It’s a good time to invest in the best semiconductor chip stocks. Powerful trends such as artificial intelligence (AI), cloud computing, AI-powered smartphones and electric vehicles (EVs) are driving greater demand for chips than ever before. The PHLX semiconductor sector The index is up 50% in the past twelve months, beating the S&P500 return of 34%.
Here are two leading semiconductor companies whose shares are down at least 25% from their recent highs. Investors who add these two stocks to their portfolios today could see excellent returns as each stock rebounds.
1. Micron technology
Exploding demand for Micron technology‘S (NASDAQ:MU) memory and storage components make it a great stock to buy on the dip. The company just reported better-than-expected financial results for its fiscal fourth quarter (which ended August 29), with strong data center demand boosting revenue 93% year over year.
Increasing demand for Micron’s memory chips should continue into 2025, driven by AI, automotive and data centers. Growth in the AI ​​server market is expected to drive demand for Micron’s high-capacity dynamic Random Access Memory (DRAM) modules. Statista predicts the AI ​​server market will grow tenfold to $430 billion by 2033, which could fuel strong growth for Micron’s data center business.
Other markets are expected to pick up next year. Micron’s automotive revenues hit a record in fiscal 2024. The increase in infotainment and driver assistance systems is increasing the number of chips per vehicle. This is a long-term growth opportunity that is expected to increase demand in the second half of fiscal year 2025.
PC and mobile are two more growth opportunities next year, with Micron being a leading supplier of memory and solid-state storage drives. PC unit volumes are expected to increase in the second half of the year, driven by upgrades to new AI-powered PCs and Microsoft‘s discontinued support for older versions of its Windows operating system. The release of more AI-enabled smartphones will drive similar demand trends for Micron’s mobile business.
Analysts expect Micron’s earnings to rise 42% to $12.74 in fiscal 2025. Assuming the stock trades at its historical average price-to-earnings (P/E) ratio of 16, the stock could reach $203 within the next year. Micron iInvestors could potentially almost double their money from the current share price.
2. Advanced micro devices
Major data center operators, including Microsoft, MetaplatformsAnd Oracle to use Advanced micro devices‘ (NASDAQ: AMD) MI300 chip to help handle their AI workload. Since the launch of this chip in December, AMD’s data center revenues have skyrocketed, with second-quarter revenue more than doubling year-over-year.
AMD’s data center business should continue to show strong growth to support corporate investments in AI. Data centers need powerful graphics processing units (GPUs) to run AI models. While Nvidia is the leading GPU supplier, AMD expects to generate $4.5 billion from data center GPUs this year.
AMD fills a GPU market with limited supply, but is also positioned to meet demand from customers who may be looking for alternatives to the high prices Nvidia’s chips command. AMD estimates that the total market for AI accelerators, or GPUs, will reach $400 billion by 2027.
Looking ahead, new AI models will require exponentially higher processing power. In June, AMD unveiled a multi-year roadmap for its AMD Instinct accelerators. It plans to launch the MI325X accelerator in the fourth quarter, while the MI350 will launch in 2025. The MI350 will deliver a 35x increase in AI inference performance compared to the MI300 series. The company also said it will release new products annually to meet growing demand, indicating a long runway for growth.
Wall Street’s consensus estimate predicts AMD’s revenue will rise 28% next year, with earnings per share reaching $5.44. If AMD stock trades at the same price-to-earnings ratio of 48 a year from now, it could be trading at $261, implying an upside of 59%.
Should You Invest $1,000 in Micron Technology Now?
Consider the following before purchasing shares in Micron Technology:
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. John Ballard has positions in Advanced Micro Devices, Meta Platforms and Nvidia. The Motley Fool holds positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
These two semiconductor stocks are down more than 22% but could rise in 2025 originally published by The Motley Fool
