Semiconductors Driving the Tech Revolution: Key Trends and Stocks to Watch in 2024

Semiconductors remain at the core of the ongoing technological revolution, with critical roles in AI, HPC, automated driving, IoT, and more. These devices power the cloud, fuel data analytics, and help businesses across industries operate more efficiently. As the demand for advanced semiconductor technologies grows, companies in this space are experiencing strong sales and, consequently, rich valuations.

Booming Demand for Semiconductors in AI and IoT

The semiconductor industry is witnessing extraordinary growth, driven in part by the rise of artificial intelligence (AI) and the proliferation of the Internet of Things (IoT). As the need for high-performance computing (HPC), AI workloads, and advanced chips continues to soar, major industry players are positioned to benefit from these transformative shifts.

The latest data from the World Semiconductor Trade Statistics (WSTS) predicts a 11.2% global sales growth for 2024, building on a 19% increase from the previous year. With AI being a key driver, there is a surge in demand for high-bandwidth memory (HBM) and logic chips for processing AI tasks, creating ample opportunities for leading semiconductor companies.

According to Gartner, the industry expects a 13.8% increase in sales this year, supported by the booming AI sector and recovery in electronics production. However, despite these optimistic projections, certain markets, like automotive and industrial, are still facing challenges.

Geopolitical Influence and Domestic Manufacturing Initiatives

Another major factor influencing the semiconductor landscape is the U.S. government’s onshoring efforts, which aim to reduce reliance on China. Initiatives such as the CHIPS Act are helping to bolster domestic manufacturing of critical semiconductor components, ensuring national security and a more resilient supply chain.

This push to diversify and strengthen supply chains aligns with global shifts toward advanced semiconductor nodes, particularly in Taiwan, South Korea, and the U.S. High-end process nodes (below 20nm) are expected to see a 12% capacity increase, ensuring the availability of cutting-edge chips needed for AI, data processing, and next-gen technologies.

Valuation and Stock Performance: Rich but Resilient

While the semiconductor industry’s long-term prospects remain highly favorable, concerns about overvaluation loom in the short term. The Zacks Semiconductor-General Industry currently trades at a high 36.51X forward P/E ratio, making it more expensive than both the S&P 500 and the broader technology sector, which are trading at 22.11X and 27.22X, respectively.

Nevertheless, stock performance remains robust. The sector has outperformed both the S&P 500 and the broader technology sector, registering a remarkable 118.4% gain in the past year, bolstered by strong demand from AI, cloud computing, and other growth sectors.

Top Semiconductor Stocks to Watch in 2024

With growth prospects in mind, two semiconductor companies stand out in the market:

1. NVIDIA Corp. (NVDA): A leader in graphics processing units (GPUs), NVIDIA has positioned itself as a key player in AI, cloud computing, and autonomous driving. The company’s GPUs are essential for training AI models and powering data centers. In addition, its strong presence in automotive and enterprise sectors adds to its appeal. Despite a substantial rise in stock price (+163.7% in the last year), NVIDIA remains a solid investment, given its dominance in AI and computing.
2. SUMCO Corp. (SSUMF): A key supplier of silicon wafers for semiconductor manufacturers, SUMCO benefits from the increased demand for AI-driven computing and advanced logic chips. Although the stock has underperformed recently, with a 47.5% drop in the past year, analysts are optimistic about its long-term potential due to its strategic focus on R&D and partnerships with major semiconductor foundries like TSMC and Samsung.

AI and IoT Transforming Semiconductor Demand

The AI revolution is undoubtedly a central theme for the semiconductor market. As AI applications continue to expand across industries like automotive, finance, and healthcare, semiconductor demand will surge. This includes the increasing use of AI accelerators, high-performance chips, and specialized memory products. Similarly, IoT applications are seeing strong growth, with demand for chips used in connected devices and industrial IoT (IIoT) forecasted to grow at a 12.1% CAGR from 2023 to 2033.

In the near term, geopolitical tensions, supply chain adjustments, and evolving market demands for automotive electronics and industrial automation will continue to influence the sector’s dynamics. However, the industry remains fundamentally strong, driven by the need for cutting-edge technology solutions in almost every facet of modern life.

The Road Ahead: Semiconductor Stocks and Market Dynamics

While some near-term concerns weigh on the semiconductor industry’s performance, the long-term outlook remains promising. With demand for AI, IoT, and advanced computing solutions showing no signs of slowing down, semiconductor companies are poised to continue benefiting from these trends. For investors, staying attuned to evolving market dynamics, valuations, and growth sectors will be key in identifying the next big opportunities in this vital industry.

As we enter 2024, semiconductor stocks continue to be an integral part of any tech-driven investment strategy, offering significant growth potential amid ongoing technological advancements.