Here Are the Chip Stocks UBS Like Best in 2024, Including Under AI radar Stock

In the throes of the artificial intelligence frenzy, the year 2023 has emerged as an exceptional period for chipmaker stocks, riding a wave of unprecedented success. The PHLX Semiconductor Sector index, reflecting this surge, has witnessed a remarkable uptick of nearly 64% this year, eclipsing the S&P 500's comparatively modest 24% ascent. This meteoric rise owes much to the stellar performance of Nvidia, which has experienced an astonishing surge of 236% in its stock value. Notably, other industry players such as Advanced Micro Devices and Broadcom have notched up gains exceeding 100%, collectively propelling the index to unprecedented heights.

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As the year unfolds, there remains a sense of optimism within the semiconductor space, with UBS suggesting that more gains might be on the horizon. In a comprehensive analysis, UBS analyst Timothy Arcuri emphasizes his continued bullish stance on the sector, underscoring its entry into what he terms as the "sweet spot." This denotes the juncture where inventory has peaked and is transitioning into revenue, offering a favorable outlook for investors.

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However, Arcuri exercises caution, acknowledging that the pace of revenue recovery may be impeded by persistently elevated levels of downstream customer inventory. Despite this caveat, he anticipates that as interest rates decline, downstream demand will strengthen, creating a scenario where revenue growth surpasses inventory growth in 2024. This optimistic projection, he notes, aligns with positive historical trends observed over the past four cycles, providing a promising backdrop for semiconductor stocks.

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Highlighting specific investment opportunities, Arcuri singles out Micron Technology and Advanced Micro Devices as his top stock picks for the upcoming year. He envisions the potential for a "super-cycle" in memory, driven by new AI demand vectors and structural capacity constraints, suggesting that Micron is well-positioned to capitalize on this trend. Micron, with a staggering 73% rally in 2023, received an additional boost with an 8.6% surge following a fiscal first-quarter earnings beat.

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In the case of Advanced Micro Devices, Arcuri identifies its role in capitalizing on the theme of customer monetization for data centers. Bolstered by catalysts such as the successful launch of new AI chips, the stock has soared by 115% in the current year. Bank of America, aligning with this positive sentiment, recently upgraded both Micron and Advanced Micro Devices stocks from neutral to buy, citing Micron's potential gains from rising memory prices and Advanced Micro Devices' prospects for "accelerator share capture."

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Expanding his gaze to unconventional choices, Arcuri presents Teradyne as his favored "outside the box" stock idea for 2024. The manufacturing automation firm has seen its shares rise by nearly 23% in 2023. Arcuri envisions a continued rally in 2024, fueled by improvements in memory capacity and machine learning-related computing, particularly in higher-end smartphones. Teradyne, he argues, represents an "under the radar" play on these trends, poised to benefit as utilization trends upwards and the cyclical recovery broadens, drawing investors back toward analog and other capacity plays.