Investing in Microchip Stocks

Microchip companies design and manufacture the basic components that make up computing systems. Microchip businesses are part of the technology sector, but they are also advanced engineering and manufacturing companies. As chips proliferate throughout all sectors of the economy, the producers of these basic tech building blocks are an increasingly important part of daily life around the globe.

As with any business closely tied to manufacturing, the microchip industry is cyclical. Booming sales in microchips (also referred to as semiconductors or simply as chips) are often followed by sharp slowdowns. Nevertheless, top companies in this space have produced some incredible market-beating returns over the long term and deserve investor attention.

How to buy

Investing in microchip stocks

Global chip sales are expected to surpass $1 trillion by the end of this decade. Demand is soaring as developments in everything from household appliances to autos and data centers increase the need for various microchips and electronic components.

Chip manufacturers with fabrication plants (known as fabs) are spending billions to ramp up production in anticipation of this demand. Although sales from one year to the next can be volatile, there is massive growth potential in the decade ahead. With that in mind, here are 10 microchip stocks -- including chip designers, fabs, and fab equipment developers -- to consider for 2025 and beyond.

Best chip stocks

Best microchip stocks to buy right now

Companies 1-4

1. Nvidia

Nvidia is one of the most recognizable names in the semiconductor industry. The company got its start as a developer of specialized chips, called graphics processing units (GPUs), used in high-end video games. The company has remained true to its roots, and some of its revenue still comes from its video game segment, a ubiquitous form of entertainment around the world.

However, Nvidia has spurred a revolution in computing by extending the usefulness of GPUs beyond games. Nvidia hardware now powers artificial intelligence (AI) for businesses via its data center chip designs, including generative AI services like ChatGPT. Data centers are now its largest segment by revenue.

• The company has pushed its technology even further and is powering devices with computing intelligence.
• This includes robotics in factories and warehouses, self-driving car features for automakers, and medical devices and research.
• More than just a microchip company, Nvidia made a big foray into software, with cloud subscription services that enable AI-fueled applications built atop its leading GPU business.

Nvidia is a premium-priced stock among its chip peers, and for good reason. It is one of the most promising companies in the AI computing movement.

2. Taiwan Semiconductor

Slowly but surely, Taiwan Semiconductor has built itself into the world's largest manufacturer of microchips. It took the crown from Intel (INTC -1.26%) a number of years back, and steady investment in increasingly advanced chip fab capabilities has paid off.

• Its fabs, most of which are in Taiwan (though a number are elsewhere, including in the U.S.), can handle the most complex chip designs (like those for the Apple (AAPL -0.95%) iPhone and Nvidia's data center chips).
• Taiwan Semiconductor boasts more than half of the total market share of advanced microchip fabrication.
• As a manufacturing giant, Taiwan Semiconductor would normally be considered a highly cyclical stock.
• Many manufacturers, including fellow chip fabs, are prone to ebbs and flows in sales from year to year.
• Taiwan Semiconductor's constant investment in new and advanced production has kept demand steadily rising for years.

Taiwan Semiconductor is actively working to maintain its production prowess. It also pays a modest dividend to shareholders. If you're looking for a long-term play on microchip expansion, Taiwan Semiconductor is a good place to start.

3. Broadcom

Broadcom is not a household name. However, the chip giant is quietly helping to power everything from 5G mobile network development to data centers and industrial equipment. As its name suggests, it supplies a broad range of communications parts and components that companies need across many sectors of the economy.

• Although Broadcom is not the highest-growth chip business on this list, it has expanded slowly and steadily for years.
• What it lacks in high-octane growth, it more than makes up for in profitability.
• The company generated a whopping free cash flow profit of approximately $19 billion in its fiscal 2024.
• Acquisitions have been key to Broadcom achieving this profitability.

Broadcom also has a policy of returning about half of the free cash flow it generated the previous year to shareholders via dividends, and it supplements dividends with share repurchases.

4. ASML

Chip fabs, such as Taiwan Semiconductor, Intel, and Samsung (SSNL.F 9.01%), are constantly in need of advanced equipment to manufacture the chips. One of the largest such industrial machinery makers (as measured by market cap) is Netherlands-based ASML.

Few people have heard of ASML, but its most advanced equipment is responsible for forming the smallest of features on the world's most powerful microchips.

• ASML makes EUV (extreme ultraviolet) lithography machines, and its flagship machines fetch more than $200 million each.
• Due to its critical position in the semiconductor ecosystem, ASML has put up fantastic growth for years and is highly profitable.
• The result has been a fantastic chip investment that has steadily increased both its share price and dividend payout for almost two decades.

If you love dividend stocks that consistently increase their payout, ASML Holding is a great semiconductor stock to consider.

Companies 5-7

5. Qualcomm

Qualcomm was a darling of the chip industry during the 2000s and 2010s, riding the wave of mobility as smartphones went from a novel idea to a part of everyday life. The smartphone market has matured and isn't as much of a high-growth industry anymore. The development of 5G mobile networks, however, breathed new life into Qualcomm.

• Almost every mobile phone on the planet has a piece of Qualcomm silicon in it.
• Qualcomm has diversified its business in recent years, designing parts for network equipment used to create mobile signals, as well as industrial devices and connected home appliances, virtual reality headsets, and a fast-growing automotive technology segment.
• Each of the new businesses will also benefit from new 5G networks.

Qualcomm has a tight grip on the global mobile market, and it's using its strength to expand its scope of work. As it does so, the company is finding new ways to eventually rekindle its revenue growth. Qualcomm is nonetheless an established leader in new areas of mobile connectivity.

6. Advanced Micro Devices

Advanced Micro Devices, known as AMD, has historically played second fiddle to Intel. But back in 2010, AMD offloaded its chip fab segment -- now known as GlobalFoundries (GFS -2.31%) -- to focus solely on chip design. The move has paid off. Although AMD is still far smaller than Intel, it has been picking up serious market share in both the data center and personal computing spaces.

• Data centers, the basic computing units of the cloud, have been an especially lucrative market for AMD.
• Central processing units (CPUs), an integral part of data centers, are in increasing demand, as remote work has become more common and services delivered via the internet have become routine.
• AMD has won over lots of customers with its leading microchip designs, both benefiting from a secular growth industry and taking market share from long-time rival Intel.

As it has grown, AMD has also become more efficient. Just a few years ago, the company still struggled during slow years and would frequently report steep operating losses. But the new AMD is proving to be far more profitable. Its megamerger with Xilinx created a floor for profitability, giving AMD room to invest more aggressively in research and development (R&D).

7. Applied Materials

As one of the oldest names in the semiconductor industry, Applied Materials has a deep understanding of microchips, how they're made, the materials used to produce them, and their role in an overall computing system.

Its understanding of microchips has helped Applied Materials become one of the top developers of equipment that chip fabs need to manufacture microchips and other electrical components.

• Chip fab equipment has been consolidated into a few major companies over the years.
• Lam Research (LRCX -1.81%) and KLA Corp (KLAC 0.93%) are two other major players.
• When a chip manufacturer announces plans to update or expand a plant or break ground on a brand-new one, it's almost certain that Applied Materials will be selling them some equipment.
• The company also has a sizable recurring revenue stream from ongoing service to equipment purchased by customers.

Thanks to industry consolidation, Applied's business model has become far less cyclical than in times past. The company's stock looks like a good way to invest in microchip fabrication growth in the coming years.

Companies 8-10

8. Rambus

Rambus makes high-performance memory interface chips and silicon intellectual property (IP) cores for high-performance data processing and security, providing solutions for data center, automotive, and AI applications.

• Rambus' products are used to increase data bandwidth and capacity, protect sensitive data, and address the bottlenecks between processing and memory in modern computing systems.
• Rambus makes money through both direct product sales of its chips and the licensing of its patented IP to other chip manufacturers and system designers.
• Its key IP licensing partners include companies such as SK Hynix (KOSE:A000660), Micron (MU 4.99%), AMD, and Nvidia.

Rambus had an excellent year in 2024. It delivered record total revenue of $556.6 million, up 21% from 2023, and record annual cash from operations of $230.6 million, an 18% bump from one year ago.

9. Coherent

Coherent (COHR 4.61%) makes money by manufacturing and selling a broad range of laser products, optical components, and materials used in various markets, including data centers, consumer electronics, industrial applications, and aerospace and defense.

• Coherent is an essential supplier to the semiconductor industry because it provides the technology and materials used to manufacture, test, and package advanced chips.
• For example, Coherent is a major supplier of optics for the high-power lasers used in EUV lithography. This technology is critical for manufacturing the most advanced chips with ever-smaller features.
• The company develops and manufactures specialized composite materials, such as reaction-bonded silicon carbide, which is used for structural components in semiconductor capital equipment.
• Coherent is also a vertically integrated supplier of datacom transceivers for data centers, including silicon photonics and other components.

The company reported record revenue of $5.81 billion in its fiscal 2025, a 23% year-over-year increase from its prior fiscal year.

10. Lattice Semiconductor

Lattice Semiconductor develops low-power, small-form-factor, field-programmable gate arrays (FPGAs) and related software tools.

• FPGAs are integrated circuits that can be configured and reconfigured after manufacturing, allowing them to be adapted to evolving needs and new functions, unlike traditional fixed-function chips.
• The company's FPGAs are designed to handle AI and machine learning workloads on embedded systems, such as those found in sensors and other devices at the network's edge.
• Lattice specifically focuses on low-power FPGAs, which are crucial for battery-powered devices and systems where energy consumption is a concern.
• In addition to hardware, Lattice provides comprehensive software and IP bundles to simplify the development process. Its products are used in various industries, including robotics, factory automation, smart devices, and vehicle systems.

As a fabless semiconductor company, Lattice focuses on chip design and licenses manufacturing to other companies. Its revenue comes from the sale of these specialized, configurable chips, and a significant portion of its sales is generated in Asia.

In the digital era

A basic commodity of the digital era

Microchip demand is exploding amid increased adoption of technology across various industries, including the rise of artificial intelligence. The growth of computing technology has been ongoing for years. However, an acceleration in the trajectory of adoption has taken place as everything from new car models to industrial equipment requires more chips.

As technology proliferates throughout the economy and increases efficiency, semiconductors are quickly becoming a basic commodity for the digital era. Investing in microchip stocks holds a lot of promise as a result.

But as is the case with all technology, be mindful of investing for the long term (three to five years at least, but the longer, the better). Also, be sure to diversify your holdings among a number of top names in the space. There will be curveballs at times, but the microchip industry is poised to enjoy strong growth for many years to come.

Pros and cons

Pros and cons of investing in microchip stocks

If you want to invest in microchip stocks, it's important to weigh the pros and cons before you put money to work.

Pros

• Integral to modern technology: Microchips are the fundamental components in almost all modern electronics, from smartphones and computers to electric vehicles and medical equipment. This makes them essential to the global economy and positions the industry for sustained growth.
• Driven by emerging technologies: The increasing demand for advanced technologies, such as AI, 5G, high-performance computing, and the Internet of Things (IoT), will continue to drive growth for the semiconductor industry.
• High barriers to entry: The massive capital requirements, significant R&D costs, and specialized expertise needed to produce advanced chips create a high barrier to entry.

Cons

At the same time, there are some downsides to consider and to factor into your overall risk thesis as you consider an investment in this sector.

• High volatility and cyclicality: The semiconductor industry experiences cycles of boom and bust, with demand fluctuating due to global economic conditions, technological shifts, and supply-and-demand imbalances. This volatility can lead to significant price swings.
• Intense competition: The market is fiercely competitive, forcing companies to innovate constantly to produce smaller, faster, and more efficient chips. Failure to keep up with these technological advancements can lead to lost market share and revenues.
• High capital expenditure and complexity: Chip manufacturing is extremely expensive and requires constant large-scale investments in manufacturing facilities and R&D. This creates cost pressures, and a few missteps in predicting demand can lead to costly inventory issues.

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Considerations

Factors to consider when choosing microchip stocks

Companies in the semiconductor industry follow different business models, all of which carry different risks and reward profiles that you ought to take into account before you hit the buy button on a specific stock. For example, integrated device manufacturers like Intel design, manufacture, and sell their own chips.

This model requires massive capital expenditures (capex) for building and maintaining fabrication plants. A high capex-to-sales ratio can strain cash flow. On the flip side, successfully running fabs allows for greater control over the production process and potentially higher margins.

Companies such as Nvidia and AMD focus solely on the design, marketing, and sale of chips while outsourcing manufacturing to third-party foundries. The fabless model avoids the heavy capex burden, but these companies are highly dependent on foundries for production capacity and can be vulnerable to supply chain issues.

Equipment manufacturers like ASML Holding produce the highly specialized machinery that foundries use to manufacture chips. Then there are companies like Taiwan Semiconductor, which operate solely as contract manufacturers producing chips for fabless companies and other firms. Foundries require extremely high capex but can benefit from the growing fabless market.

• A company's gross and operating margins reveal its efficiency and competitive strength. Fabless companies tend to have higher gross margins than foundries, but these numbers can fluctuate significantly with various market cycles.
• Understand standard valuation metrics like the price-to-earnings (P/E) ratio for any microchip stock you evaluate for your portfolio. For cyclical industries like semiconductors, mid-cycle earnings or normalized margins can offer a more stable valuation perspective.
• Pay attention to a company's free-cash-flow (FCF) conversion rate, which indicates a strong ability to generate cash. This figure is typically calculated as FCF/EBITDA (earnings before interest, taxes, depreciation, and amortization) or FCF/GAAP (generally accepted accounting principles) net income.
• The semiconductor industry demands constant innovation. A company's R&D as a percentage of revenue (typically 10% to 25%) can indicate its commitment to remaining competitive.

Make sure you understand the company's position in its specific market segment and the catalysts that play into its long-term growth story. For example, Nvidia is a leader in AI chips, while Micron is a market leader in memory products. Dominant market players often have wider moats -- sustainable competitive advantages -- and tend to have higher margins.

Investors should be sure to diversify their capital across a range of stocks and sectors so as not to be overly concentrated in any one particular area.