3 Semiconductor Stocks Driving the Digital Revolution

The semiconductor industry is at the heart of the digital revolution, enabling advancements in Artificial Intelligence (AI), 5G, and cloud computing. With the industry’s focus on innovation and strategic investments, the firms in this sector are driving technological progress while offering compelling growth opportunities for investors.

Given this positive sentiment, it might be wise to consider adding three fundamentally strong semiconductor stocks: NVIDIA Corporation (NVDA), Broadcom Inc. (AVGO), and Taiwan Semiconductor Manufacturing Company Limited (TSM) to their watchlist.

Companies focusing on AI-related semiconductors have seen tremendous demand, particularly from data centers and tech firms looking to enhance their computational capabilities. The gen AI chip growth is fueled by advancements across several key chip technologies. This sector is expected to grow further as AI adoption becomes more widespread across industries.

Moreover, the KPMG Semiconductor Industry Confidence Index score is 59 for the upcoming year 2025, which indicates a positive outlook. The score is higher than last year due to increased confidence across all factors like research and development (R&D) spending, company revenue growth, and capital expenditures within the sector. AI is the most important revenue driver in the growth of the semiconductor industry, followed by cloud/data centers being the second driver.

The rise of Electric Vehicles (EVs) and renewable energy solutions is also fueling demand for semiconductors. Semiconductor firms that cater to the automotive industry are benefiting from the shift of undergoing a substantial transformation driven by the adoption of EVs and the emergence of Software-Defined Vehicles (SDVs).

As per PwC report, the automotive semiconductor market is anticipated to reach $117 billion, growing at a CAGR of 8.9%.

With these trends, the global semiconductor market is projected to expand to $2.06 trillion by 2032, exhibiting a CAGR of 14.9%. As industries increasingly rely on semiconductors, these companies are set to thrive in the years ahead, offering investors opportunities to capitalize on the booming tech industry.

Considering these favorable market trends, let’s look at the fundamentals of the top three Semiconductor & Wireless Chip stocks, beginning with the third choice.

Stock #3: NVIDIA Corporation (NVDA)

NVDA provides graphics, and computing and networking solutions internationally. It operates through two segments: Graphics and Compute & Networking. The company offers products that are used in gaming, professional visualization, data center, and automotive markets.

On December 5, NVDA announced the opening of its first Vietnam research and development center to bolster AI development. This collaboration with the Vietnamese government will help NVDA to focus its research on the country’s STEM engineers and to engage startups, government agencies, universities, and students to accelerate the adoption of AI. It will also allow NVDA to expand its global footprint in Southeast Asia.

On November 18, NVDA announced the Omniverse Blueprint, enabling real-time physics digital twins for industries like aerospace and automotive, integrating AI and advanced simulation tools. This blueprint accelerates workflows, offering up to 1,200x faster simulations and transforming industrial digitalization with leading software partners.

During the third quarter that ended on October 27, NVDA’s revenue increased 93.6% year-over-year, amounting to $26.16 billion. It posted a non-GAAP operating income of $23.28 billion, indicating a 101.4% increase from the prior-year quarter.

In addition, NVDA’s non-GAAP net income stood at $20.01 billion, up 99.7% year-over-year, while its non-GAAP earnings per share grew 102.5% from the year-ago value to $0.81. Also, its free cash flow rose 138.4% from the year-ago value to $16.79 billion.

According to the company’s outlook for the fourth quarter fiscal 2025, NVDA projects revenue of $32.50 billion, plus or minus 2%.

Analysts expect NVDA’s revenue for the fourth quarter (ending January 2025) to increase 72% year-over-year to $38.03 billion, while its EPS for the same period is expected to grow 63.9% from the prior year to $0.85. Moreover, it topped Street revenue and EPS estimates in each of the trailing four quarters, which is excellent.

The stock has gained 166.7% over the past year and 48.5% over the past nine months to close the last trading session at $130.39.

NVDA’s stance is apparent in its POWR Ratings. The stock has an A grade for Sentiment and a B for Quality. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Among the 90 stocks in the Semiconductor & Wireless Chip industry, it is ranked #36. Click here to see the additional NVDA ratings (Growth, Value, Momentum, and Stability).

Stock #2: Broadcom Inc. (AVGO)

AVGO is a global technology company that designs, develops, and supplies a broad range of semiconductors, focusing on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products. The company operates through two segments: Semiconductor Solutions and Infrastructure Software.

On December 10, AVGO introduced Bitnami Premium, a commercial enterprise version of Bitnami by VMware Tanzu, and it also named Arrow Electronics as its global distributor. This new enterprise will help customers accelerate their application delivery with easy access and enhanced security features.

In the same month, AVGO announced the availability of the industry’s first 3.5D eXtreme Dimension System in Package (XDSiP™) platform technology, which enables consumer AI customers to develop next-generation custom accelerators (XPUs). This innovation enables custom compute platforms with breakthrough performance, power efficiency, reduced latency, and cost-effectiveness.

AVGO’s total net revenue for the fourth quarter (ended November 3, 2024) increased 51.2% year-over-year to $14.05 billion. Its non-GAAP operating income is $8.81 billion, indicating a 53.3% growth from the prior year's quarter. AVGO’s net income came in at $4.32 billion and $0.90 per share, up 22.7% and 8.4% year-over-year, respectively. The company’s adjusted EBITDA increased 50.3% from the year-ago value to $9.09 billion. Also, its free cash flow grew 16.1% from the same period last year to $5.48 billion.

Looking ahead, AVGO anticipates revenue for the fiscal first quarter of 2025 to be approximately $14.60 billion and adjusted EBITDA of approximately 66% of projected revenue.

Street expects AVGO’s revenue for the fiscal first quarter (ending January 2025) to increase 22.1% year-over-year to $14.60 billion. Its EPS for the same period is expected to register a 37.2% growth from the prior year, settling at $1.51. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters, which is promising.

AVGO shares have surged 112.6% over the past year and 94.4% over the past nine months to close the last trading session at $240.23.

AVGO’s POWR Ratings reflect this outlook. It has a B grade for Growth, Sentiment, and Quality and is ranked #25 out of 90 stocks in the same industry. To see the other ratings of AVGO for Value, Momentum, and Stability, click here.

Stock #1: Taiwan Semiconductor Manufacturing Company Limited (TSM)

Headquartered in Hsinchu City, Taiwan, TSM globally manufactures, tests, and markets integrated circuits and other semiconductor products. Its products are used in high-performance computing, smartphones, the Internet of Things, automotive, and digital consumer electronics. 

On October 4, TSM and Amkor Technology, Inc. (AMKR) signed a Memorandum of Understanding to enhance Arizona’s advanced packaging and testing capabilities, bolstering the region’s semiconductor ecosystem. In this agreement, AMKR will contract turnkey advanced packaging and test services to TSM. These services should support TSM’s customers, particularly those utilizing Phoenix’s advanced wafer fabrication facilities.

In the fiscal third quarter that ended on September 30, 2024, TSM’s net sales increased 38.9% year-over-year to NT$759.69 billion ($23.66 billion). Its gross profit grew 48.1% from the prior year’s quarter to NT$439.34 billion ($13.69 billion).

Its income from operations came in at NT$360.77 billion ($11.24 billion), up 58.2% year-over-year. In addition, the company’s net income and EPS increased 54.2% year-over-year to NT$325.26 billion ($10.13 billion) and NT$12.54, respectively.

As per TSM’s outlook for its fiscal fourth quarter 2024, it is projecting revenue to be between $26.10 billion and $26.90 billion. Additionally, its gross profit margin is expected to grow between 57%-59%. The company also expects operating profit margin to range between 46.5% and 48.5%.

The consensus revenue estimate of $26.22 billion for the fiscal fourth quarter (ending December 2024) represents a 32.3% increase year-over-year. The consensus EPS estimate of $2.20 for the same quarter indicates a 52.8% improvement year-over-year. The company has an excellent surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

Over the past year, the stock has surged 95.7%, closing the last trading session at $200.66.

TSM’s fundamentals are reflected in its POWR Ratings. The stock has an A grade for Quality and a B for Sentiment. It is ranked #12 in the Semiconductor & Wireless Chip industry.

Beyond what is stated above, we’ve also rated TSM for Growth, Value, Momentum, and Stability. Get all TSM’s ratings here.

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NVDA shares were trading at $131.90 per share on Wednesday afternoon, up $1.51 (+1.16%). Year-to-date, NVDA has gained 166.43%, versus a 26.48% rise in the benchmark S&P 500 index during the same period.

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