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2 Surefire Chip Stocks to Buy and Hold for the Next Decade
The chip industry has been growing for decades, and the investment in artificial intelligence (AI) technology could keep the industry growing for years to come.
While the semiconductor industry can experience cyclical demand, the increasing quantity of chips used in consumer devices, cars, and data centers bodes well for the industry’s long-term prospects. Statista projects the industry will grow 10% per year through 2029 to reach $980 billion.
To profit off this opportunity, here are two outstanding chip companies to hold for the next 10 years.
1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (NYSE: TSM) is close to joining the $1 trillion club. The share price has doubled since 2022, bringing its market cap to about $971 billion. TSMC is in a lucrative position as the leading semiconductor foundry, which refers to its business of making chips for other companies, including Nvidia, Broadcom, Advanced Micro Devices, and Intel, among others.
The company has delivered market-beating returns for years, and it continues to show strong growth. Analysts expect revenue to be up 26% this year before increasing 24% in 2025, according to YCharts.
Investing in Taiwan Semiconductor is making a bet on the long-term advances in chip technology and increasing chip quantities in smartphones, data centers, and cars. Because its chips are used in a variety of end markets, TSMC is a relatively safe way to invest in the growth of the chip industry.
TSMC is in a great position to benefit from growing demand for chips used for AI workloads. The company’s revenue from high-performance chips makes up half of the business, and TSMC controls 61% of the global foundry market. Its long-standing customer relationships, advanced manufacturing processes, and large capacity to meet demand are advantages that position the company to deliver profitable growth for shareholders.
The stock offers excellent return prospects in the near term, too, as it trades at a very attractive price-to-earnings ratio relative to forward earnings estimates. Analysts expect the company’s earnings to grow at an annualized rate of 26%. Assuming TSMC meets those estimates, the stock could double within three years if it’s still trading at the same price-to-earnings multiple.
2. Arm Holdings
Arm Holdings (NASDAQ: ARM) potentially has even greater long-term upside than TSMC. It currently has a market cap of about $159 billion, but could join the $1 trillion club one day. It is gaining share in several markets where its chips are used, including cloud computing, networking equipment, consumer electronics, automotive, and the Internet of Things.
Arm’s revenue grew 39% year over year in the most recent quarter, but it’s important to know that Arm doesn’t make money by manufacturing chips. Instead, Arm focuses on chip design, and then it licenses those designs to other semiconductor companies and manufacturers. It earns a royalty on nearly all processors shipped using its products, which allows Arm to earn very high margins.
Arm-based processors are in high demand because they deliver exceptional performance with lower energy consumption. The latter is becoming increasingly important, since more powerful chips run hotter and drive up energy costs. For large data centers, this can be a problem, but Arm is offering solutions that address this challenge. For example, U.K.-based Avantek has developed an Arm-based server that consumes up to 90% less electricity.
Arm-based products play such an important role in the industry that Nvidia tried to acquire it four years ago, which ultimately failed to gain the approval of regulators. But Nvidia’s Grace processor included in its upcoming Blackwell platform for AI workloads is based on Arm. This positions the chip designer to benefit from the growing demand for AI chips in data centers.
Arm stock has been volatile, but patient investors should do well. Analysts expect the company’s earnings to grow at an annualized rate of 27% over the next several years. The company should continue to grow faster than the chip industry and deliver excellent returns to investors over the next decade.
Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?
Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $845,679!*
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John Ballard has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
2 Surefire Chip Stocks to Buy and Hold for the Next Decade was originally published by The Motley Fool
Sales of existing homes fell in September as house hunters remained on the fence about buying a home despite mortgage rates easing during the month.
Existing home sales slipped 1.0% from August’s tally to a seasonally adjusted annual rate of 3.84 million, the National Association of Realtors said Wednesday. That marked the lowest rate since October 2010. Economists polled by Bloomberg expected a pace of 3.88 million in September.
On a yearly basis, sales of previously owned homes were 3.5% lower in September. The median home price rose 3.0% from last September to $404,500, marking the 15th consecutive month of annual price increases.
“Home sales have been essentially stuck at around a 4 million-unit pace for the past 12 months,” NAR chief economist Lawrence Yun said in a press release.
There have been significant challenges that have weighed on sales activity, including a lack of inventory, escalating prices, and elevated mortgage rates. Last month, however, those factors turned around.
The Federal Reserve cut its benchmark rate by half a percentage point in September. While the central bank doesn’t set mortgage rates, its actions influence their direction of movement.
Mortgage rates hit the lowest level since February 2023 ahead of the Fed decision to ease, while listing inventory picked up.
But overall, that hasn’t been enough to entice buyers.
“Some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election,” Yun said.
Tesla (TSLA) reported mixed third quarter results after the bell on Wednesday, but the stock jumped in after-hours trading as investors cheered the earnings beat, higher gross margins, and news that Tesla’s cheaper EV is on track for production next year.
For the quarter, Tesla reported revenue of $25.18 billion vs. $25.4 billion per Bloomberg consensus, higher than the $25.05 billion it reported in Q2 and also topping the $23.40 billion Tesla reported a year ago. Tesla posted adjusted EPS of $0.72 vs $0.60 expected, on adjusted net income of $2.5 billion and free cash flow of $2.9 billion.
The closely watched gross margin figure came in at 19.8%, much higher than the 16.8% expected.
Tesla shares were up nearly 8% in after hours trade.
“We delivered strong results in Q3 with growth in vehicle deliveries both sequentially and year-on-year, resulting in record third-quarter volumes,” the company said in its earnings deck. “Preparations remain underway for our offering of new vehicles — including more affordable models — which we will begin launching in the first half of 2025.”
Earlier this month, Tesla (TSLA) announced third quarter deliveries that slightly missed expectations, sending the stock lower.
Tesla said it delivered 462,890 vehicles in Q3, up 6.4% quarter over quarter, to mark the first quarter of delivery growth this year. The numbers also came in ahead of the 435,059 EVs the company delivered in the year-ago period. But Wall Street had expected Tesla to deliver closer to 463,897, according to Bloomberg.
“Refreshed Model 3 ramp continued successfully in Q3 with higher total production and lower cost of goods sold quarter-over-quarter. Cybertruck production increased sequentially and achieved a positive gross margin for the first time,” Tesla said in its report.
Tesla said it expects vehicle deliveries to achieve “slight growth” in 2024.
Ahead of Tesla’s Q3 disclosure, shares were down approximately 11% since Tesla revealed its robotaxi, dubbed the Cybercab, at its showy “We, Robot” event from the Warner Bros. studio lot in Burbank, Calif., on Oct. 10.
The debut and release of a cheaper EV is what many analysts and industry watchers believe will spur the next leg higher of EV sales, as even CEO Elon Musk has said before. During its Q2 report, Tesla and Musk said the company remains on track for the production of new vehicles, likely including a cheaper EV, in the first half of next year.
Investors and analysts were left wanting more details from Tesla’s “We, Robot” event on the Cybercab itself and detailed testing plans, along with questions about the development of Tesla’s sub-$30,000 EV, dubbed the Model 2.
Transak disclosed a data breach affecting over 92,000 users after a phishing attack compromised an employee’s laptop.
CryptoCurrency
The Dow plummets more than 600 points and is on track for its worst day in more than a month
The Dow Jones Industrial Average and other major indexes suffered a steep decline Wednesday afternoon as the yield on the benchmark 10-year U.S. Treasury note continued its upward climb, reaching 4.23%—a level not seen since July.
In the afternoon, the Dow dropped 631 points, or 1.4%, heading for its worst day in over a month. Meanwhile, the tech-heavy Nasdaq and the S&P 500 declined by 2.2% and 1.4%, respectively. However, there was some relief for investors as oil prices eased, with West Texas Intermediate (WTI) futures trading around $70.65 per barrel.
The Federal Reserve’s Beige Book, released in the afternoon, reported that economic activity remained largely unchanged across the 12 Federal Reserve Districts, with the Southeast significantly impacted by a harsh storm season.
On Wednesday, all eyes are on Tesla (TSLA) as the company prepares to release its latest earnings report. Analysts expect earnings per share to be 60 cents, down from 66 cents a year ago but an improvement from 52 cents in the previous quarter, according to FactSet estimates. Revenue is projected to hit $25.4 billion, compared to $23.3 billion in the third quarter of 2023 and $25.5 billion in the preceding quarter.
Apart from Tesla, investors are closely monitoring earnings reports from other major corporations, including AT&T (T), Boeing (BA), and Coca-Cola (KO).
McDonald’s stock plunges over 5%
McDonald’s (MCD) shares took a sharp hit, falling over 5% after the Centers for Disease Control and Prevention (CDC) linked the chain’s Quarter Pounder burgers to an E. coli outbreak. The outbreak has led to 10 hospitalizations and one death, driving a significant decline in McDonald’s stock during the afternoon trading session.
As of now, 49 cases have been reported across 10 states between Sept. 27 and Oct. 11, with a majority of illnesses occurring in Colorado, Nebraska, Utah, and Wyoming. The CDC noted that most of those affected had eaten a Quarter Pounder. Investigators are working swiftly to identify the contaminated ingredient.
Spirit Airlines stock soars 30%
After a failed attempt at merging with JetBlue (JBLU-0.80%), ultra-low-cost carrier Spirit Airlines (SAVE+28.01%) is reportedly turning back to a familiar partner. The Wall Street Journal (NWSA-0.34%), citing people familiar with the matter, reports that Spirit and Frontier Airlines (ULCC+3.05%) are in early talks over a potential merger. The news sent Spirit’s stock soaring nearly 30% on Wednesday.
–Francisco Velasquez and Rocio Fabbro contributed to the article
The semi-autonomous region of Tanzania is taking advantage of a sandbox regulatory framework adopted in July.
Bitcoin’s correction ignited selling in altcoins, which are slipping below critical support levels.
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