Unlocking the Potential of Chip Stocks in 2025
The semiconductor industry has experienced remarkable growth over the past few decades, driven by the increasing demand for powerful processors in advanced devices and technologies. Despite occasional downturns, the industry’s upward-sloping demand curve is expected to continue, with artificial intelligence (AI) being a key sales catalyst in the near term.
A Promising Outlook for 2025
According to IDC’s latest report, the semiconductor market is projected to grow 15% in 2025, led by AI demand. This growth could present a great buying opportunity for stocks that have recently fallen in value. Two chip stocks, Advanced Micro Devices (NASDAQ: AMD) and Micron Technology (NASDAQ: MU), are earning high praise on Wall Street, with average price targets 55% and 53% higher than their current share prices, respectively.
Advanced Micro Devices: A Leader in the Server Market
Advanced Micro Devices has delivered outstanding returns in recent years, making significant gains in the server market at Intel’s expense. Its market share of central processing units (CPUs) used in servers has increased from single digits to 34%. The company also sees strong demand for its graphics processing units (GPUs) in the data center market, which could catapult the stock higher in 2025.
A Favorable Risk-Reward Setup
Despite soft results in gaming and industrial markets, AMD’s growth in data center helped drive double-digit revenue growth in Q3. Analysts expect AMD to report year-over-year revenue growth of 13% for 2024. With the stock selling 43% off its previous highs and trading at just 23 times next year’s consensus earnings estimate, Wall Street’s price target could be on the money.
Micron Technology: A Leading Supplier of Memory and Storage Products
Micron Technology is a leading supplier of memory and storage products for data centers, original equipment manufacturers, and consumer markets. Although the stock has had a good run since bottoming out in 2022, it is trading well off its highs due to weakened demand for dynamic random access memory (DRAM). However, sales to data centers grew 400% year over year and 40% over the previous quarter, making up over half of Micron’s total revenue.
A Cheap Valuation, But Risks Remain
Micron’s high-bandwidth memory (HBM) shipments were ahead of expectations, with HBM revenue more than doubling over the previous quarter. However, management’s soft outlook for fiscal Q2 sent the stock down again. The company expects to achieve record revenue and positive free cash flow in fiscal 2025, but its inconsistent operating history and competitive memory market pose risks.
Which Stock Offers the Better Risk-Reward?
While both AMD and Micron offer attractive valuations, AMD’s growth prospects and consistent operating history make it the safer bet to hit Wall Street’s price target in 2025. With a potentially long runway of growth ahead and above-average profit margins, AMD’s earnings are expected to grow faster than revenue.
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