Geopolitics, AI Drive Prospects in Semiconductors: 2 Stocks

Industry Overview - The semiconductor industry is experiencing strong growth driven by advancements in HPC, AI, electrified and automated driving, and IoT, leading to soaring share prices and rich valuations [1] - Global semiconductor sales are projected to grow by 11.2% in 2024, following a 19% increase in 2023 [2] - IDC anticipates double-digit growth in demand for high-end logic process chips and high-bandwidth memory (HBM), with advanced nodes capacity expected to increase by 12% [3] Market Dynamics - The utilization of mature nodes is expected to rise from 70% in 2024 to above 75% in 2023, with wafer production increasing by 7% [4] - The IoT market is expected to grow steadily, driven by increased internet connectivity and AI adoption [5] - The industrial IoT segment is projected to grow at a CAGR of 12.7% from 2025 to 2033 [6] Geopolitical Factors - U.S. government initiatives to reduce dependence on China and onshoring projects are shaping the semiconductor industry's future [7] - Geopolitical tensions are increasing demand for advanced electronics in defense and critical applications, with China being a significant factor [15] Industry Performance - The Zacks Semiconductor-General Industry has gained 22.5% over the past year, outperforming the broader technology sector and the S&P 500 [16] - The industry is currently trading at a forward P/E ratio of 27.10X, which is significantly above the S&P 500's 20.68X [19] Company Highlights - NVIDIA Corp. is recognized for its leadership in graphics processing units (GPUs) and is experiencing strong demand across various sectors, including gaming, data centers, and automotive [23][24] - Texas Instruments is focusing on reshoring manufacturing and expanding internal capacity, with a goal of sourcing over 95% of its wafers internally by 2030 [29][30] - Texas Instruments is also benefiting from a 25% investment tax credit related to U.S. semiconductor manufacturing [31] Financial Outlook - Analysts expect NVIDIA's revenue and earnings to increase by 48.2% and 41.8% respectively in 2026, and by 24.2% and 26.7% in 2027 [27] - Texas Instruments is projected to see revenue and earnings growth of 11.0% and 6.7% in 2025, followed by 8.8% and 13.9% in 2026 [33]