cycle is expected in Q3-Q4 of this year. Capital tends to react about half a year in advance, making the current an optimal window to gradually build positions in semiconductor stocks.

Upstream raw materials have shown signs of bottoming due to base effects and recovery expectations. Although consumer electronics markets remain weak, demand in emerging fields like 5G and AI continues to grow.

Core Factors Driving Semiconductor Stock Prices

Downstream Demand Changes: Upgrades in end applications (from PCs, phones to IoT, 5G, AI, automotive electronics) continually create new markets. Forecasts for 2023 include 1.48 billion 5G devices shipped (up 31.7% YoY), IoT device growth at 38.5%, automotive electronics at 35.1%.

Inventory Fluctuations: High inventory levels reflect weak demand or oversupply, exerting negative pressure on stock prices; low inventories indicate strong demand or supply tightness, supporting prices. Global semiconductor inventory levels are key indicators of market outlook.

Technological Innovation Breakthroughs: New processes and applications (such as diversified AI chips, EUV lithography yield improvements) bring new competitive advantages and profit margins, significantly boosting related companies’ stock prices.

In early demand recovery, focus on equipment manufacturers ASML, Applied Materials, and chip designers NVIDIA, AMD, Broadcom, and Texas Instruments.

Risks in Investing in Semiconductor Stocks

Macroeconomic Uncertainty: Factors like interest rate hikes and banking risks affect financing costs and consumer demand for semiconductor companies. Continuous monitoring of Fed policies is necessary.

Technological Competition and Process Breakthroughs: The industry relies on ongoing innovation and R&D. Breakthroughs or falling behind in processes directly impact market share and stock performance.

Weakening End Demand: Uncertainty remains in the recovery of consumer electronics markets; the timing of data center and cloud computing demand revival is hard to predict; whether AI-driven computing power growth can be sustained needs verification.

When investing in semiconductor stocks, it is essential to consider industry cycles, company fundamentals, and macro environment simultaneously to seize long-term opportunities while managing short-term risks.