There's been an increased focus on the semiconductor industry since early last year. Investors have been enthusiastic about recent developments in the field of artificial intelligence (AI), which has sparked a flurry of activity in the space. These powerful algorithms are highly dependent on hardware that features the most advanced processors, which has buoyed much of the sector. However, after a sharp run-up, many AI stocks have been treading water over the past several months as investors have waited for evidence the trend still has room to run.
With that as a backdrop, it's noteworthy that in trading on Thursday, Taiwan Semiconductor Manufacturing (TSM +5.26%) had climbed by 1.9%, ASML Holding (ASML 1.06%) had rallied 3.7%, and Indie Semiconductor (INDI +0.59%) had jumped 7.4% as of 12:46 p.m. ET.
A check of all the usual suspects -- regulatory filings, financial reports, and changes to analysts' price targets -- turned up nothing in the way of company-specific news to explain those stock price increases. This suggests that investors were reacting to the financial results from another player in the AI revolution, and that the news was good.
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A flurry of activity
Micron Technology (MU +8.50%) released its fiscal 2024 fourth-quarter report after the closing bell Wednesday, and investors let out a collective cheer. In the period, which ended Aug. 29, the computer memory specialist's revenue soared 93% year over year to $7.75 billion -- a company record -- while also increasing 14% sequentially. This resulted in adjusted earnings per share (EPS) of $1.18, much improved from its loss of $1.07 per share in the prior-year quarter. Driving those 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.
NASDAQ: MU
Key Data Points
It wasn't just the robust results that drove the stock higher, as Micron's forecast suggested the growth spurt would continue. For its fiscal 2025 first quarter, management is guiding for revenue of $8.7 billion, which would equate to growth of 84% year over year, and adjusted EPS of $1.74, which would be 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.
A positive for chipmakers
Micron's robust results should help dispel any notion that demand for AI is waning. It's also not surprising that each of the companies in our trio has a specialty connected to the specific types of semiconductors that will benefit from the growing adoption of AI.
- Taiwan Semiconductor Manufacturing is the world's largest third-party chipmaker. Strong demand for the world's most advanced chips is fueling the foundry's 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.
NYSE: TSM
Key Data Points
The evidence suggests the accelerating adoption of AI will continue to increase the fortunes of companies in the semiconductor space. It's worth noting, however, that all AI stocks are not 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.
