The stock market giants Nvidia And Broadcom Nvidia shares have pulled back slightly from their all-time highs, but their market capitalization is still up this year thanks to investor enthusiasm for artificial intelligence (AI). Nvidia completed its last stock split in June, while Broadcom is set to split its shares 10-for-1 on July 15.
These two are helping to drive the tech industry to new heights, but they’re not alone. Intel (NASDAQ: INTC), Micron Technology (NASDAQ: MU), and About Semiconductors (NASDAQ:ON) could be an even better growth stock to buy now. Here’s why.
Combining growth and value
Daniel Foelber (Intel): It’s no secret that Intel stock has had a disastrous year. While most of its semiconductor peers have enjoyed the party, Intel is down 38% year-to-date. That makes it the worst-performing component in the Dow Jones Industrial Average — even worse than Boeing with all its misfortunes.
However, Intel is undergoing a major transformation, both as a company and as a stock. In the past, Intel shares offered high yields and the company focused on slow and steady growth. But in the spring of 2023, it cut its dividend by two-thirds and now yields just 1.6%.
Management’s plan is to reallocate funds that would have been used to pay dividends to long-term growth projects, namely building factories across the United States and investing in artificial intelligence (AI) products.
If the strategy works, investors could be much better off than if they had stuck with its previous formula, which produced high dividends but a stagnant stock price. However, whenever a company embarks on this kind of strategic shift, it often tests investors’ patience. Intel deserves to be in “prove its worth” mode, so it wouldn’t be surprising if the stock continues to underperform its peers (at least in the short term).
The stock has an attractive valuation to its credit. Analysts are calling for earnings per share of $1.02 in 2024 and $1.81 in 2025. That gives Intel a very cheap price-to-earnings (PE) ratio of 17.3 based on 2025 estimates. Granted, a lot could go wrong between now and then. However, the optimistic forecasts suggest that investors may not have to wait too long for Intel’s earnings to soar.
New facilities to promote energy growth
Scott Levine (Micron Technology): When you stand by the water cooler to discuss AI stocks, chances are you’ll hear the same group of names mentioned over and over again — and Micron Technology probably won’t be one of them.
That doesn’t mean it’s not worth serious consideration for those looking for compelling AI investments, though. The company is at the forefront of developing memory and storage solutions that are suitable for a variety of applications, including data centers and mobile devices.
Continuing its growth, Micron is developing two new manufacturing facilities in Idaho and New York, supported by up to $6.1 billion in federal grants funded through the CHIPS and Science Act. Micron expects the Idaho facility to begin operations in fiscal year 2027 (Micron’s fiscal years begin in September), with production at the New York site beginning as early as 2028.
This positions the company well for the coming years as its high-bandwidth memory products are already sold out for calendar years 2024 and 2025. While Micron provides a variety of memory and storage solutions, its high-bandwidth memory products are particularly notable as Nvidia is a key customer – it relies on Micron’s high-capacity memory solution, the HBM3E, in its H200 Tensor Core graphics processing card.
Like many semiconductor makers, Micron has seen impressive growth of late. While it reported $1.3 billion in operating cash flow for the first three quarters of fiscal 2023, it generated $5.1 billion for the same period in fiscal 2024. As a leader in memory and storage solutions and a key supplier to Nvidia, Micron should be a bright spot on the radar of investors looking for interesting semiconductor stocks.
Long-term growth, short-term challenges
Lee Samaha (Semiconductor ON): ON Semicionductor’s end markets are having a tough year, which is why its stock price is down more than 11% in 2024 as I write this.
Management has deliberately chosen to focus on the automotive and industrial end markets, exposing itself to the cyclical risk of simultaneous weakness in both markets. That’s pretty much what’s happening this year. On the earnings call in April, CEO Hassane El-Khoury said he remains “cautious about the outlook for the second half, but we expect customer inventory levels to normalize and the market to stabilize.”
Mr. El-Khoury’s caution is not surprising. Relatively high interest rates have slowed growth in electric vehicle sales and are prompting automakers to limit their investments. At the same time, industrial automation companies are finding that their customers are taking longer than expected to clear inventory and place new orders.
According to Wall Street consensus forecasts, ON Semiconductor’s sales will decline by 12.5% in 2024. However, despite this short-term gloom, its end markets are very likely to grow in the long term. Electric vehicles are the future of the automotive industry, and industrial automation is the future of manufacturing – at least, that’s the case if you want to relocate production to low-labor-cost countries and take full advantage of digital technology in manufacturing.
ON Semiconductor is trading at a great valuation today. It’s rare to get a chance to buy a growth stock trading for less than 20 times estimated free cash flow, and I think that makes this hardware maker an attractive buy for enterprising investors.
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Daniel Foelber has the following options: long December 2026 $30 calls on Intel. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in Nvidia and recommends Nvidia. The Motley Fool recommends Broadcom, Intel, and ON Semiconductor and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a position in Nvidia and recommends Nvidia. disclosure policy.
Instead of Buying Dipping Stocks Like Nvidia and Broadcom, Consider These 3 Semiconductor Stocks was originally published by The Motley Fool