It’s the perfect time to invest in top semiconductor chip stocks. Powerful trends such as artificial intelligence (AI), cloud computing, AI-enabled smartphones, and electric vehicles (EVs) are driving demand for chips like never before. The PHLX Semiconductor Sector Index is up 50% over the past 12 months, outpacing the S&P 500’s return of 34%.
Here are two large semiconductor companies whose stock prices are down at least 25% from recent highs. Investors who add these two stocks to their portfolios today will see superior returns as each stock recovers.
1. Micron Technology
Demand for Micron Technology explodes (NASDAQ:MU) Memory and storage components are great stocks to buy on dips. The company just reported better-than-expected financial results for its fourth quarter fiscal year (ending Aug. 29), with sales up 93% year-over-year due to strong demand for its data centers.
Increased demand for Micron’s memory chips is expected to continue in calendar 2025 due to advances in 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 drive strong growth for Micron’s data center business.
Other markets are expected to recover next year. Micron’s auto revenue hit an all-time high in fiscal 2024. The number of chips per vehicle is increasing due to the increase in infotainment and driver assistance systems. This is a long-term growth opportunity, with demand expected to increase further in the second half of 2025.
PC and mobile will provide further growth opportunities next year, and Micron is a leading supplier of memory and solid-state storage drives. PC sales are expected to accelerate in the second half of the year due to upgrades to new AI-powered PCs and Microsoft ending support for older versions of Windows OS. The release of more AI-enabled smartphones will drive similar demand trends in Micron’s mobile business.
Analysts expect Micron’s earnings to rise 42% to $12.74 in fiscal 2025. Assuming the stock trades at 16 times its historical average price-to-earnings ratio, the stock could reach $203 within the next year. micron iInvestors could nearly double their money from the current share price.
2. Advanced microdevices
Major data center operators such as Microsoft, Meta Platforms, and Oracle use products from Advanced Micro Devices. (NASDAQ: AMD) MI300 chips help handle AI workloads. Since launching the chip in December, AMD’s data center revenue has skyrocketed, with revenue more than doubling in the second quarter compared to the same period last year.
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AMD’s data center business should continue to see strong growth to support enterprises’ AI investments. Data centers require powerful graphics processing units (GPUs) to run AI models. Nvidia is the leading GPU provider, while AMD expects to generate $4.5 billion from data center GPUs this year.
AMD is looking to fill the supply-constrained GPU market, but is also positioned to meet customer demand for higher-priced alternatives that Nvidia’s chips demand. AMD estimates that the total addressable market for AI accelerators (GPUs) will reach $400 billion by 2027.
Looking to the future, new AI models will require exponentially more processing power. In June, AMD announced a multi-year roadmap for the AMD Instinct accelerator. The company plans to launch the MI325X accelerator in the fourth quarter and the MI350 in 2025. MI350 delivers a 35x improvement in AI inference performance compared to the MI300 series. The company also says it releases new products every year to keep up with growing demand, indicating a long runway for future growth.
Wall Street’s consensus forecast is for AMD’s revenue to rise 28% next year and earnings per share to reach $5.44. If AMD stock were trading at the same forward P/E ratio of 48x a year from now, it could trade at $261, representing a 59% upside.
Should you invest $1,000 in Micron Technology right now?
Before buying Micron Technology stock, consider the following:
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Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. John Ballard has held positions at Advanced Micro Devices, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
These 2 Semiconductor Stocks Are Down More than 22%, But They Could Soar in 2025 Originally published by The Motley Fool
