Why there’s investment opportunity in microprocessors found in everyday products

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Proof of profitability at low-end chipmakers can be seen in their dividend streams

. They have well-developed businesses, lower costs for research and development and longstanding relationships with customers. Their chips tend to make up a small portion of the cost of the product and are proven to work. As a result, end users are less inclined to swap them out and risk getting it wrong with a new supplier.

While these lower-end chipmakers have appeal, Mr. Bryson says they suffer from the same macroeconomic pressures as higher-end manufacturers. In fact, they may suffer more in a downturn because a lot of their chips go into consumer products. “Nvidia has the clearest path to selling into AI,” Mr. Bryson says. “You can see a clear trajectory.”

Mr. Noble notes that Nvidia’s price-to-earnings ratio of 221.8 reflects a high level of optimism and a lot of implied risk.Texas Instruments on the other hand has seen its shares rise 8 per cent this year and has a forward PE ratio of 19.8. Analog Devices has seen its shares rise 16 percent and has a PE ratio of 26.6.

 

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