/shutterstock_2151224461.jpg)
Over the past few years, demand has surged for artificial intelligence (AI) chips. Major tech companies, startups, and governments are all intent on securing the most advanced chips on the market, aiming to train AI models and launch AI applications. As the technology increasingly gains widespread adoption, growth projections for AI applications are becoming more ambitious – and AI stocks have rallied sharply.
However, some AI stocks have risen so high that some analysts now warn of an “AI bubble" that could deflate. GPU chip market leader Nvidia Corp (NVDA), an early beneficiary of AI adoption, has been a primary focus of these bubble warnings. NVDA shares have surged nearly 244% over the past 52 weeks, and the company is now worth over $2 trillion.
However, after a roughly 10% pullback in NVDA during recent sessions, there are now a handful of AI chip stocks that look even more expensive than Nvidia. Here are the key stats investors need to know.
AI Chip Stock #1: Arm Holdings (ARM)
UK-based Arm Holdings Plc ADR (ARM) is a leading semiconductor and software design company, specializing in the development and licensing of intellectual property (IP) for central processing unit (CPU) products and related technologies. ARM's technology is the foundation of multiple electronic devices, from smartphones to sensors, and is increasingly important in the Internet of Things (IoT) and AI sectors. Its market cap currently stands at $130.5 billion.
After being reintroduced to public markets last year, ARM's stock has been soaring higher. The shares are up 73.8% on a YTD basis, easily outperforming the S&P 500 Index’s ($SPX) 8.6% gains over this time frame.
The stock is currently priced at 108.42 times forward earnings, more than twice as expensive as NVDA, which is trading at a P/E of 40.39x. Based on analysts’ 2025 earnings growth projection of 24.8%, ARM has a price-earnings-to-growth (PEG) ratio of 2.37x, far steeper than NVDA's PEG ratio of 1.36x.
Shares of Arm surged after its upbeat earnings report on Feb. 8. Its fiscal Q3 total revenue increased 14% year over year to $824 million, surpassing Wall Street projections. Its adjusted EPS of $0.29 also beat analysts' expectations. Last month, Nvidia announced a $147 million investment in Arm Holdings, giving the stock an additional lift.
Looking ahead to the fourth quarter of 2024, ARM projects EPS between $0.28 and $0.32, with revenue between $850 million and $900 million. ARM also raised its fiscal year 2024 forecast to the range of $3.16 billion and $3.21 billion, with adjusted EPS projected between $1.20 and $1.24.
Arm Holdings stock has a consensus “Moderate Buy” rating. Of the 23 analysts offering recommendations for the stock, 13 rate it a “Strong Buy,” nine suggest a “Hold," and one advises a “Strong Sell.”
The average analyst price target for Arm Holdings is $92.53, which the shares have already surpassed. The Street-high price target for ARM is $180, assigned by Rosenblatt in February, suggesting that the stock could rally as much as 38.7% from current levels.
AI Chip Stock #2: Advanced Micro Devices (AMD)
Incorporated in 1969, Santa Clara-based Advanced Micro Devices (AMD) is a prominent semiconductor firm shaping the data center, embedded, gaming, and PC markets. AMD is renowned for pioneering advancements in modern computing. It boasts a market cap of $305.70 billion.
AMD shares rose 94.8% over the past 52 weeks, outperforming the S&P’s 30.3% increase.
Currently, the stock trades at 70.18 times forward earnings, far more expensive than NVDA’s 40.39 P/E multiple. Similarly, AMD has a PEG ratio of 2.81x, more than double NVDA's. This suggests that AMD is valued at a premium relative to its AI chip stock rival.
AMD’s Q4 revenue of $6.17 billion blew past Wall Street's projections of $6.14 billion, while its adjusted EPS of $0.77 arrived right in line with Wall Street's consensus. Looking ahead to the first quarter of 2024, AMD anticipates revenue to be approximately $5.4 billion, plus or minus $300 million. AMD projects over $2 billion in sales from AI chips in 2024, indicating its substantial progress in the generative AI computing sector.
Advanced Micro Devices stock has a consensus “Strong Buy” rating. Out of the 33 analysts offering recommendations for the stock, 27 analysts recommend it as a “Strong Buy,” one has a “Moderate Buy” rating, and five suggest "Hold."
The average analyst price target for Advanced Micro Devices is $189.43, which is nearly flat with Monday’s closing price. However, the high price target of $270, assigned by KeyBanc in January, suggests that the stock could rally as much as 41.6% from current levels.
AI Chip Stock #3: ASML Holding N.V. (ASML)
Founded in 1984, ASML Holding N.V. (ASML), headquartered in the Netherlands, develops, produces, markets, sells, and services advanced semiconductor equipment systems for chipmakers. It offers lithography, metrology, and inspection systems - an area of the semiconductor market for which it has a virtual monopoly. Its market cap currently stands at $370.9 billion.
ASML Holding shares rose 48.5% over the past 52 weeks, outperforming the broader market during this period.
Currently, the stock trades at 46.93 times forward earnings - cheaper than AMD and ARM, but still more expensive than NVDA on this basis. ASML has a PEG ratio of 2.32x, almost twice NVDA's. This suggests that ASML is trading at a premium relative to its anticipated growth.
The company has been delivering strong growth and profitability, as evidenced by its Q4 net sales of $7.79 billion with a gross margin of 51.4%, while earnings improved to $5.60 per share. Both earnings and revenue surpassed Wall Street’s expectations.
ASML’s Q4 order intake more than tripled from third-quarter levels, topping 9 billion euros, but the company backed its outlook for flat 2024 sales growth.
ASML Holding stock has a consensus “Strong Buy” rating. Out of the 17 analysts offering recommendations for the stock, 13 rate it a “Strong Buy,” and four advise a “Hold" rating.
The average analyst price target for ASML is $927, which is a discount to Monday’s close. However, the high price target of $1,100 indicates that the stock could rally as much as 16.8% from current levels.
