The semiconductor industry was on a roll last year with annual sales exceeding $600 billion for the first time as companies and governments across the globe lined up to purchase chips for building their artificial intelligence (AI) infrastructures, and the good news is that the industry's growth is set to continue in 2025 and beyond.
Semiconductors are considered to be a new gold, enabling disruptive innovation in several areas ranging from AI to autonomous cars to smartphones and computers. Moreover, the global semiconductor supply chain -- from manufacturing equipment to chip design to fabrication -- is dominated by a select group of companies.
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With the global semiconductor industry set to more than triple in size and exceed $2 trillion in revenue by 2032, let's take a look at two key names from this sector that could help investors become rich in the long run.
Of course, buying just two stocks and hoping that they will deliver life-changing returns isn't a smart thing to do. However, buying the two companies discussed in this article as a part of a diversified portfolio could turn out to be a smart move considering their prospects.
1. Nvidia
Nvidia (NASDAQ: NVDA) is the largest semiconductor company in the world with a market cap of $3.4 trillion as of this writing. The chip designer has reached this position thanks to its tremendous technology lead and the ability to capitalize on disruptive trends.
It reportedly controls 85% of the fast-growing AI chip market, leaving little for rivals such as AMD and Intel. There is a similar story in the market for discrete graphics cards, which are used in personal computers as well, with Nvidia holding a commanding share of 90%. Nvidia's terrific hold over these markets, especially AI chips, has led to sharp growth in the company's revenue and earnings.
NVDA Revenue (TTM) data by YCharts
Nvidia should be able to sustain this outstanding momentum thanks to the immense opportunity that's present in these markets. According to one estimate, the overall size of the graphics processing unit (GPU) market could jump 12x by 2033 and generate close to $950 billion in revenue. This suggests that Nvidia still has a lot of room for growth.
At the same time, Nvidia is looking to diversify into additional areas such as enterprise software. More importantly, it is finding success in this space. On its November 2024 earnings conference call, CFO Colette M. Kress said:
We expect NVIDIA AI Enterprise full-year revenue to increase over 2x from last year, and our pipeline continues to build. Overall, our software, service, and support revenue is annualizing at $1.5 billion, and we expect to exit this year annualizing at over $2 billion.
Nvidia, therefore, could become more than just a semiconductor company in the long run. The massive size of the GPU market and the additional catalysts that Nvidia is looking to benefit from make this stock a no-brainer buy. After all, Nvidia is trading at an attractive 32 times forward earnings estimates even after the remarkable growth that it has been clocking, which is a small discount to the tech-laden Nasdaq-100 index's earnings multiple of 34.
2. ASML Holding
The chips that Nvidia designs wouldn't have gone into production without the help of the advanced chipmaking equipment that ASML Holding (NASDAQ: ASML) manufactures. ASML has a monopoly in the market for extreme ultraviolet lithography (EUV) machines, which are used for making chips based on advanced process nodes.
These advanced chips pack more transistors into a smaller surface area, which translates into higher computing performance and low power consumption. Not surprisingly, these advanced nodes are being used for making chips that can tackle AI workloads, both in the cloud and in consumer devices. As a result, the demand for ASML's machines is increasing.
The Dutch semiconductor giant received 7.1 billion euros worth of bookings in the fourth quarter of 2024, double of what analysts were expecting. EUV machines accounted for 43% of those orders. With trends such as accelerated computing coming into play, the global demand for advanced chips is likely to increase.
This explains why the EUV lithography market is expected to jump fourfold between 2023 and 2030, according to a third-party estimate. This could set the stage for outstanding growth at ASML. The company reported revenue of 28.3 billion euros last year. It expects its top line to jump to a range of 44 billion euros to 60 billion euros by 2030, along with a nice jump in its margins.
All this explains why ASML's earnings are expected to grow at a healthy pace over the next couple of years, a trend that it could sustain for a longer period on account of the secular growth of the semiconductor market.
ASML EPS Estimates for Current Fiscal Year data by YCharts
What's more, investors are getting a good deal on ASML stock right now as it is trading at 31 times forward earnings estimates. Buying ASML at this level looks like a smart thing to do considering the important role it plays in the semiconductor industry, which puts it in a nice position to make the most of a lucrative growth opportunity.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
