It's been a difficult year for Wall Street and cyclical businesses. A historic shift in Federal Reserve monetary policy has sent interest rates rocketing higher at their fastest pace in decades. As a result, all three major U.S. stock indexes plunged into a bear market, with the probability of a recession in 2023 rising significantly.

Yet in spite of these near-term headwinds, the long-term outlook for the semiconductor industry remains bright. Based on a report from Fortune Business Insights, the global semiconductor industry is expected to more than double in size from $527.9 billion to $1.38 trillion between 2021 and 2029. This means chipmakers have the potential to be fantastic long-term investments.

A person wearing a full-body sterile coverall with gloves who's closely examining a microchip in their hands.

Image source: Getty Images.

However, not all chipmakers are created equally. With the 2022 bear market reducing tech stock valuations, two semiconductor stocks stand out as no-brainer buys in 2023. Meanwhile, one of the most popular semis on the planet looks entirely avoidable in the new year.

Semiconductor stock No. 1 to buy hand over fist in 2023: Intel

The first chipmaker that's a surefire buy in 2023 is industry stalwart and Dow Jones Industrial Average component Intel (INTC 0.88%).

As with most semiconductor companies, inflation and supply chain issues have taken their toll on Intel in 2022. But in addition to these concerns, Intel's share price has been weighed down by chief competitor Advanced Micro Devices (AMD -0.75%) chipping away at its share of central processing units (CPUs) sold in personal computers, mobile devices, and data center servers. While these are all tangible headwinds, none of them are particularly concerning over the long term or at risk of derailing Intel's turnaround strategy.

Let's start by addressing the elephant in the room. Yes, AMD is taking market share from Intel and has been doing so for the past three years. While it would be ideal for Intel not to lose share to AMD, the important thing to note is that the percentage of share lost remains relatively small.

According to data from Mercury Research, AMD controlled 13.9% of the desktop CPU market in the third quarter and 17.5% of data center server share. That means Intel still accounts for greater than 80% in these categories. In other words, these segments will continue to be cash cows for Intel

Another important growth driver for Intel is its foundry segment. Earlier this year, the company broke ground on two chip-manufacturing plants in Ohio that come with an aggregate price tag of $20 billion. What's worth noting is that President Joe Biden signed the CHIPS and Science Act into law in August. This law provides almost $53 billion to the semiconductor industry in subsidies for manufacturing facilities and various research grants. This certainly incentivizes Intel to bolster its domestic production capacity.

Lastly, don't overlook autonomous vehicle company Mobileye Global, which Intel acquired for $15.3 billion in 2017. Mobileye debuted via initial public offering in late October and now carries a $25.5 billion market cap. More importantly, Intel remains the majority shareholder of a company (Mobileye) that grew sales by 38% in a challenging third quarter. 

With its share price cut in half in less than three years, Intel is ripe for the picking by opportunistic investors.

Semiconductor stock No. 2 to buy hand over fist in 2023: Broadcom

The second semiconductor stock investors can confidently buy hand over fist in 2023 is Broadcom (AVGO -2.26%).

The chief concern among Broadcom skeptics appears to be the growing likelihood that a recession will reduce chip demand for Broadcom and perhaps shrink its backlog. Even if this outcome were to materialize, it would be a short-term speed bump for a company with a mountain of catalysts.

The biggest driver for Broadcom is the 5G revolution. For much of the past decade, wireless download speeds weren't meaningfully improved. But with telecom companies steadily upgrading their wireless infrastructure, 5G speeds are now a reality. This means an ongoing device upgrade cycle for consumers and businesses should take place through mid-decade. Broadcom generates most of its revenue from selling wireless chips and accessories used in next-generation smartphones.

Something else to add to the above is that owning a smartphone and having wireless access have evolved into basic necessities. Not even a recession would be likely to cause a significant uptick in wireless service cancellations.

Broadcom's backlog is also a positive. The company entered fiscal 2022 (the company's fiscal year ends in late October) with a record $14.9 billion worth of orders and, according to CEO Hock Tan, was booking orders well into 2023. If the U.S. economy were to slow in the upcoming year, Broadcom would be able to lean on its backlog to ensure anywhere from 12 to 24 months of highly predictable operating cash flow.

Want another reason to be excited about Broadcom? Look to its data center operations. As more businesses shift their data into the cloud in the wake of the COVID-19 pandemic, demand for access and connectivity chips used in data center servers should grow. There's a real chance this ancillary operating segment could outpace wireless chip growth in smartphones.

Income investors are going to love Broadcom as well. Since 2010, Broadcom's quarterly payout has grown by almost 6,500% to $4.60. This works out to a 3.5% yield for a fast-growing company currently valued at just 13 times Wall Street's forecast earnings in 2023.

A parent and child playing video games while seated next to each other on a couch.

Image source: Getty Images.

The semiconductor stock to avoid like the plague in 2023: Nvidia

But not every semiconductor stock can be a winner. Although it's been one of the top chipmakers to have in your portfolio for well over a decade, Nvidia (NVDA -3.29%) can be comfortably left on the shelf in 2023.

To be perfectly clear, I'm in no way saying Nvidia is a stock to forever avoid. There are certainly catalysts that merited Nvidia's greater than 8,000% return since the Great Recession bottom in March 2009. In particular, Nvidia accounts for close to 20% of the global graphics processing unit (GPU) market and approximately 80% of discrete graphics cards, which are GPUs operating separately from the processor. GPUs account for the lion's share of Nvidia's profits.

However, one of the biggest issues for the company is that many of its fast-growing segments have absolutely hit a wall. For instance, cryptocurrency valuations have tanked since November 2021. When the value of digital currencies declines, demand for GPUs to mine cryptocurrency tends to fall in lockstep. To boot, non-fungible token (NFT) transactions have fallen off a cliff, thereby minimizing demand for metaverse innovations and blockchain-based gaming. That's not particularly good news for the company's Omniverse Platform.

Nvidia's gaming segment has also gone from boom to bust in the blink of an eye. With the pandemic seemingly put in the rearview mirror in a number of developed countries, people aren't spending as much time gaming at home anymore. When coupled with a weakening U.S. economic outlook, we've seen gaming revenue plunge from $3.62 billion in the company's fiscal first quarter of 2023 to just $1.57 billion in the fiscal third quarter. 

Nvidia is also facing headwinds in the world's No. 2 economy, China. In September, the U.S. ordered chipmakers to halt exports of advanced microchips to China. Although Nvidia has developed a slower GPU that meets the new export guidelines, it's uncertain if this slower GPU will generate the same revenue as the faster A100 GPU. The potential loss of revenue from China could be significant. 

Finally, Nvidia's valuation hasn't properly accounted for all of the macroeconomic and company-specific headwinds it's contending with. Despite its share price halving since hitting an all-time high on Nov. 22, 2021, Nvidia commands a forward-year price-to-earnings ratio of 40. That's incredibly rich for a company with no forecast sales growth in fiscal 2023 and perhaps high-single-digit revenue growth in fiscal 2024, assuming the U.S. doesn't enter a recession.

With so many other phenomenal deals to choose from in the tech space, Nvidia becomes an easy semiconductor stock to avoid in 2023.