Investors Who Have Been Following AI Chips and Memory Chips May Be Forgetting About the Vital Industry That Enables Both of Them

AI chips and memory chips have been among the most sought-after sectors in artificial intelligence (AI), but investors may overlook a crucial industry that supports both. Chipmakers rely on specialized semiconductor equipment to meet demand, and without this equipment, producing the in-demand chips is impossible. Nvidia, once a double down signal investor missed in 2009, is now highlighted again as a rare signal, but a lesser-known chipmaker, Cohu, is also showing strong growth potential.

Semiconductor equipment companies like Applied Materials (NASDAQ: AMAT) and Lam Research (NASDAQ: LRCX) are experiencing unprecedented demand and limited focus on individual stocks, driving their revenue growth. Applied Materials reported a 25% year-over-year surge in sales and expanded its gross margins for the 13th consecutive quarter.

Lam Research has risen more than 70% this year, with advanced wafer fabrication equipment enabling AI chips. Cohu, a smaller company with a market cap of $2.5 billion, is posting high growth rates in chip testing equipment, with revenue growth of 38% year-over-year and a forecasted increase in Q3 sales to $170 million. The AI-driven compute opportunity and rising profits could lead to a higher valuation for Cohu.

Despite Applied Materials not being on The Motley Fool Stock Advisor's top 10 list, the company continues to deliver meaningful revenue growth and expand its gross margins.