The semiconductor industry has experienced enormous growth in recent decades. Demand for chips may decline, especially during economic recessions, but history shows that more advanced devices and technologies require more powerful processors, creating an upward demand curve. In the near term, artificial intelligence (AI) remains a key sales catalyst for leading chip suppliers.
According to IDC’s latest report, the semiconductor market will grow by 15% by 2025, led by demand for AI. This could represent a great buying opportunity for stocks that have recently fallen in value.
These are two stocks that deserve a lot of praise on Wall Street Advanced micro devices(NASDAQ: AMD) And Micron technology(NASDAQ:MU). These stocks are trading well below their recent highs, but reporting robust revenue growth from the data center market.
Wall Street’s average price target is 55% above AMD’s stock price of roughly $121 and 53% above Micron’s stock price of roughly $87. Let’s take a closer look at these companies to see if betting your money on Wall Street’s opinion is a smart move.
Data per YCharts
Advanced Micro Devices shares have delivered excellent returns in recent years. AMD is making a lot of profit in the server market, and that is getting closer Intel‘s costs. In recent years, the market share of central processing units (CPUs) used in servers has increased from single digits to 34%.
AMD is also seeing strong demand for its graphics processing units (GPUs) in the data center market, and this is the opportunity that could catapult the stock higher in 2025. Despite weak results in the gaming and industrial markets, AMD’s growth in data centers has helped to double its share prices. -single-digit revenue growth in the third quarter compared to the previous year’s quarter. Analysts expect AMD to report 13% year-over-year revenue growth through 2024, according to Yahoo! Finances.
Growth could accelerate next year as demand picks up in other segments. For example, AMD’s embedded chip revenue, including sales for industrial markets, fell 25% year-over-year in the third quarter, but the segment’s revenue grew 8% from the previous quarter.
With AMD shares selling 43% below their previous highs and trading for just 23 times next year’s consensus estimate, Wall Street’s price target could be on the money.
AMD expects the market for AI accelerators, or GPUs, to grow more than 60% annually and reach $500 billion by 2028. There’s a potentially long growth trajectory ahead, and these advanced processors generate above-average profit margins. This should allow profits to grow faster than sales.
Analysts expect AMD to grow earnings 41% year over year. For 2025, the Street is calling for earnings of $5.13. If the stock continues to trade at its current price-to-earnings ratio, the stock price could rise along with earnings and reach Wall Street’s price target of $184.
Of course, a sudden downturn in the chip industry would slow AMD’s momentum and limit the stock’s gains. But with the stock price already trading at a deep discount to previous highs, there is a favorable risk-reward ratio for AMD investors heading into 2025.
Micron Technology is a leading provider of memory and storage products for the data center, original equipment manufacturers and consumer markets. The stock has performed well since its 2022 low, rising 71%. But shares are trading well below their highs as demand for dynamic random-access memory (DRAM) weakened this year.
The company just reported its fiscal first quarter results, where shares fell again on a soft outlook. Data center revenue grew 400% year over year and 40% from the previous quarter. Data center sales now represent more than half of Micron’s total revenue.
Micron also said high-bandwidth memory (HBM) shipments exceeded expectations, with HBM revenue more than doubling from the previous quarter.
These positive demand trends were offset by management’s soft outlook for the second fiscal year. Revenue expectations were below Street estimates, but management said this is a temporary bump in the road due to an inventory adjustment by customers in consumer-related markets. The company expects this adjustment to be completed soon.
Based on the updated guidance, Micron still expects to achieve record sales and positive free cash flow in fiscal 2025 (ending in August).
The stock looks cheap at these lower share prices, but there is a risk of a fall in value. The problem is that Micron has an inconsistent corporate history. Although revenue has grown steadily over the past decade, the competitive nature of the memory market has caused wide swings in Micron’s earnings per share (EPS) and free cash flow.
MU data by YCharts
The stock is so cheap that if the company meets management’s full-year expectations, the stock could return to its previous highs. At the current share price of $86, the stock trades at 10 times this year’s earnings estimates and 6.6 times fiscal 2026 estimates. Those low valuation multiples are tempting.
Still, AMD offers the better risk reward and is the safer bet to hit Wall Street’s 2025 price target. Micron’s latest quarter is a good reminder that there are many variables affecting demand for its products that are difficult to predict. appreciating the business as a challenge.
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John Ballard holds positions in Advanced Micro Devices. The Motley Fool holds positions in and recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.
These chip stocks could rise in 2025, according to Wall Street, originally published by The Motley Fool
