It's a great time to invest in top semiconductor chip stocks. Powerful trends like artificial intelligence (AI), cloud computing, AI-powered smartphones, and electric vehicles (EVs) are driving more demand for chips than ever before. The PHLX Semiconductor Sector index is up 50% over the last 12 months, beating the S&P 500 return of 34%.
Here are two leading semiconductor companies with shares trading down at least 25% from their recent highs. Investors that add these two stocks to their portfolio today could see excellent returns as each stock rebounds.
1. Micron Technology
Exploding demand for Micron Technology's (MU +4.79%) memory and storage components makes it a great stock to buy on the dip. The company just reported better-than-expected financial results for fiscal Q4 (which ended Aug. 29), with strong data center demand sending revenue up 93% year over year.
NASDAQ: MU
Key Data Points
Increasing demand for Micron's memory chips should continue in calendar 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 projects the AI server market to increase 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 revenue 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 drive more demand in the second half of fiscal 2025.
PC and mobile are two more opportunities for growth next year, where Micron is a leading supplier of memory and solid-state storage drives. PC unit volumes are anticipated to accelerate 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 OS. The release of more AI-enabled smartphones will drive similar demand trends for Micron's mobile business.
Analysts expect Micron's earnings to increase 42% to $12.74 in fiscal 2025. Assuming the stock trades at its historical average price-to-earnings (P/E) ratio of 16, the shares could reach $203 within the next year. Micron investors could potentially almost double their money from the current share price.
2. Advanced Micro Devices
Major data center operators, including Microsoft, Meta Platforms, and Oracle are using Advanced Micro Devices' (AMD 2.54%) MI300 chip to help handle their AI workloads. Since launching this chip in December, AMD's data center revenue has skyrocketed, with revenue more than doubling year over year in Q2.
NASDAQ: AMD
Key Data Points
AMD's data center business should continue to post strong growth to support enterprise investment in AI. Data centers require powerful graphics processing units (GPUs) to run AI models. While Nvidia is the leading GPU provider, AMD expects to generate $4.5 billion from data center GPUs this year.
AMD is filling out a GPU market that has been supply-constrained, but it's also positioned to meet demand from customers who may look for alternatives to the high prices that Nvidia's chips command. AMD estimates the total addressable market for AI accelerators, or GPUs, to reach $400 billion by 2027.
Looking ahead, new AI models will require exponentially higher processing power. In June, AMD unveiled a multiyear roadmap for its AMD Instinct accelerators. It's planning to launch the MI325X accelerator in Q4, with the MI350 launching in 2025. The MI350 will bring 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, which points to a long runway of growth ahead.
The consensus Wall Street estimate forecasts AMD's revenue to increase 28% next year, with earnings per share reaching $5.44. If AMD stock is trading at the same forward P/E of 48 a year from now, it could trade at $261, implying an upside of 59%.
