Surge in AI Semiconductor Stocks: Taiwan Semi, ASML, Indie Semi Lead

Published Date::27/09/2024

Taiwan Semiconductor, ASML, and Indie Semiconductor stocks rallied on Thursday, driven by strong demand for AI hardware. Find out what's behind the surge and whether these stocks are worth investing in.

The semiconductor industry has been in the spotlight since last year, with investors enthusiastic about the growing adoption of artificial intelligence (AI). However, after a sharp run-up, many AI stocks have been treading water in recent months, waiting for evidence that the trend still has room to run.

In trading on Thursday, Taiwan Semiconductor Manufacturing (TSM) climbed 1.9%, ASML Holding (ASML) rallied 3.7%, and Indie Semiconductor (INDI) jumped 7.4% as of 12 46 p.m. ET. A check of regulatory filings, financial reports, and changes to analysts' price targets turned up nothing in the way of company-specific news to explain these stock price increases.

It's likely that investors were reacting to the financial results from Micron Technology (MU), another player in the AI revolution. Micron released its fiscal 2024 fourth-quarter report after the closing bell on Wednesday, and investors were impressed. Revenue soared 93% year over year to $7.75 billion, a company record, while adjusted earnings per share (EPS) came in at $1.18, much improved from its loss of $1.07 per share in the prior-year quarter.

Driving these results was surging demand for high-bandwidth memory of the type used in data centers and AI, which boosted Micron's profit margins. The results sailed past Wall Street analysts' consensus expectations for revenue of $7.65 billion and adjusted EPS of $1.11.

Micron's forecast suggested the growth spurt would continue, with management guiding for revenue of $8.7 billion in its fiscal 2025 first quarter, which would equate to growth of 84% year over year. Adjusted EPS is expected to come in at $1.74, an increase of 83%.

Management cited strong AI data center demand in driving sales growth for its DRAM memory and NAND flash-based storage.

The subsequent run-up in other stocks in the chip space suggests that investors view Micron's report as convincing evidence that the demand for AI and the hardware to support it is ongoing. They also clearly view these developments as positive for a broad cross-section of companies in the AI space.

Taiwan Semiconductor Manufacturing is the world's largest third-party chipmaker, and strong demand for the world's most advanced chips is fueling its pipeline and strong growth. ASML Holding is the only company able to build the advanced lithography systems that chipmakers must use to manufacture the highest-end semiconductors, so it's also benefiting from these secular tailwinds.

Indie Semiconductor specializes in the types of processors used in automobiles, powering advanced driver-assistance systems, as well as various connected-car and in-cabin systems. It's also developing customized AI solutions for carmakers.

The evidence suggests that the accelerating adoption of AI will continue to increase the fortunes of companies in the semiconductor space. However, not all AI stocks are created equal. From a valuation perspective, Taiwan Semiconductor and ASML are inexpensive, selling for 22 times and 25 times forward earnings, respectively. Indie Semiconductor, on the other hand, isn't profitable, making it a much riskier investment.

That said, each of these stocks has intriguing potential, particularly given the continuing opportunities in the AI space.

Should you invest in these stocks? It's worth considering the Motley Fool's Stock Advisor service, which provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month.

The Motley Fool is a financial services company that provides investment advice and research to individual investors.The Motley Fool has positions in and recommends ASML and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

FAQS:

Q: What drove the surge in AI semiconductor stocks on Thursday?

A: The surge was likely driven by Micron Technology's strong financial results, which showed surging demand for high-bandwidth memory used in data centers and AI.

Q: Which companies are benefiting from the growing adoption of AI?

A: Companies like Taiwan Semiconductor Manufacturing, ASML Holding, and Indie Semiconductor are benefiting from the growing adoption of AI.

Q: What is the outlook for the semiconductor industry?

A: The outlook is positive, with strong demand for AI hardware expected to continue driving growth in the industry.

Q: Are all AI stocks created equal?

A: No, not all AI stocks are created equal. Some stocks, like Taiwan Semiconductor and ASML, are inexpensive and have strong growth potential, while others, like Indie Semiconductor, are riskier investments.

Q: Should I invest in AI semiconductor stocks?

A: It's worth considering the Motley Fool's Stock Advisor service, which provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month.

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