Special Report

How to Profit From the Great American AI Chip Rush

As you may already know, Congress recently passed the CHIPS Act, setting aside $53 billion for semiconductor companies to bring chip manufacturing back to the United States.

With AI expected to boost the global economy by $15 trillion between now and 2030 and the United States dead set on making sure that America is poised to control as much of the AI chip supply chain as possible, even a small stake in some of the companies that could be at the forefront of that industry has the potential for massive investment returns.

Some of the firms identified below are already growing by leaps and bounds, and they could take a huge slice of that $53 billion pie as they ramp up operations. Several of them recently landed spots on the Nasdaq-100, literally shifting the landscape of the United States’ largest companies.

But it’s not too late to take advantage of the gains yet to come.

These stocks, simply put, are the best way to ensure that you’re prepared to potentially create life-changing wealth in the “chip rush” that’s coming.

On Semiconductor Corp. (ON)

On Semiconductor may be one of the biggest tech manufacturers in the United States that most people have never heard of. A member of the Nasdaq-100 as of June 20, 2023, with a market cap of more than $33 billion, On Semiconductor has been a leading supplier of semiconductors since 1999, when it spun off of Motorola to become its own entity. It provides chips for a broad range of industries, including automotive, industrial automation, energy infrastructure, server and telecom infrastructure, medical imaging, aerospace, and defense.

But what’s really driving the growth prospects for On Semiconductor right now is its yearslong head start on a type of chip substrate that’s going to see surging demand in the near future: silicon carbide. This chemical variant of regular silicon enhances pretty much all of its physical properties, allowing for the creation of much smaller chips with incredible computing power, which is necessary for automation tech.

These chips are already being fast-tracked into production for use in electric vehicle (EV) applications, where sales are climbing at an exponential rate. A recent partnership with BorgWarner, a leader in creating power systems for EVs, will bring On Semiconductor’s silicon carbide chips to BorgWarner’s EV traction inverters, allowing them to greatly extend the range that an EV can travel on a full charge. That collaboration alone is estimated to be worth over $1 billion in lifetime value.

This company is set on disruptive innovations and it’s paying off. ON’s third quarter 2023 results reported total revenue of $2.2 billion, up 47.3% year over year, automotive revenue of $1.2 billion, an increase of 33% year over year (YOY), and record industrial revenue of $616 million, up slightly from the previous year. It ended Q4 2023 with $2 billion in total revenue.

What’s more, that wasn’t an isolated event. On Semiconductor’s three-year compound annual growth rate (CAGR) is 16.24% while its five-year CAGR is reported at 7.02%. The trend suggests ON Semiconductor has accelerated revenue growth in more recent years and can increase its revenue consistently.

The New Year has brought an exciting reveal of their new EliteSiC Power integrated modules. This silicon carbide-based solution is a more compact and lighter-weight charging station and enables bidirectional charging for direct current (DC) ultra-fast electric vehicle (EV) chargers and energy storage systems (ESS).

The projected quadrupling of the number of EV chargers in the U.S. by 2025 and the continued demand for EVs will put a tremendous strain on current electrical grids. The bidirectional charging is a great solution to implement vehicle-to-grid power transfer allowing not only fast EV battery charging but the ability to use the EV as an energy storage system to power homes or businesses.

With Investor’s Business Daily calling chipmaker demand for silicon carbide “the new gold rush,” On Semiconductor stands as a primary beneficiary, and the upside potential is enormous.

Action to Take: Buy On Semiconductor Corp. (Nasdaq: ON) at market.

Teradyne Inc. (TER)

Though you may not realize it, Teradyne has been a mainstay in the electronics industry here in the United States since 1960, fulfilling a very necessary role as an unsung hero. You see, while other companies make devices, Teradyne creates the testing equipment and processes that both make sure those devices work the way they’re supposed to and identify what potential safety hazards they may pose.

The company’s client list is basically a “Who’s Who” of American tech firms: Intel, Qualcomm, Samsung, IBM, Texas Instruments, Raytheon… the list goes on.

And it’s precisely because of this ubiquity that Teradyne is poised to prosper as demand for AI technologies increase. It’s a go-to for conducting testing and modeling across many different fields of hardware – including industrial robots, defense systems, semiconductors and wireless networking – giving the company multiple markets to grow into as AI’s reach expands across all consumer technology. In the semiconductor test segment alone, Teradyne has an estimated market share between 35% and 40%. As it establishes strong, competitive positions elsewhere, it could very well become essential to the advancement and development of new applications for AI.

Action to Take: Buy Teradyne Inc. (Nasdaq: TER) at market.

Lam Research Corp. (LRCX)

Lam’s area of expertise in semiconductor manufacturing is extremely narrow – its chips are mainly used in computer memory infrastructure, like your computer’s RAM sticks and the NAND memory used in flash drives and solid-state hard drives.

Computer memory is one of the few areas in personal computing where there’s an oversupply, which has flattened Lam’s revenues in fiscal 2023 in a year-over-year comparison. But the stock is still performing well, up over 40% year to date as I write, and a lot of that has to do with what investors see coming down the road – that is, a demand surge for exactly the kinds of chips that Lam makes.

You see, AI devices require an incredible amount of memory to process and hold all the data they use for training. And that means the servers that AI runs on need more RAM and NAND memory than usual – about eight times more of the former and three times more of the latter, according to a representative from Micron Technology. That’s part of the reason why Gartner, the market research firm, is estimating that the computer memory industry is going to see around a 70% growth spurt in 2024 as it rebounds from the 2023 pullback.

And the longer-term outlook is also rosy, with demand expected to grow consistently through 2030 as AI gets integrated into more and more Internet of Things devices.

We think investors should get in now, before that demand sets in and Lam blasts off.

Action to Take: Buy Lam Research Corp. (Nasdaq: LRCX) at market.

Monolithic Power Systems Inc. (MPWR)

Monolithic Power Systems Inc. is a great example of a company that has ensured its place as a beneficiary of the “chip rush” by being very good at a niche role that is absolutely vital to its industry, with few competitors.

In a nutshell, it makes DC power circuits and voltage controllers for just about every kind of device you can imagine. Its tech is used in portable electronic devices like smartphones, routers and wireless networking equipment, desktop and laptop computers, cable TV boxes, LCD displays, automobile electronics, medical equipment, etc.

Essentially, pick up any device you have within reach of wherever you’re reading this report, and you can probably bet that Monolithic made the components that feed power to that device.

And naturally, Monolithic’s mastery of this particular field has enabled it to consistently grow its business since its inception in 1997 and last year was no different.

The company finished fiscal year 2023 with $1.8 billion in total revenue, a slight increase from the previous year. Monolithic has a 25.61% five-year compound annual growth rate (CAGR) distinguishing itself toward the top of its competitors in the industry.

Monolithic is committed to rewarding shareholders and has shown a gradual increase in the dividend amount over the years. Currently, its payout ratio is approximately 45%. This shows a good balance of profit distribution which benefits shareholders and company growth alike.

The stock has risen 48% in the past year and 18% year to date as of this writing, and we foresee it has a long way to go as demand continues to grow.

Action to Take: Buy Monolithic Power Systems Inc. (Nasdaq: MPWR) at market.

KLA Corp. (KLAC)

Like Monolithic Power Systems, KLA Corp. has a very specific but important function in semiconductor manufacturing: designing and creating the process control systems that ensure a semiconductor foundry’s yields are of consistent quality. KLA is sort of a counterpart to Teradyne in that way, except that it comes in before and during the manufacturing process to minimize the chances of a bad quality test.

The rally this year has treated KLA’s stock well – it’s up over 16% year to date as of this writing – and its financials remain healthy, with its fourth quarter fiscal 2023 earnings beating consensus EPS estimates by $0.97 and showing revenue of $2.5 billion.

One of KLA’s biggest advantages is the sheer size and diversity of the markets it serves. It has a dominant position in its market, and thanks to aggressive moves in the mergers and acquisitions space, it’s essentially a one-stop shop for semiconductor metrology and inspection. And it’s also putting the foundation in now for future growth on the domestic manufacturing front, having just opened a new North American headquarters in Ann Arbor, Michigan.

As more and more of our semiconductor manufacturing returns to the United States, we expect KLA’s already impressive client list to grow further.

Action to Take: Buy KLA Corp. (Nasdaq: KLAC) at market.