Key Points
AI has redefined the semiconductor industry. Although companies such as Palantir and CrowdStrike are thriving due to AI, none of their successes would be possible without the advanced chips coming from a few specific companies.
Knowing that, specific semiconductor stocks appear to hold a bright future despite making huge gains in recent years. If you were looking to own four chip stocks for the next decade, you should consider these names.
Missed AI’s “Act 1”? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
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Nvidia
The choice of Nvidia (NASDAQ: NVDA) should not come as a surprise. A $1,000 investment at the 1999 IPO would be worth almost $5.7 million today. It earned most of that gain beginning in 2022, when investors discovered the company’s chips were powering the advancements of OpenAI’s ChatGPT. This set Nvidia up to dominate the AI accelerator niche it created.
What may surprise investors is Nvidia’s modest valuation amid its massive gains. Currently, the stock trades at just 29 times earnings, arguably at bargain levels right now. This is despite its stellar performance in the latest quarter, when its $96 billion in revenue increased by 106% yearly. That gain resulted in a net income of almost $60 billion, 126% more than one year ago.
Admittedly, with a $5.6 trillion market cap, Nvidia’s future gains may not compare to those in the past. Also, nearly 93% of its revenue comes from the data center segment, which could bring significant pain in an AI bust.
Nonetheless, with its huge growth and relatively low P/E ratio, Nvidia should be on track to continue beating the market for years to come.
Broadcom
Broadcom (NASDAQ: AVGO) is in a similar position to Nvidia. Its specialty chips for corporate clients have gained considerable interest as its customers scramble to improve their AI capabilities. Broadcom has also fostered a software business in recent years, which complements its chip business and could mitigate downside risk should chip sales slow.
That has driven massive gains for its stock over the last few years, and Broadcom’s growth phase is unlikely to end soon despite its $1.7 trillion market cap. In the latest quarter, the $29.6 billion in revenue increased by 86% compared to year-ago levels. Also, with only modest cost and expense growth, the $13.1 billion in quarterly net income rose by 216% over the same period.
Indeed, its 46 P/E ratio is not low, and an AI bust could leave investors questioning that valuation. Still, that valuation is arguably reasonable given the growth in its financials, which could still make Broadcom stock a buy.
Taiwan Semiconductor
The gains of the above companies would not have been possible without Taiwan Semiconductor Manufacturing Company (TSMC) (NYSE: TSM). It manufactures the world’s most advanced chips for companies like Nvidia and Broadcom and claims a 72.5% share of thatglobal market according to TrendForce.
Amid the insatiable demand for AI chips, the company’s second-quarter revenue of $40 billion rose 36% over the last year. Also, because costs and expenses did not increase as quickly, net income surged 73% year over year to $23 billion.
Consequently, TSMC’s stock trades at a 33 P/E ratio despite the substantial increase in the stock price.
To be sure, a possible AI bust or its huge presence in the geopolitically risky Taiwan region poses some risk to the stock. However, even though its market cap has surged to about $2.4 trillion, the seemingly insatiable demand for AI chips makes it likely that TSMC stock will continue rising.
ASML
TSMC also depends on a key supplier, and that is ASML (NASDAQ: ASML). ASML holds a near monopoly on the extreme ultraviolet lithography (EUV) machines needed to produce the world’s most advanced chips. TSMC, as well as competitors including Samsung and Intel, depend on its equipment and must also call on ASML to maintain this equipment.
The need for such machines led to net sales of over 9.3 billion euros ($10.5 billion) in the second quarter of 2026, a 21% increase compared to the same quarter last year. Thanks to lower expense growth, the net income of more than 2.9 billion euros ($3.3 billion) increased by 27% over the same period.
Admittedly, ASML is not a cheap stock given its P/E ratio of 57, and the fact that only a limited number of clients buy its machines could present issues in a future downturn. Nonetheless, the market cap of just over $700 billion makes it smaller than its peers, possibly suggesting greater growth potential later.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Broadcom, CrowdStrike, Intel, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
