Semiconductor stocks have been on fire in 2023, which may seem a bit surprising at first, given the slowdown in chip demand on account of weakness in the smartphone, personal computer (PC), and data center markets. The PHLX Semiconductor Sector index is up an impressive 48% so far this year, far outpacing the S 500 index's gains of 18% over that time.

The solid gains were sparked by the sudden spurt in the adoption of artificial intelligence (AI) applications, a technology that has opened a whole new growth frontier for chipmakers. After all, the global AI chip market is expected to grow at a healthy annual pace of 30% over the next decade and generate $227 billion in revenue in 2032, according to Precedence Research.

This explains why semiconductor stocks, such as Nvidia (NASDAQ: NVDA) and (NASDAQ: INTC), are in great demand this year. While share prices of Nvidia more than tripled, Intel stock gained 32%. However, Nvidia's terrific rally made the stock quite expensive, while Intel can be bought at a much lower multiple.

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Source Fool.com