Microchip stocks represent companies that make the electronic components powering every modern device, from smartphones and data centers to vehicles and industrial equipment. These chips form the backbone of today's digital economy.
Although microchip companies fall under the technology sector, they are also capital-intensive manufacturers. Demand for chips moves in cycles, with periods of rapid growth often followed by slowdowns. Even so, leading chipmakers have delivered strong long-term returns by scaling production and staying ahead of technological shifts.
Top microchip stocks
For investors looking for exposure to essential technology with long-term demand drivers, these microchip stocks deserve a closer look.
| Name and ticker | Market cap | Dividend yield | Industry |
|---|---|---|---|
| Nvidia (NASDAQ:NVDA) | $4.4 trillion | 0.02% | Semiconductors and Semiconductor Equipment |
| Taiwan Semiconductor Manufacturing (NYSE:TSM) | $1.8 trillion | 0.88% | Semiconductors and Semiconductor Equipment |
| Broadcom (NASDAQ:AVGO) | $1.6 trillion | 0.70% | Semiconductors and Semiconductor Equipment |
| ASML (NASDAQ:ASML) | $523.2 billion | 0.57% | Semiconductors and Semiconductor Equipment |
| Qualcomm (NASDAQ:QCOM) | $147.4 billion | 2.58% | Semiconductors and Semiconductor Equipment |
| Advanced Micro Devices (NASDAQ:AMD) | $330.5 billion | 0.00% | Semiconductors and Semiconductor Equipment |
| Applied Materials (NASDAQ:AMAT) | $269.0 billion | 0.54% | Semiconductors and Semiconductor Equipment |
| Rambus (NASDAQ:RMBS) | $9.5 billion | 0.00% | Semiconductors and Semiconductor Equipment |
| Coherent (NYSE:COHR) | $47.3 billion | 0.00% | Electronic Equipment, Instruments and Components |
| Lattice Semiconductor (NASDAQ:LSCC) | $12.4 billion | 0.00% | Semiconductors and Semiconductor Equipment |
1. Nvidia
Nvidia (NVDA +0.04%) is one of the most recognizable names in the semiconductor industry. The company got its start as a developer of specialized chips, called graphics processing units (GPUs), used in high-end video games. The company has remained true to its roots, and some of its revenue still comes from its video game segment, a ubiquitous form of entertainment around the world.
NASDAQ: NVDA
Key Data Points
However, Nvidia has spurred a revolution in computing by extending the usefulness of GPUs beyond games. Nvidia hardware now powers artificial intelligence (AI) for businesses via its data center chip designs, including generative AI services like ChatGPT. Data centers are now its largest segment by revenue.
Artificial Intelligence
The company has pushed its technology even further and is powering devices with computing intelligence, including robotics in factories and warehouses, self-driving car features for automakers, and medical devices and research. Nvidia also has cloud subscription services that enable AI-fueled applications built atop its leading GPU business.
2. Taiwan Semiconductor
Slowly but surely, Taiwan Semiconductor (TSM -0.42%) has built itself into the world's largest manufacturer of microchips. It took the crown from Intel (INTC +1.67%) a number of years back, and steady investment in increasingly advanced chip fab capabilities has paid off.
NYSE: TSM
Key Data Points
Its fabs, most of which are in Taiwan (though a number are elsewhere, including in the U.S.), can handle the most complex chip designs (like those for the Apple (AAPL -0.65%) iPhone and Nvidia's data center chips).
Taiwan Semiconductor boasts more than half of the total market share of advanced microchip fabrication, and its constant investment in new and advanced production has kept demand steadily rising for years. It also pays a modest dividend to shareholders.
3. Broadcom
Broadcom (AVGO +1.19%) is not a household name. However, the chip giant is quietly helping to power everything from 5G mobile network development to data centers and industrial equipment. What Broadcom lacks in high-octane growth, it more than makes up for in profitability.
NASDAQ: AVGO
Key Data Points
Acquisitions have been key to Broadcom's profitability. Broadcom also has a policy of returning about half of the free cash flow it generated the previous year to shareholders via dividends, and it supplements dividends with share repurchases.
Microchip demand is exploding.
4. ASML
Chip fabs, such as Taiwan Semiconductor, Intel, and Samsung (OTC:SSNL.F), are constantly in need of advanced equipment to manufacture the chips. One of the largest such industrial machinery makers (as measured by market cap) is Netherlands-based ASML (ASML +1.60%).
NASDAQ: ASML
Key Data Points
ASML makes EUV (extreme ultraviolet) lithography machines, which are responsible for forming the smallest of features on microchips, and its flagship machines fetch more than $200 million each. Due to its critical position in the semiconductor ecosystem, ASML has put up fantastic growth for years and is highly profitable.
The result has been a fantastic chip investment that has steadily increased both its share price and dividend payout for almost two decades.
5. Qualcomm
Qualcomm (QCOM -3.55%) was a darling of the chip industry during the 2000s and 2010s and rode the wave of mobility as smartphones went from a novel idea to a part of everyday life. The smartphone market has matured and isn't as much of a high-growth industry anymore. The development of 5G mobile networks, however, breathed new life into Qualcomm.
NASDAQ: QCOM
Key Data Points
Almost every mobile phone on the planet has a piece of Qualcomm silicon in it. The company has diversified its business in recent years, designing parts for network equipment used to create mobile signals, as well as industrial devices and connected home appliances, virtual reality headsets, and a fast-growing automotive technology segment.
6. Advanced Micro Devices
Advanced Micro Devices (AMD +0.63%), known as AMD, has historically played second fiddle to Intel. But back in 2010, AMD offloaded its chip fab segment -- now known as GlobalFoundries (GFS +0.29%) -- to focus solely on chip design. The move has paid off. Although AMD is still far smaller than Intel, it has been picking up serious market share in both the data center and personal computing spaces.
NASDAQ: AMD
Key Data Points
Central processing units (CPUs), an integral part of data centers, are in increased demand as remote work has become more common and services delivered via the internet have become routine. AMD has won over lots of customers with its leading microchip designs, benefits from a secular growth industry, and is taking market share from long-time rival Intel.
Its $50 billion purchase of Xilinx in 2022 also created a floor for profitability that gave AMD room to invest more aggressively in research and development (R&D).
7. Applied Materials
Applied Materials (AMAT +1.70%), one of the oldest names in the semiconductor industry, has a deep understanding of microchips, how they're made, the materials used to make them, and their role in an overall computing system. Chip fab equipment has been consolidated into a few major companies over the years. Lam Research (LRCX +1.48%) and KLA (KLAC +0.96%) are two more major players.
NASDAQ: AMAT
Key Data Points
When a chip manufacturer announces plans to update or expand a plant or break ground on a brand-new one, it's almost certain that Applied Materials will be selling them some equipment. The company also has a sizable recurring revenue stream from ongoing service to equipment purchased by customers.
8. Rambus
Rambus (RMBS +0.76%) makes high-performance memory interface chips and silicon intellectual property (IP) cores for high-performance data processing and security that provide solutions for data center, automotive, and AI applications.
NASDAQ: RMBS
Key Data Points
Rambus' products are used to increase data bandwidth and capacity, protect sensitive data, and address bottlenecks between processing and memory in modern computing systems.
The company makes money through both direct product sales of its chips and the licensing of its patented IP to other chip manufacturers and system designers. Its key IP licensing partners include companies such as SK Hynix (KOSE:A000660), Micron (MU +4.36%), AMD, and Nvidia.
9. Coherent
Coherent (COHR +7.06%) makes money by manufacturing and selling a broad range of laser products, optical components, and materials used in various markets, including data centers, consumer electronics, industrial applications, and aerospace and defense. It is an essential supplier to the semiconductor industry, providing the technology and materials used to manufacture, test, and package advanced chips.
NYSE: COHR
Key Data Points
For example, Coherent is a major supplier of optics for the high-power lasers used in EUV lithography. The company also develops and manufactures specialized composite materials, such as reaction-bonded silicon carbide, which is used for structural components in semiconductor capital equipment.
Coherent is a vertically integrated supplier of datacom transceivers for data centers, too, including silicon photonics and other components.
10. Lattice Semiconductor
Lattice Semiconductor (LSCC +2.58%) develops low-power, small-form-factor, field-programmable gate arrays (FPGAs) and related software tools. FPGAs are integrated circuits that can be configured and reconfigured after manufacturing, which allows them to be adapted to evolving needs and new functions, unlike traditional fixed-function chips.
NASDAQ: LSCC
Key Data Points
The company's FPGAs are designed to handle AI and machine learning workloads on embedded systems, such as those found in sensors and other devices at the network's edge. Lattice specifically focuses on low-power FPGAs, which are crucial for battery-powered devices and systems where energy consumption is a concern.
In addition to hardware, Lattice provides comprehensive software and IP bundles to simplify the development process. Its products are used in various industries, including robotics, factory automation, smart devices, and vehicle systems.
Pros and cons of investing in microchip stocks
If you want to invest in microchip stocks, it's important to weigh the pros and cons before you put money to work.
Pros
- Integral to modern technology: Microchips are the fundamental components in almost all modern electronics, from smartphones and computers to electric vehicles and medical equipment. This makes them essential to the global economy and positions the industry for sustained growth.
- Driven by emerging technologies: The increasing demand for advanced technologies, such as AI, 5G, high-performance computing, and the Internet of Things (IoT), will continue to drive growth for the semiconductor industry.
- High barriers to entry: The massive capital requirements, significant R&D costs, and specialized expertise needed to produce advanced chips create a high barrier to entry.
Cons
At the same time, there are some downsides to consider and to factor into your overall risk thesis as you consider an investment in this sector.
- High volatility and cyclicality: The semiconductor industry experiences cycles of boom and bust, with demand fluctuating due to global economic conditions, technological shifts, and supply-and-demand imbalances. This volatility can lead to significant price swings.
- Intense competition: The market is fiercely competitive, forcing companies to innovate constantly to produce smaller, faster, and more efficient chips. Failure to keep up with these technological advancements can lead to lost market share and revenues.
- High capital expenditure and complexity: Chip manufacturing is extremely expensive and requires constant large-scale investments in manufacturing facilities and R&D. This creates cost pressures, and a few missteps in predicting demand can lead to costly inventory issues.
How to compare microchip stocks
Not all microchip companies operate the same way, and their business models carry different risk and return profiles.
- Fabless designers: Companies like Nvidia and AMD focus on chip design and outsource manufacturing. This model avoids heavy capital spending but relies on third-party foundries for production.
- Foundries: Taiwan Semiconductor manufactures chips for other companies. Foundries require enormous capital investment but benefit from long-term customer demand and scale advantages.
- Equipment suppliers: Companies like ASML and Applied Materials sell the specialized machinery needed to manufacture chips. Their performance often tracks long-term investment cycles rather than individual chip demand.
- Specialized component makers: Firms such as Lattice Semiconductor or Rambus focus on niche markets like low-power chips or memory interfaces.
Understanding which model a company follows helps explain why some stocks are more volatile while others produce steadier returns.
Should you buy individual microchip stocks or an ETF?
Buying individual microchip stocks can make sense if you want targeted exposure to specific technologies or business models, such as AI accelerators or advanced manufacturing equipment. It also requires closer monitoring and a higher tolerance for volatility.
Semiconductor exchange-traded funds (ETFs) offer broader exposure across designers, manufacturers, and suppliers, reducing the impact of company-specific risks. For investors who want exposure to the sector without picking winners, ETFs can be a simpler and more diversified option. Many long-term investors choose a mix of both approaches.
Trends in the microchip industry
AI remains the primary catalyst for the broader microchip industry right now and is driving especially high demand for advanced logic and memory chips. While AI demand is driving the global semiconductor market toward a historic peak of almost $1 trillion in annual sales, high-value AI chips represent only 0.2% of total unit volume despite accounting for 50% of industry revenue.
Investment is shifting from large-scale model training to AI inference. Specialized hardware such as GPUs, custom application-specific integrated circuits (ASICs), and high-bandwidth memory (HBM) are essential for running AI models and processing the intensive tasks required for AI to function in data centers.
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FAQ
Investing in microchip stocks FAQ
About the Author
Rachel Warren has positions in Apple. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, Applied Materials, Coherent, Intel, Lam Research, Micron Technology, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
