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Wall Street remains loyal to semiconductor stocks after a strong start to the year. The enthusiasm around the sector, fueled by continued artificial intelligence tailwinds, has pushed the VanEck Semiconductor ETF (SMH) up 51% through 2024, while high-profile names like Nvidia and Super Micro Computer have doubled. The rally has sparked fears of a bubble in the sector or concerns that valuations are getting too high. In fact, some high-profile names have retreated recently as investors lock in profits, including Nvidia and Advanced Micro Devices. SMH YTD mountain Stock performance in 2024 However, many investors and analysts expect another strong ride for the sector in the second half of the year. And while AI tools may take center stage, opportunities exist in a variety of contrarian plays. “The AI theme continues to be very strong,” said CFRA Research analyst Angelo Zino, who has a buy rating on Nvidia. “We like the setup for the second half of the year and 2025, and you also have these cyclical themes that will build momentum.” Backing Nvidia, AI pillar Portfolio managers remain bullish on Nvidia long-term despite the stock’s 148% gain this year and recent pullback. Ken Mahoney of Mahoney Asset Management sees Nvidia’s stock move as justified given its strong fundamentals and the significant advantage the company holds over its competitors. He added that the recent volatility is also reasonable after such a strong rally. John Belton, portfolio manager at Gabelli Funds, noted that the fundamentals look strong in the short term, “but as things move forward, we’re in uncharted territory.” “As we look into next year, we’re going to see more of the size of this market, and that expands the range of outcomes,” he said. Paul Meeks of Harvest Portfolio Management expects the initial AI buildout from the infrastructure group, which includes Nvidia, Advanced Micro Devices and Broadcom, to take longer than previously expected. He is holding off on buying in the short term as he waits for prices to stabilize. Broadcom is another early-stage AI company that has attracted Wall Street’s attention in recent months, with shares up 48% year-to-date. The networking equipment maker announced a 10-for-1 stock split last month and posted strong earnings on the back of demand for AI. JPMorgan analyst Harlan Sur also noted that the company likely won a major contract with Alphabet for next-generation AI-specific integrated circuits. Sur maintains a bullish rating on the stock. Baird CEO Ted Mortonson said Broadcom’s design deals with some of the biggest cloud computing companies will help the company win big as AI enters the inference phase. Zino added that the stock will also get a boost as OEMs integrate AI into their devices. To be sure, Renaissance Macro CEO Jeff deGraaf said chipmakers could be volatile through the summer, citing the group’s historical seasonal weakness. “We’re really crossing the seasonal Rubicon here on the semis,” he told CNBC’s “Closing Bell” last month. “Traditionally, if you follow seasonal trends, you want to be a late July semiconductor seller and you want to sit on your hands until mid-October.” Beyond the AI pillars, Nvidia may play a central role when it comes to investing in the industry, but some money managers are looking for opportunities beyond the usual AI operations. Gabelli’s Belton highlighted semiconductor equipment makers as a potential alternative that have benefited from the transition to growing end markets, including autos and consumer devices. Now, the rise of semiconductor fabrication plants to meet AI demands will require more equipment. ASML Holding’s monopoly on lithography — etching designs onto silicon wafers — gives it an advantage in creating advanced chip technology, Belton said. Applied Materials maintains dominance in a stage known as deposition, while KLA Corp. dominates in process control. All three stocks are up at least 38% this year. “There will only be one or two companies that can supply equipment to the factories,” he said. “AI is a clear incremental growth driver for these companies, but there are all sorts of different industries that need more chips.” Synopsys and Cadence Design Systems offer another way to get into the field, which dominates the electronics design-automation software space. Meeks said both stocks could rise as more sophisticated AI enables more advanced design systems. Booming demand for AI also signals demand for larger memory capacities. Many on Wall Street see this bullish cycle as a key driver for Micron Technology as the industry climbs off its bottom. Micron shares fell after beating quarterly estimates while providing consistent guidance that disappointed investors last month. But many on Wall Street see the sell-off as a buying opportunity, with Goldman Sachs analyst Toshiya Hari expecting market share gains in high-bandwidth memory. Hari maintains a buy rating on Micron. QCOM stock YTD mountain this year Qualcomm is another name that could be a big winner from the growing use of AI in consumer devices in the second half of the year, according to CFRA’s Zino, who maintains a buy rating on the stock. That could start with Apple, which made headlines last month when it announced plans to bring AI features to its latest iPhone models. Apple may be the first major company to bring AI to smartphones, but Zino expects the transition to gain momentum and become mainstream sometime in 2025 or 2026 as AI use cases expand to vehicles and cars. “Traditionally, they’ve never been in the PC, but if they get 5% to 10% of the next-generation AI PC market, their model will explode in a positive way,” Baird’s Mortonson said.