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3 Semiconductor Companies With Great Value Potential

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The semiconductor companies may be just getting started as AI looks to take the boom factor to the next level. This is following the latest blowout quarter delivered by Nvidia (NASDAQ:NVDA). To say Nvidia surpassed expectations in its latest quarter would be a vast understatement. The firm stock managed to defy its doubters, bears, and bubble callers. It soared in the face of high estimates and harsh criticism.

Nvidia stock wandered into 2024 as an “expensive” stock. Furthermore, after surging more than 40% (and counting), it suddenly looks like a great value play.

That’s largely thanks to explosive demand for Nvidia chips, which continue selling like hotcakes. Personally, I think Nvidia CEO Jensen Huang will ultimately be proven right (again). I believe this because the AI boom looks like it is about to heat up to boiling levels. Indeed, if AI is still in its earlier stages (that may be hard for many to believe given recent gains in the semiconductor space), I expect the shares of top semiconductor companies could prove cheap as analysts look to revisit the drawing board with a new, greater set of expectations for AI.

Nvidia (NVDA)

Nvidia logo seen on smartphone which is placed on pile of US dollar bills. Concept. Selective focus. Stocks to buy like Nvidia

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Nvidia (NASDAQ:NVDA) saw another unbelievable quarter where it more than tripled Q4 revenues. NVDA stock looks like it could have its sights set on the $1,000 per-share mark. Analysts covering the stock will find themselves rushing to upgrade the stock’s price target once again. The company continues to show the crowd just how much they discounted the power of the AI’s early boom. The boom may not be over as the chip giant looks to keep meeting hot demand for the world’s best AI-capable GPUs.

Eventually, the GPU cycle will reverse course. However, with so many firms that need to ramp up their AI infrastructure, it’s hard to imagine the appetite for GPUs as being satiated. We’ve reached a point where firms big and small must ask themselves if they want to risk being left at a huge disadvantage relative to rivals who choose to stretch their balance sheets by stockpiling more than enough GPUs to power their next-generation AI models.

Arguably, business owners should buy more GPUs than they need. It is the safest bet for firms seeking to future-proof their AI tools and services.

Arm Holdings (ARM)

ARM company logo or ARM Holding plc logo on smartphone hardware. is a British semiconductor and software design company owned by SoftBank group

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Arm Holdings (NASDAQ:ARM) is another red-hot chip stock blasting off following its latest quarterly reveal. Year to date (a timespan of less than two months), the stock is up just shy of 80%. As Nvidia wins over the applause of investors following its latest post-quarter commentary, expect Arm and the rest of the semiconductor scene to gain renewed enthusiasm of investors. Many of them are itching to get into the semiconductor companies as the AI boom attempts to put its foot on the pedal.

Undoubtedly, more than just a handful of value-conscious analysts have been completely wrong when it came to Arm stock. At writing, shares of ARM trade at 90.1 times forward price-to-earnings (P/E) and 44.2 times price-to-sales (P/S). This makes it one of the priciest stocks out there.

Such sky-high multiples are going to make it challenging for Arm to grow into. That is unless you believe the AI boom is just getting started. As a firm that empowers partners to design their own chips, Arm may very well be the second most exciting stock in the semiconductor industry today.

ASML (ASML)

Closeup of mobile phone screen with ASML logo on computer keyboard

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ASML (NASDAQ:ASML) is a European photolithography machine maker that helps equip the industry’s top chipmakers. It’s one of the most exciting semiconductor companies in the European market after its latest 27% year-to-date spike. With shares slipping modestly off all-time highs, investors may have an opportunity to do some dip-buying. Not everybody is a raging bull on the semiconductor equipment maker, though, with Morgan Stanley recently remarking that ASML stock is runner-up when it comes to Europe’s most “over-owned” stocks.

Just because the stock is overbought does not mean it’s overdue for a plunge or a lengthy breather. Not when the AI boom kicks it up a notch following Nvidia’s latest blowout result. Suppose the AI semiconductor scene is due for another leg higher. In such a scenario, ASML will naturally gravitate higher, as calls for greater chip demand will beget the need for more of ASML’s critical supplies.

At just 42.4 times trailing price-to-earnings, ASML seems like it could be one of the cheaper semiconductor plays for investors uncomfortable betting on some of the industry’s hotter plays (think NVDA and ARM stock).

On the date of publication, Joey Frenette did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joey Frenette is a seasoned investment writer specializing in technology and consumer stocks. Contributing to the Motley Fool Canada, TipRanks, and Barchart, Joey excels in spotting mispriced stocks with long-term growth potential in a fast-paced market.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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