This has been a difficult year for semiconductor stocks, which is evident from the 23% decline in the PHLX Semiconductor Sector index so far. Investors have decided to book profits and preserve capital owing to the uncertainty caused by the tariff-fueled trade war. This, in turn, has led to an increase in the possibility of a global recession.
However, recent developments suggest there could be a reason for investors to remain optimistic. These include the 90-day pause in reciprocal tariffs to allow time for negotiations between the U.S. and its trade partners, the exemption of duties on imports of semiconductors, computers, processors, and some other electronic items, and news that the U.S. and China are engaged in trade negotiations.
Favorable trade deals between the U.S. and its trading partners could bring the stock market out of the rut it is in. Moreover, disruptive trends such as artificial intelligence (AI) are here to stay thanks to the massive productivity gains they can deliver in the long run.
That's why now would be a good time for savvy investors to take a closer look at a couple of top semiconductor stocks that have pulled back of late but have the potential to fly higher in the next year -- and in the long run thanks to the massive AI-driven opportunity they are sitting on.
1. Broadcom
Shares of Broadcom (AVGO +0.34%) have retreated 28% in 2025, and that drop doesn't seem justified in light of the company's remarkably solid growth in recent quarters. Not surprisingly, analysts are upbeat about Broadcom's performance on the stock market in the coming year. The shares carry a 12-month median price target of $250 as per 44 analysts covering the stock, which points toward potential gains of 50% from current levels.
Also worth noting here is that 89% of analysts covering Broadcom recommend buying it. That isn't surprising considering the impact of AI on the company's business. The company's AI revenue increased an impressive 77% year over year in the first quarter of fiscal 2025 (which ended on Feb. 2) to $4.1 billion.
NASDAQ: AVGO
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That was faster than the 25% growth in the company's overall quarterly revenue, which landed at $14.9 billion. AI, therefore, is now producing 27% of Broadcom's top line. Importantly, AI chips are likely to move the needle in a bigger way for Broadcom going forward as the company's custom processors are in tremendous demand from cloud hyperscale customers.
Broadcom is expecting a 44% year-over-year increase in its fiscal Q2 AI revenue to $4.4 billion. However, don't be surprised to see the company doing better than that as more customers are expressing interest in its custom AI chips. Each of Broadcom's existing three hyperscale cloud customers is expected to deploy AI server clusters powered by more than 1 million of its custom AI chips, known as XPUs, over the next three years.
Management says that "these three hyperscale customers will generate a Serviceable Addressable Market or SAM in the range of $60 billion to $90 billion in fiscal 2027." Considering that Broadcom is in the final stages of the development of custom AI accelerators for two more hyperscale customers, its AI-driven addressable market should ideally become bigger.
Even better, Broadcom's AI-focused customer lineup is about to get bigger as "two additional hyperscalers have selected Broadcom to develop custom accelerators to train their next-generation frontier models." So, the company could eventually sell its AI chips to a total of seven cloud hyperscale companies in the future.
That could open up the possibility for exponential growth in the company's AI revenue from fiscal 2024 levels of $12.2 billion. Its addressable market from the current three customers is quite huge already. All this explains why analysts are expecting Broadcom's earnings to jump by an impressive 36% in the current fiscal year to $6.64 per share.
However, Broadcom delivered stronger earnings growth of 45% in fiscal Q1, suggesting that it has the potential to beat Wall Street's expectations, especially considering the new AI customers that it is bringing on board. So, investors looking to add a top AI stock to their portfolios right now would do well to buy this chip designer before it starts flying higher.
2. Marvell Technology
Marvell Technology (MRVL +0.38%) is Broadcom's competitor in the custom AI chip market, and shares of the company have slipped a massive 55% this year. As a result, Marvell is now trading at just 22 times trailing earnings. Buying this chip stock at this valuation is a no-brainer given its phenomenal growth.
After reporting 27% year-over-year growth in fiscal 2025's Q4 (which ended on Feb. 1), Marvell is expecting its fiscal 2026 Q1 revenue to jump at a greater pace of 61%. Meanwhile, it is expecting earnings to jump by more than 2.5 times from the year-ago period. This tremendous growth makes it clear why Marvell's 12-month price target of $105 as per 39 analysts covering the stock points toward a potential jump of 112% from current levels.
NASDAQ: MRVL
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What's more, 92% of the analysts suggest buying Marvell stock, which is not surprising considering its red-hot growth. Importantly, its growth seems sustainable going forward. Marvell is the second-largest player in the custom AI chip market after Broadcom, with the latter controlling an estimated 70% of this space. However, analysts are expecting both companies to be on equal footing in the future, driven by Marvell's recent wins in the custom AI processor market.
Marvell currently has two high-volume customers for its custom AI chips, and the good part is that it is expecting both customers to expand the adoption of its processors. Also, management pointed out on the company's March earnings conference call that it is on track to start production of custom AI chips for a third customer in 2026. The company points out that this third customer can drive "a very significant amount of incremental revenue for Marvell over the next several years."
What's more, Marvell is pushing the envelope on the product-development front. The company is working with its foundry partner TSMC to roll out custom AI processors and connectivity chips made using a 2-nanometer (nm) manufacturing process. The two companies have already developed a working sample of the 2nm silicon, according to an update issued last month.
This could give Marvell an advantage over Broadcom considering that the 2nm chip samples of the latter are expected in June this year. So, the possibility of Marvell gaining ground in the AI chip market is definitely solid. All this explains why analysts are expecting remarkable growth of 79% in the company's earnings in the current fiscal year, which could indeed help this semiconductor stock deliver the remarkable returns that it is expected to deliver over the next year.
Throw in Marvell's cheap valuation, and it is easy to see why it would be a good idea to buy this stock hand over fist following its big drop this year, as it may not be long before it regains its momentum thanks to its outstanding AI-fueled growth.
