While most investors overlook this critical piece of the AI ecosystem, Alex believes it could become one of the most important beneficiaries of the next phase of the tech boom.

He details this below…

– James Ogletree, Senior Managing Editor

Artificial intelligence has generated no shortage of commentary – breathless predictions, dire warnings, sweeping promises. Yet for all the noise, very little attention is being paid to the single most important question for investors: What must happen behind the scenes for AI to actually deliver on its potential?

Because while the conversation tends to focus on what AI can do, the more consequential issue is what AI requires to function at scale.

The newest generation of AI chips is astonishingly powerful. Nvidia’s latest architecture, for example, processes data at speeds that would have seemed impossible a few years ago. But this development has created a less glamorous – yet absolutely fundamental – challenge. These chips generate extraordinary heat, consume enormous amounts of energy, and produce more data per second than most existing systems can handle.

This is rarely discussed outside technical circles. Yet it is the limiting factor that determines how far and how fast AI can advance.

We are building larger and larger GPU clusters – some with hundreds of thousands of chips working in unison – and asking them to perform tasks that dwarf the demands of even the most powerful supercomputers of the last decade. But here’s the problem: These chips can’t operate effectively unless they can communicate with one another at incredibly high speeds… without melting the servers they occupy.

In other words, AI doesn’t rise or fall on clever algorithms alone. It depends on the physical infrastructure that underpins them.

And that’s where things get interesting.

There is a relatively small American company – one you almost certainly haven’t heard of – that has quietly solved the most important bottleneck in AI today. It doesn’t develop models or design chips. It builds the connective tissue that allows these chips to exchange data at blistering speeds while keeping heat and system instability in check.

Without this capability, the highly publicized advances in AI simply don’t work in the real world.

That’s why nearly every major player in the industry – Nvidia, AMD, Intel, Amazon, Microsoft, and others – relies on this firm’s technology. It is not an exaggeration to say that the most advanced AI clusters on the planet could not operate at scale without it.

This is the part most investors fail to appreciate.

Technological revolutions rarely reward the companies that generate the headlines. They reward the companies that quietly make the entire ecosystem function.

During the dot-com boom, investors bid up flashy internet stocks to absurd levels while ignoring the behind-the-scenes firms that enabled the internet to actually run. Cisco, which built the routers that moved data from point A to point B, became one of the most profitable investments of that era. So did companies like Akamai, which solved the problem of delivering content efficiently across the web.

Meanwhile, many of the companies that investors thought would change the world disappeared entirely. Their business models weren’t sustainable. Their valuations weren’t rational. And the innovations they hoped to commercialize were ultimately built – or bought – by others.

The same dynamic is unfolding today in AI.

Investors are clamoring for the biggest names, the megacap platforms spending billions to stay ahead of their competitors. And many of these firms will continue to do well. But the most underappreciated beneficiaries of the AI boom are not the giants creating the models. They are the companies enabling those models to run safely, reliably, and at scale.

Consider the magnitude of what’s happening right now. Global data-center construction is accelerating at a rate we’ve never seen. Companies are racing to build new GPU clusters as fast as they can pour concrete. Entire power grids are being upgraded just to support these facilities. And late last year, a consortium of some of the largest firms in the world announced a multi-hundred-billion-dollar initiative to build what may become the largest AI supercomputing system ever attempted.

All of this expansion hinges on a single, unavoidable requirement: the system must be able to handle the data produced by the chips that power it.

Most investors don’t think about this step at all. They assume it’s already solved. It isn’t.

And that is precisely why the company addressing this challenge is not just a “nice to have” in the AI supply chain – it is foundational.

This is also where history acts as a guide. When investors become overly fixated on a narrow group of winners – whether it’s the Nifty Fifty in the 1970s, the dot-com darlings of the late 1990s, or the megacap tech giants of today – the biggest opportunities often emerge elsewhere. Not in the obvious place, but in the necessary place.

AI will undoubtedly reshape industries across the economy. It will enhance productivity, lower costs, accelerate drug development, improve supply chains, and transform manufacturing. But none of this happens unless the underlying infrastructure keeps pace with the models themselves.

In the meantime, investors would do well to remember that the biggest profits are rarely made where the crowd is already looking. They’re made where essential progress is being created – quietly, consistently, and before the rest of the world notices.

The post The AI Question People Aren’t Asking appeared first on Wealthy Retirement.

ASML creates the advanced lithography systems that semiconductor companies need in order to etch microscopic patterns onto their chips. The company is the ultimate pick-and-shovel play in the tech world. Instead of mining for gold – that is, manufacturing chips – itself, it sells the essential tools that every “miner” needs.

Looking at the stock chart, we can see ASML has been on a wild ride.

After soaring to over $1,000 in mid-2024, the stock tumbled toward $600 by the end of the year, only to bounce back above $700 more recently. This volatility has many investors wondering whether now is the time to buy.

The company’s recent financial performance certainly looks impressive. In the first quarter of 2025, ASML reported total net sales of 7.7 billion euros (about $8.7 billion) and net income of 2.4 billion euros ($2.7 billion).

Even more encouraging was its strong gross margin of 54%, which topped guidance thanks to a favorable product mix and hitting key performance milestones. The company also secured 3.9 billion euros ($4.4 billion) in new bookings, including 1.2 billion euros ($1.3 billion) for its state-of-the-art “extreme ultraviolet” systems.

For the full year, management expects sales between 30 billion and 35 billion euros ($32 billion to $38 billion), with AI remaining the primary growth driver.

ASML also just shipped its fifth “high NA” system, an advanced technology that customers are raving about. Intel reported that these cutting-edge machines could shorten certain manufacturing processes from 40 steps to less than 10, slashing production complexity and boosting efficiency. Samsung noted the technology could reduce cycle time by 60%, representing a massive leap forward in manufacturing capability.

But what about the stock’s valuation?

ASML’s enterprise value-to-net asset value (EV/NAV) ratio sits at 10.93, which is 91% higher than the average of 5.72 for similar companies. Normally, that would raise serious red flags.

However, there’s a good reason for the higher price tag. ASML’s quarterly free cash flow averages 13.6% of its net assets – nearly triple the 4.61% average for similar companies. In other words, ASML is squeezing almost three times more cash from each dollar of assets than its peers.

When we combine these metrics with the company’s clear technology leadership, its near-monopoly position in the technologies that are essential for making cutting-edge chips, and its shareholder-friendly policies (including a 4.9% dividend increase in 2024), the current valuation makes sense.

For now, The Value Meter rates ASML Holding as “Appropriately Valued” – not cheap enough to back up the truck, but certainly not overpriced.

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post ASML Holding: A Potential Value Play in the Semiconductor Space appeared first on Wealthy Retirement.

As the world’s largest U.S.-headquartered OSAT (outsourced semiconductor assembly and test) service provider, Amkor packages and tests chips for major tech companies. It serves a variety of industries, including communications, computing, automotive, and consumer electronics.

The company’s financial performance shows both strengths and challenges. In 2024, Amkor generated $6.3 billion in net sales, down about 3% from $6.5 billion in 2023. While computing revenue hit record levels, it couldn’t fully offset weakness in automotive, industrial, and communications markets. Fourth quarter results revealed further slowing, with revenue dropping from $1.8 billion to $1.6 billion year over year, while quarterly earnings fell from $0.48 per share to $0.43.

Despite these headwinds, Amkor remains financially solid. The company posted full-year net income of $354 million and generated substantial free cash flow of $359 million in 2024. Management has also shown confidence by increasing the company’s quarterly dividend by 5% and issuing a special $0.41 per share dividend in December.

Amkor’s balance sheet remains strong as well, with $1.6 billion in cash and short-term investments versus $1.2 billion in debt.

Looking at Amkor’s stock chart reveals quite a roller coaster ride. After hitting highs around $43 last July, shares have tumbled more than 60% to their current level around $16.

This dramatic decline naturally raises questions about valuation.

When we run Amkor through The Value Meter, we find some striking contrasts. The company’s enterprise value-to-net asset value (EV/NAV) ratio sits at just 0.83, which is a stunning 85% discount to the average of 5.72 for similar companies. This suggests that Amkor’s assets are remarkably cheap relative to its peers’.

However, its cash generation efficiency tells a different story. The company’s quarterly free cash flow has averaged just 2.08% of its net assets over the past year, less than half of the 4.61% average for similar companies. Though Amkor generated positive free cash flow in three of the last four quarters, it’s simply not as efficient at converting assets to cash as its peers.

The Value Meter rates Amkor as “Appropriately Valued,” finding that the stock’s rock-bottom asset valuation is largely offset by its below-average cash generation capabilities.

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post An Underappreciated Semiconductor Stock With Room to Run appeared first on Wealthy Retirement.

The stock has been on quite a journey. After climbing from around $115 in mid-2023 to over $250 by mid-2024, the shares have tumbled roughly 45% to about $138 today. This steep decline has many investors wondering whether the stock has become a bargain, especially given the company’s critical role in the semiconductor supply chain.

Despite the stock’s recent poor performance, Applied Materials just delivered record quarterly revenue of $7.2 billion in the first quarter of fiscal 2025, up 7% year over year. The company’s gross margin improved to 48.9%, its highest level in 25 years, while operating margin increased to 30.6%. These strong results helped drive a 12% boost in earnings per share to $2.38.

Looking ahead, management remains optimistic about the company’s growth prospects, pointing to AI as a major catalyst for semiconductor demand. In the company’s latest earnings call, CEO Gary Dickerson highlighted that the market remains on track to exceed $1 trillion in annual revenues by 2030. He went on to add that AI is “only at the beginning of what’s possible.”

The company is also showing impressive momentum in advanced chip manufacturing, especially as customers start using the latest technologies with next-generation transistors.

When we put Applied Materials through The Value Meter’s analysis, we find a stock that’s right on the border between fairly valued and slightly undervalued.

The company’s enterprise value-to-net asset value ratio sits at 5.65, just below the average of 5.72 for similar companies. This suggests that the stock trades at a slight discount to its peers.

On the cash flow front, Applied Materials has delivered positive free cash flow in each of the past four quarters, with its quarterly free cash flow averaging 8% of its net assets. This is very close to the peer average of 8.24%.

For long-term investors looking to gain exposure to the AI revolution and the semiconductor industry, Applied Materials represents a quality business that’s now available at a reasonable price. With its strong market position in critical areas like manufacturing processes, high-performance memory, and advanced packaging, the company appears well positioned to benefit from the technology transitions that will drive semiconductor growth in the years ahead.

The Value Meter rates Applied Materials as “Appropriately Valued,” though it’s right on the edge of being “Slightly Undervalued.”

What stock would you like me to run through The Value Meter next? Let me know here.

The post Applied Materials: Is It Time to Buy This Semiconductor Giant? appeared first on Wealthy Retirement.

Some might’ve been skeptical that the stock had that much upside left… but Anthony’s rating turned out to be spot-on. Over the next seven months, Nvidia’s share price rocketed up another 69%.

With all the uncertainty swirling around the tech sector right now, is the AI titan still a bargain? Find out below…

– James Ogletree, Managing Editor

Since the turn of the century, Nvidia (Nasdaq: NVDA) has completely transformed itself from a gaming graphics card maker into the undisputed leader in AI computing.

The company invented the graphics processing unit, or GPU, back in 1999, but it’s CEO Jensen Huang’s vision of accelerated computing that has positioned the company at the forefront of the AI revolution.

Today, Nvidia’s platform powers everything from gaming PCs to massive data centers, self-driving cars, and AI factories around the world. Every major cloud provider and AI company now relies on Nvidia’s chips, software, and networking technologies.

In fact, Nvidia’s Data Center segment alone contributed $115.2 billion in revenue for fiscal 2025, up a mind-boggling 142% from the prior year. The company is also currently ramping up production of its next-generation Blackwell architecture chips, which are already seeing tremendous demand for AI training and inference.

Overall, Nvidia reported staggering revenue of $130.5 billion in fiscal 2025, up 114% from the previous year, and is forecasting first quarter 2026 revenue of $43 billion, which would represent 10% growth over the most recent quarter.

Even more impressive, the company generated over $60.7 billion in free cash flow in fiscal 2025 – a huge jump from $26.9 billion a year prior. With gross margins hovering around 75%, Nvidia’s profitability puts most tech companies to shame.

The stock was on a scorching hot streak until a few weeks ago, when it began to slide due to concerns about the tech sector and the economy.

After hitting lows of about $10 in 2022, the stock rocketed more than 15-fold, but it’s since fallen by nearly 25%.

This massive surge followed by such an abrupt decline has many investors unsure of what to do next. Those on the outside looking in may wonder if they’ve missed the boat… while those who already own the stock might be thinking it’s time to abandon ship.

At first glance, Nvidia’s enterprise value-to-net asset value (EV/NAV) ratio of 36.7 might make your eyes water. It’s a whopping six times higher than the average of 6.12 for similar companies.

Normally, this would have value investors screaming “overvalued” from the rooftops. But here’s where things get interesting.

Nvidia’s free cash flow-to-net assets (FCF/NAV) ratio is an eye-popping 26.56% – more than triple the 8.28% average for similar companies. In simple terms, Nvidia is squeezing over three times more cash out of each dollar of assets than its peers.

What’s driving these exceptional results? It’s simple: Nvidia has become the essential pick-and-shovel provider for the AI gold rush.

While some may balk at Nvidia’s lofty valuation, our Value Meter sees a company that’s growing at an unprecedented rate while maintaining industry-leading profitability. Nvidia’s ability to generate free cash flow at levels far beyond industry norms suggests its premium is justified – and potentially even understated.

In a market filled with speculative AI plays that are burning through cash, Nvidia stands alone as a cash-generating machine leading a once-in-a-generation technological shift. For long-term investors willing to look past short-term volatility, Nvidia continues to offer compelling value despite its meteoric rise.

The Value Meter rates this one “Slightly Undervalued.”

What stock would you like me to run through The Value Meter next? Let me know here.

The post Is Nvidia’s Reign Finished… or Just Getting Started? appeared first on Wealthy Retirement.

Broadcom (Nasdaq: AVGO) is a tech company that’s primarily focused on semiconductor solutions, including wireless chips used in smartphones and wired infrastructure used in telecom and data centers.

The company has been at the forefront of the discussion as a pick-and-shovel play for the market’s most recent darling: artificial intelligence.

The smarter AI gets, the more powerful and efficient semiconductors will need to be. That’s where Broadcom will step in to provide its products and expertise.

Marc’s love for Broadcom is justified, as the stock has gained over 1,000 points since he recommended the stock to readers back in 2020.

Add the dividend (which currently yields 1.4%) and the fact that Broadcom typically raises it every year, and you can see why Marc likes the stock so much.

He’s just returned from a well-deserved vacation, so you get me instead for the second week in a row. (I’m sure you all are absolutely thrilled!)

While he’s out and I’ve been given the reins, let’s see whether Broadcom’s dividend is safe or in danger of being cut in the near future.

First, as always, let’s look at Broadcom’s free cash flow.

It’s easy to see that Broadcom has a hefty piggy bank saved up to back up its dividend.

Since 2020, Broadcom has grown its free cash flow every year, and it’s projected to do the same this year.

All in all, by the end of 2024, free cash flow is expected to have nearly doubled over the past four years.

On top of that, Broadcom is continuing to pay an affordable dividend. Last year, it brought in $17.6 billion in free cash flow and paid out $7.7 billion in dividends for a payout ratio of just 43.4%. That’s well below our 75% standard.

This year, the company is expected to pay out $8.6 billion in dividends, and free cash flow should leap to over $22.7 billion. That would push the payout ratio even lower to 37.8%.

Finally, if that wasn’t enough, the company has increased its dividend every year for the past decade, which is always an extra boon.

There are plenty of reasons Marc counts Broadcom as one of his favorite stocks – and plenty of reasons to think its dividend is quite safe.

Dividend Safety Rating: A

If you have a stock whose dividend safety you’d like us to analyze, leave the ticker symbol in the comments section below.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds or closed-end funds.

The post Broadcom: A Semiconductor Superstar With a Safe Dividend appeared first on Wealthy Retirement.

The most-bought stocks are the ones you’d expect: Nvidia (Nasdaq: NVDA), Alphabet (Nasdaq: GOOGL), Advanced Micro Devices (Nasdaq: AMD), Super Micro Computer (Nasdaq: SMCI) and Arm Holdings (Nasdaq: ARM).

No surprises there.

All of them are tech stocks that are involved in the production of semiconductor chips, and all of them have hit or nearly hit their all-time highs since January 26.

The most-sold stocks included The Walt Disney Co. (NYSE: DIS), Palantir Technologies (NYSE: PLTR), Marathon Digital Holdings (Nasdaq: MARA), Ford (NYSE: F) and General Motors (NYSE: GM).

Interestingly, all but Ford traded at or near 52-week highs in February, and Ford traded at its highest level since early August. The stock is up 33% from its lows in October.

So retail investors are buying white-hot stocks that are at all-time highs and selling stocks with lots of potential upside. That’s typical retail behavior.

Now, that’s not to say Nvidia can’t go higher. It certainly can, and it seems to every day.

But investors are better off buying the stocks that everyone else isn’t buying – the ones being ignored.

And Wall Street certainly isn’t ignoring the most-bought stocks. Analysts overwhelmingly have them rated as “Buys,” while only two stocks on the “most-sold” list (Disney and GM) have primarily bullish ratings.

Remember, in analyst speak, “Hold” means “sell,” and “Sell” means “run away from this dog as fast as you possibly can and don’t look back.”

This shows you that Wall Street analysts are no better at picking stocks than Jane and Joe Investor. A whopping 50 (yes, 50!) out of 55 analysts are saying to buy Nvidia at all-time highs after a 290% gain in the past year and a 705% gain over the past year and a half.

Sure, it could go higher still, but when that many analysts – along with millions of retail investors – are all leaning heavily in one direction, it makes me believe the stock is close to running out of gas.

I know Nvidia just reported a great quarter. But what happens if it releases disappointing numbers next quarter? With all of those uber-bullish analysts and investors starting to jump ship, the stock would be down 20% in a day.

On the other hand, 14 of the 18 analysts covering Palantir Technologies have given it a “Hold” or “Sell” rating. If Palantir were to miss on earnings, it likely wouldn’t affect the stock much because the sentiment around it is already so bad.

But imagine if the company were to report a great quarter and raise guidance. That would catch the bearish analysts off-guard and force them to boost their estimates and possibly their ratings. That’s how upgrades and downgrades can be catalysts for stock moves.

Analysts and retail investors are notoriously late to the party. They recommend and buy what’s hot, and they avoid and sell what’s not. But they should be doing exactly the opposite: selling the popular stocks and picking up bargains on quality stocks that others don’t want.

The overwhelming bullishness on chip stocks makes me believe we are in the later innings of this move and that there are better buys out there.

The post Is This the End of the Big Tech Rally? appeared first on Wealthy Retirement.

Today, this product is in your iPhone… your car… and even your electric toothbrush. It’s the world’s fourth-most-traded product, which makes it indispensable…

And yet, as the chip shortage rages on, the semiconductor is scarce.

Demand for electronics surged as the COVID-19 pandemic forced us to hunker down in the digital world. Meanwhile, demand for vehicles faded – so automakers canceled their orders.

Chipmakers pivoted, turning their focus to newer chips used in smartphones and laptops. Last year, less than 12% of chipmakers’ production spending went to tools to produce the more “commoditized chips” found in cars and speakers, according to The Wall Street Journal.

That’s less than half of what the industry spent on equipment for producing the more sophisticated chips found in smartphones.

When automakers came back to renew their orders, they found that they had been left behind.

Now producers like Toyota Motor Corp. (NYSE: TM) and General Motors (NYSE: GM) are feeling the pain. Ford Motor Company (NYSE: F) has cut production at multiple plants. One F-150 could be held up by a $50 part.

That’s because, in addition to chipmakers’ shift toward smartphones and laptops, a series of catastrophes, from the Texas cold snap to a factory fire in Japan, held up production. Not to mention the fact that U.S. sanctions embittered an already frosty relationship with Chinese semiconductor manufacturers.

The result? A distinctly 21st-century crisis known to some as “chipageddon.”

And it’s all hands on deck as the crisis unfolds. For example, Broadcom (Nasdaq: AVGO), one of the industry’s leaders, has reported that 90% of its supply for the year has already been ordered.

And auto chip supplier Texas Instruments (Nasdaq: TXN) boosted its revenue 29% from the first quarter of last year.

Meanwhile, Intel (Nasdaq: INTC) is footing a $20 billion bill to set up shop in two new plants in Arizona.

And the $50 billion that President Biden has pledged to boost U.S. chip manufacturing is yet another catalyst for a sector that has drastically outperformed the S&P 500 since 2016.

The following chart shows how, since 2016, the SPDR S&P Semiconductor ETF (NYSE: XSD) has more than doubled the return of the S&P 500.

What changed in 2016 that began setting chips apart from the rest of the market?

To answer this question, I turned to The Oxford Club’s resident expert on semiconductors (and former vice president of a semiconductor vendor), Engineering Strategist David Fessler.

As Dave said…

In 2016, the market finally started to realize the importance of semiconductors in nearly every sector.

There have been several big drivers that have fueled the boom in semiconductor chips. The world started to build the 5G infrastructure. Cars and trucks continue to be loaded up with electronic features. And now we have electric vehicles ramping up with even more chip content. The Internet of Things and Industry 4.0 are two more drivers.

Some experts credit the semiconductor industry for the tech sector’s magnificent rise. And tech’s bounds higher have recently decided the fate for the entire market, as information technology alone makes up more than 22% of the S&P 500.

Undoubtedly, semiconductors are key to making innovation possible.

This makes them a strong pick-and-shovel (err, chip-and-shovel) play for the country’s reopening.

According to Dave, “Semiconductor chipmakers are now in catch-up mode because of the pandemic. I believe the shortage will last well into 2022.”

So keep an eye on this sector – whether you watch the SPDR S&P Semiconductor ETF or, as Dave prefers, the Direxion Daily Semiconductor Bull 3X Shares ETF (NYSE: SOXL).

Prudential Financial’s chief market strategist has called semiconductors a bellwether for the larger economy – and as we saw in the chart above, they do track the S&P 500 – so they should be one of investors’ top industries to watch today.

Good investing,

Mable

The post Two “Chip”-and-Shovel Plays for the Country’s Reopening appeared first on Wealthy Retirement.