Nvidia, Broadcom Among Goldman Highlights For AI Opportunities

Nvidia Corp NVDA and peer chip stocks, including Advanced Micro Devices, Inc AMD and Broadcom Inc AVGO, are trading lower Friday as the chip companies remain susceptible to potential sanctions on China regarding artificial intelligence chip exports.

The Biden administration could restrict Nvidia’s AI chip shipments with three-tier export rules favoring allies like Taiwan and barring Tier 3 nations like China.

The Chinese semiconductor equipment industry was estimated to reach $230 billion in 2024, according to Statista.

Also Read: Nvidia Teams Up with Dutch Government to Build Cutting-Edge AI Supercomputer Facility

Also on Friday, Taiwan Semiconductor reported consolidated revenue of 2.89 trillion New Taiwan dollars between January and December 2024 (up by 33.9% year-on-year), implying it made a consolidated revenue of 868.46 billion New Taiwan dollars ($26.3 billion versus a consensus of $26.2 billion) for the December quarter, up from $19.62 billion a year ago.

Goldman Sachs analyst Toshiya Hari pointed out that the semiconductor and semiconductor capital equipment sectors offer significant potential for generating alpha in 2024, particularly among companies supporting the build-out of AI infrastructure.

Top Performers in AI Infrastructure

Several stocks in the sector have greatly outperformed the broader market, delivering strong returns:

Credo Technology Group CRDO +245%
Nvidia NVDA +171%
Broadcom AVGO +108%
Marvell Technology MRVL +83%
Arm Holdings ARM +64%

Underperformers in Analog, MCU, and Power

In contrast, stocks in the Analog, MCU, and Power sectors have significantly underperformed, with notable declines in:

Microchip Technology Inc. MCHP -36%
Qorvo, Inc. QRVO -38%
ON Semiconductor Corp. ON -25%
Skyworks Solutions, Inc. SWKS -21%

Weak Performance in Semiconductor Capital Equipment

Similarly, stocks in the Semiconductor Capital Equipment and Materials segments also lagged behind, including:

Cohu, Inc. COHU -25%
Entegris, Inc. ENTG -17%
Lam Research Corp. LRCX -8%
Applied Materials, Inc. AMAT +<1%
KLA Corp. KLAC +8%

In 2025, Hari recommended investors to own industry leaders in AI and cyclical names as he expected the magnitude of AI earnings beats to moderate, while he envisioned earnings revisions in broad-based semiconductors to turn positive in the latter half of the year. Hari’s Buy-rated ideas include Nvidia, Broadcom, Lam Research, Micron Technology, Inc MU, Teradyne, Inc TER (also on the Conviction List) and Entegris.

Hari noted Nvidia’s GPU as the industry standard, which is supported by the company’s large installed base, robust developer ecosystem, and presence in all major Clouds. Nvidia and its partners’ ability to innovate will help them preserve their moat.

Broadcom is favorably positioned alongside Nvidia, backed by continued growth in the AI Semiconductor business with a potential acceleration in Networking, a recovery in the cyclical parts of its Semiconductor portfolio, sustained revenue growth, and margin expansion in Software.

In 2025, although challenging supply-demand dynamics in conventional DRAM and NAND are likely to keep a lid on Street estimates and Micron’s valuation multiple in the near term, Hari expects share gains in HBM and enterprise SSD, together with a gradually improving supply-demand backdrop in conventional DRAM and NAND, to catalyze positive EPS revisions and, in turn, better relative stock price performance.

Hari expects Lam Research to outperform its immediate peers in 2025. In addition to a quarterly recovery in the overall Wafer Fab Equipment market, he expects idiosyncratic drivers such as the adoption of Gate-All-Around transistors in leading-edge Foundry/Logic and the resumption of technology transitions in 3D NAND to support revenue growth that exceeds the overall WFE market.

Hari expects Teradyne to benefit from share gains in Compute SoC test, HBM test, recovery in Mobile SoC test and stabilization and /acceleration in Robotics revenue growth.

The analyst also upgraded NXP Semiconductors NXPI from Neutral to Buy and downgraded AMD from Buy to Neutral.

The NXP upgrade reflects the analyst’s belief that the Automotive MCUs market will begin to price in a cyclical recovery in 2025. Additionally, NXP is taking sufficient strategic steps, mainly its growing focus on the Chinese OEMs, to gain a share in the Automotive semiconductor market over the medium to long run. There is ample potential for NXP’s gross and operating margins to expand on a cross-cycle basis.

Although Hari remains constructive on the company’s ability to take share from Intel Corp INTC in x86-based computing across PCs and traditional servers, the analyst is increasingly concerned that the rise of Arm-based custom CPUs coupled with the competitive intensity in accelerated computing will weigh on AMD’s revenue growth relative to peers, exert upward pressure on AMD’s operating expenditure profile and, in turn, weigh on the stock’s multiple.

The underperformance reflects weakness in PC and traditional end-demand and, more recently, slower-than-expected growth in Data Center GPUs.

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