The 3 best ten-year performers of the S&P 500 index all belong to this sector


Key points

  • Much of NVIDIA’s recent gains come from the company’s leadership in artificial intelligence, which is responsible for rapid advances in virtually every industry.
  • For Advanced Micro Devices, weakness in gaming and embedded processing is expected to extend this year, but could recover by the second half.
  • Broadcom stock has an annual dividend of $21.00 per share which equates to a forward yield of 1.6%.
  • 5 titles we prefer to NVIDIA

Over the past 10 years, the S&P 500 Index has posted an annualized return of 10.8% excluding dividends. Some of the biggest profits have been generated by companies that make the smallest products: semiconductors.

Often referred to as integrated circuits (ICs) or microchips, semiconductors are the brains behind electronic devices. They are made of natural elements such as silicon (also known as “digital gold”) which, when combined with impurities, have special conductivity powers. Transistors on chips act as mini electrical switches that can turn electrical current on or off. A microchip the size of a fingernail contains billions of transistors.

Despite their small stature, microchips enable technological advances in many industries: communications, computing, healthcare, transportation and clean energy. They complete routine tasks, store data, and integrate graphics, audio, and video. Without them we wouldn’t have smartphones, smart TVs, tablets, video games or life-saving medical equipment.

Given the critical role semiconductors play in the global economy, it’s no surprise that chipmakers have made significant profits over the past decade. In turn, longtime shareholders have been rewarded with enormous wealth of their own.

Of the 10 best-performing S&P 500 stocks over the past 10 years, six are in the semiconductor sector. These include semiconductor materials and equipment leader Lam Research and solar energy innovator Enphase Energy. The only non-tech names are building products supplier Builders Firstsource and pharmaceutical giant Eli Lilly.

At the top of the list, however, are three mega-cap chipmakers boasting huge 10-year gains. Will they continue to dominate in the next 10 years?

No. 1 – NVDA

10-year annualized total return: 69.2%

With a valuation of $1.7 trillion, NVIDIA Corporation NASDAQ:NVDA it has become the fifth largest S&P 500 company and the best stock held over the past 10 years. Since inventing the graphics processing unit (GPU) 25 years ago, NVIDIA has evolved into a diversified global chipmaker, serving the gaming, professional visualization, data center and automotive markets.

Much of the recent gains come from the company’s leadership in artificial intelligence (AI), which is responsible for rapid advances in virtually every industry. NVIDIA’s AI data center infrastructure offerings continue to be in high demand around the world. Data center revenues skyrocketed 279% year-over-year in the third quarter of fiscal 2024, and Wall Street is braced for a great report and outlook for the fourth quarter on February 21.

As NVDA continues to reach record highs, the market continues to ignore a price-to-earnings (P/E) ratio that has risen to 95x. While it resembles a tech assessment of the bubble, analysts aren’t too worried about a burst either. Last week, four firms reiterated their buy ratings on NVDA, including Goldman Sachs which set a price target of $800.

No. 2 – AMD

10-year annualized total return: 47.8%

Last week, Advanced Micro Devices, Inc. NASDAQ:AMD has launched a new architectural solution called AMD Embedded+, designed to accelerate time to market for electronics manufacturers’ edge AI applications. It marked the company’s latest push into the artificial intelligence game as it seeks to build on its traditional successes in embedded computing, gaming and data centers.

While the market gave AMD credit for its role in the future growth of AI hardware, it punished the company for issuing a weak first-quarter revenue forecast that implied growth of just 1% year over year. The weakness in gaming and embedded computing is expected to extend this year, but could recover by the second half.

However, AI is expected to carry the torch of growth in 2024. AMD’s data center business has played second fiddle to NVDA’s so far, but planned product launches could fill the gap. More importantly, an AI market expected to reach $300 billion this year and grow 16% annually from there should make several chipmakers, including AMD, long-term winners.

#3 – AVGO

10-year annualized total return: 40.2%

Broadcom Inc. NASDAQ: AVGO remains one of analysts’ favorite semiconductor stocks despite its share price at $1,283.44. Last week, JP Morgan added the stock to its Focus List with a high price target of $1,550.

What investors don’t get with Broadcom is direct exposure to artificial intelligence, but that makes the stock an intriguing semiconductor diversifier. Instead, the company will continue to grow by providing chip solutions for a mix of networking, storage server, broadband, wireless and industrial customers. The business is well balanced by a portfolio of infrastructure software with ties to cloud computing, cybersecurity and other growth markets.

When Broadcom announces fiscal 2024 first-quarter results on March 7, analysts will expect a 32% increase in revenue but flat earnings per share (EPS). Considering the company has consistently surpassed consensus quarterly EPS estimates over the past five years, another beat is likely.

Another unique feature of AVGO compared to NVDA and AMD is its dividend. The stock has an annual dividend of $21.00 per share which equates to a forward yield of 1.6%. A 14-year streak of dividend increases – making it a Dividend Achiever – should keep investors interested in this chipmaker for years to come.

Before you consider NVIDIA, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and NVIDIA wasn’t on the list.

While NVIDIA currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here

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