5 AI Hardware Stocks Outperforming the Market While Remaining Affordable

The semiconductor industry has experienced a remarkable surge over the past year, with the PHLX Semiconductor Sector index climbing an impressive 51%. This growth can be attributed to the increasing demand for chips driven by the widespread adoption of artificial intelligence (AI) applications.

Semiconductors play a pivotal role in the AI revolution. The development of AI models such as OpenAI's ChatGPT was made possible by chips designed by industry leaders. This explains the soaring sales of AI-focused graphics processing units (GPUs) over the last 18 months, resulting in significant revenue and earnings growth for chip manufacturers.

While one prominent GPU manufacturer has seen its stock price skyrocket by 225% in the past year, it's not the only player in the AI hardware supply chain. Let's explore five other companies that are making substantial contributions to the AI hardware market.

Server Manufacturers Reaping Benefits from AI Adoption

While chip designers create processors for AI workloads such as training large language models (LLMs) and inferencing, these chips require a specialized server infrastructure optimized for AI tasks. Two companies benefiting significantly from the growing demand for AI-optimized servers are Dell Technologies and Super Micro Computer.

Dell's shares have surged 184% in the past year, while Super Micro Computer's stock has experienced an astounding 847% increase. Despite these impressive gains, both stocks remain attractively priced. Dell's price-to-sales ratio stands at just 0.9, while Super Micro Computer's is 5.6, both below the Nasdaq-100 Technology Sector index's average of 7.3.

Dell's growth is driven by AI server demand, with the company shipping $800 million worth of AI-optimized servers last quarter. Its AI server backlog nearly doubled quarter-over-quarter to $2.9 billion, fueled by a 40% sequential increase in AI server orders. The AI server market is projected to grow from an estimated $30 billion last year to $150 billion in 2027, according to industry forecasts.

Super Micro Computer has also experienced remarkable growth, with its revenue expected to double to $14.5 billion in the current fiscal year. The company claims its production capacity can support over $25 billion in annual revenue, explaining why analysts have significantly raised their projections for the coming years.

Memory and Custom Chips Riding the AI Wave

Memory chips play a crucial role in powering AI GPUs. One memory chip manufacturer has sold out its entire 2024 capacity of high-bandwidth memory (HBM) chips used in AI processors, while allocating the majority of its HBM production line for next year.

HBM is essential for increasing the speed at which data is fed to AI processors, significantly enhancing their performance. This explains why GPU manufacturers are incorporating more HBM into their AI chips, driving impressive growth for memory producers. One such company saw its revenue increase by 58% year-over-year last quarter to $5.8 billion, with expectations of 76% growth in the current quarter.

Another chipmaker benefiting from the AI chip market is a custom chip manufacturer. In February, an analyst noted that this company is set to become the second-largest AI chip company in 2024, with estimated revenue of $8 billion to $9 billion. However, the company's management recently stated that its AI chip revenue is expected to exceed $10 billion in the current fiscal year.

The growing demand for custom AI chips is driven by cloud companies seeking to reduce costs, lower power consumption, and improve performance. Industry analysts predict that custom chips will account for 30% of the $182 billion AI semiconductor market by 2027.

The Hidden Gem in AI Hardware Manufacturing

While the aforementioned companies supply AI hardware components, electronics manufacturing services providers play a crucial role in producing the final products. One such company has seen its stock rise 52% in the past year, despite a recent setback.

This manufacturer offers services ranging from designing and sourcing components to assembling final products, helping reduce costs and enhance efficiency. The company has experienced a significant surge in AI-related orders, with management noting that its "AI GPU volume in the first half of 2024 is 200x that of the level of 2023."

Looking ahead, the company projects its AI-related revenue to increase by 20% in fiscal 2025, reaching $6 billion. This would represent 20% of the company's estimated $30 billion in total revenue for that year. With ongoing growth in its AI business and a strong position in the AI data center infrastructure space, this stock presents an intriguing opportunity for investors.

As the AI revolution continues to reshape the technology landscape, these five companies are well-positioned to capitalize on the growing demand for AI hardware. Their attractive valuations and strong growth prospects make them worthy of consideration for investors looking to diversify their AI-focused portfolios beyond the most prominent names in the industry.

This page may contain third-party content, which is provided for information purposes only (not representations/warranties) and should not be considered as an endorsement of its views by Gate, nor as financial or professional advice. See Disclaimer for details.
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