In the previous year, the semiconductor industry experienced significant growth, with annual sales surpassing $600 billion. This growth was driven by increasing demand from companies and governments worldwide seeking chips to construct their artificial intelligence (AI) infrastructures. The industry’s expansion is anticipated to continue into 2025 and beyond.
Semiconductors are often likened to gold due to their pivotal role in enabling innovations across various sectors, including AI, autonomous vehicles, smartphones, and computers. The global semiconductor supply chain, encompassing manufacturing equipment, chip design, and fabrication, is predominantly controlled by a small group of companies.
As the global semiconductor industry is projected to more than triple in size, reaching over $2 trillion in revenue by 2032, two notable companies in this sector may offer promising long-term investment opportunities.
Investing in just a few stocks with the expectation of life-changing returns should be approached cautiously. However, incorporating the two firms discussed in this article as part of a diversified portfolio could be a prudent strategy given their potential.
Nvidia
Nvidia, the world’s largest semiconductor company, boasts a market capitalization of $3.4 trillion. Its strong position is attributed to a significant technological advantage and its ability to tap into substantial market trends.
Nvidia reportedly controls 85% of the rapidly expanding AI chip market, outpacing competitors like AMD and Intel. Similarly, in the discrete graphics card market, which includes personal computers, Nvidia commands an impressive 90% share. This dominance in such markets, particularly AI chips, has fueled substantial growth in Nvidia’s revenue and earnings.
The company is expected to maintain its momentum due to the vast opportunities in these markets. It is estimated that the overall size of the graphics processing unit (GPU) market could increase twelvefold by 2033, generating nearly $950 billion in revenue, indicating significant growth potential for Nvidia.
Nvidia is also diversifying into areas such as enterprise software, achieving success in this domain. During its November 2024 earnings conference call, CFO Colette M. Kress stated that Nvidia AI Enterprise is expected to see a more than twofold increase in full-year revenue compared to the previous year, with overall software, service, and support revenue annualizing at $1.5 billion, anticipated to exceed $2 billion by year’s end.
Given the substantial size of the GPU market and additional growth catalysts, Nvidia could evolve beyond a semiconductor company. Despite its remarkable growth, it trades at a reasonable 32 times forward earnings estimates, slightly below the Nasdaq-100 index’s earnings multiple of 34.
ASML Holding
Nvidia’s chip production relies on the advanced chipmaking equipment manufactured by ASML Holding. ASML holds a monopoly in the extreme ultraviolet lithography (EUV) machine market, essential for producing advanced chips with increased transistor density, leading to higher computing performance and reduced power consumption. Consequently, these nodes are increasingly used in AI-related chip production for both cloud and consumer devices, driving demand for ASML’s machines.
The Dutch semiconductor giant secured bookings worth 7.1 billion euros in the fourth quarter of 2024, doubling analysts’ expectations, with EUV machines accounting for 43% of those orders. As trends like accelerated computing gain traction, the demand for advanced chips is anticipated to grow.
The EUV lithography market is expected to quadruple between 2023 and 2030. This forecast suggests significant growth potential for ASML, which reported a revenue of 28.3 billion euros last year and projects an increase to between 44 billion euros and 60 billion euros by 2030, along with improved margins.
These factors indicate robust earnings growth for ASML in the coming years, supported by the expanding semiconductor market. ASML stock is currently available at 31 times forward earnings estimates, presenting a compelling opportunity given its critical role in the semiconductor industry and its prospects for lucrative growth.
