Let's address the elephant in the room: When it comes to artificial intelligence (AI), no one's going to forget Nvidia (NVDA +1.31%). I know I certainly won't. The company is the standard bearer for the accelerating adoption of AI thanks to its gold standard AI chips and has thus far been the one undisputed beneficiary of the AI revolution. The stock price has gained more than 200% over the past year alone, led by triple-digit revenue and profit growth in each of the preceding four quarters -- which is memorable, to say the least.
That said, some investors are already looking to the next wave of AI adoption as the potential windfall expands beyond Nvidia, as it no doubt will. In fact, analysts are particularly bullish on two semiconductor stocks that provide compelling alternatives for investors looking to expand their exposure beyond Nvidia.
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Super semiconductor buy No. 1: Arm Holdings
While Arm Holdings (ARM 1.17%) is best known for providing the central processing units (CPUs) that underpin 99% of the world's smartphones, the company's portfolio is much more expansive. Its semiconductors are also staples in personal computers, tablets, smartwatches, networking equipment, and data centers.
The accelerating adoption of AI represents the next big opportunity for both Arm and investors, as many of the world's high-end AI processors incorporate Arm's latest technology. Nvidia's GH200 Grace Hopper Superchip, which integrates accelerated CPU and graphics processing unit (GPU) technology to better handle the rigors of AI processing, uses 144 of Arm's version 9 (V9) CPU cores, while Microsoft's data-center chips use more than 100. Furthermore, Arm's customer list includes other well-known players in the AI space, including Advanced Micro Devices and Alphabet's Google, among others.
For its fiscal 2024 fourth quarter (ended March 31), Arm delivered record results. Revenue jumped 47% year over year to $928 million, driven by licensing revenue for its AI chips, while its net income of $224 million jumped 74-fold. Evidence suggests its growth spurt will continue as Arm's remaining performance obligation (RPO) -- made up of contractually obligated sales that haven't yet been booked as revenue -- rose 45%. Management also boosted its forecast and is now expecting fiscal 2025 Q1 revenue of $900 million at the midpoint of its guidance, though that well may be conservative.
NASDAQ: ARM
Key Data Points
Of the 29 analysts who issued an opinion on Arm stock in April, 16 rate it a buy or strong buy, and only one recommends selling, citing short-term valuation.
Evercore ISI Group analyst Mark Lipacis is the most bullish among his Wall Street colleagues. He has an outperform (buy) rating and a $145 price target on Arm stock, which suggests 33% upside compared to Friday's closing price. The analyst cites the shift to AI, ongoing data-center upgrades, and management's "beat and raise quarter" as fueling his enthusiasm.
If the analyst is right -- and I believe he is -- Arm Holdings gives investors another way to profit from the ongoing adoption of AI.
Super semiconductor buy No. 2: Micron Technologies
Another company poised to ride the wave of AI higher is Micron Technology (MU 2.13%). The company is a leading supplier of memory (DRAM) and storage (NAND) chips, which are indispensable for AI processing and data-center operations.
Micron's customer list is a Who's Who of the industry's largest chipmakers, including Nvidia, AMD, IBM, and Intel, among many others.
The strength of its recent results caught many investors by surprise. For Micron's fiscal 2024 Q2 (ended Feb. 29), the company generated revenue of $5.82 billion, up 58% year over year and 23% quarter over quarter. Furthermore, robust demand drove strong price increases. That demand is expected to accelerate as the year goes on and as management is guiding for revenue of $6.6 billion in Q3, which would represent year-over-year growth of 76%.
NASDAQ: MU
Key Data Points
Micron also noted that its HBM3E high-bandwidth memory supply, which has been adopted by Nvidia for its H200 Tensor Core GPUs, is completely sold out for this year, while much of the 2025 supply is spoken for as well. This helps illustrate the strong and growing demand for AI processors and why Micron is a compelling opportunity.
Of the 36 analysts who issued an opinion on Micron stock in April, 30 rate it a buy or strong buy, and not one recommends selling.
Baird analyst Tristan Gerra recently raised his rating to outperform (buy) while assigning a $150 price target on Micron stock, which suggests 24% upside compared to Friday's closing price. The analyst says he sees "meaningful upside opportunities," citing robust pricing power and strong demand from hyperscale cloud operators as driving "unprecedented outlook" over the coming 12 to 18 months.
This gives investors another compelling opportunity to ride the secular tailwinds of AI that aren't named Nvidia.
