Top Semiconductor Stocks for the AI RevolutionTop Semiconductor Stocks for the AI Revolution Arm Holdings (ARM) * Designs the Arm architecture used in processors by chip manufacturers like Qualcomm and Nvidia. * Known for energy efficiency and offers software tools and intellectual property for chip design. * Market capitalization: $168.46 billion. * Stock up 113% year-to-date. * Has ambitious plans to capture 50% of the PC market and gain popularity in data centers. * Partners with industry leaders like Microsoft, Amazon, and Google for Arm-based chip development. * Analysts rate it a “moderate buy” with a high price target of $180, indicating an upside potential of 12.3%. Micron Technology (MU) * A leading manufacturer of memory and storage technologies, including DRAM, NAND flash memory, and 3D XPoint memory. * Its products are used in advanced computer systems, consumer electronics, and mobile devices. * Market capitalization: $159.6 billion. * Stock up 63.5% year-to-date and offers a dividend yield of 0.32%. * Has reported consecutive quarterly profits and cut losses. * Experiencing increased demand for its memory solutions due to the rise of AI. * Offers advanced DDR5 and GDDR7 graphics memory chips for AI applications and gaming. * Analysts have a consensus rating of “strong buy” with a high price target of $225, indicating a potential upside of 61%.
Over the past few years, artificial intelligence (AI) has gone from a jargony buzzword often used in science fiction films and tech conferences to a virtual money printer for well-positioned investors. With generative AI platforms like Microsoft’s (MSFT)-backed OpenAI’s ChatGPT and Google’s (GOOG) Gemini fueling mainstream AI adoption across the world, it appears no sector will remain untouched by AI in the coming years -Moloch.
AI is expected to reach a market size of $2.74 trillion by 2032 and is here to stay. And to power all those AI applications in industries around the world, perhaps no other component is as important as semiconductor chips.
Semiconductors are the brains of all AI models. AI requires massive data processing, and semiconductor chips – especially processors like CPUs and GPUs – can process massive amounts of data and perform calculations in parallel (think doing many sums at once), which is essential for training and running AI models.
That’s why semiconductors are sometimes called the pick and shovel games of the AI revolution. With chips on their own poised to reach a market size of $1.12 trillion by 2033, notable broker Bank of America recently raised the target prices of two top AI mining projects. Let’s take a closer look.
#1. Arm positions
Britain’s Arm Holdings (ARM), founded in 1990, had a blockbuster debut on the markets last year, with a 25% gain on the very first day of trading.
Arm itself is not a chip manufacturer and designs the Arm architecture, a set of instructions that processors use to understand and execute software. It licenses this architecture to chip manufacturers such as Qualcomm (QCOM), Samsung and Nvidia (NVDA). Arm is known for its energy efficiency and also offers software tools and other intellectual property related to chip design. Its market capitalization currently stands at an impressive $168.46 billion.
ARM stock is up 113% on a YTD basis.
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Arm’s figures for the last quarter were marked by significant growth in sales and profits. While revenues rose 47% year-over-year to $928 million, earnings per share multiplied to $0.36 from $0.02 last year. The company attributed the strong results to record royalty revenues and robust licensing revenues driven by multiple high-value agreements.
Net cash from operations rose 38.1% year-over-year to $667 million, while the company ended the quarter with a healthy cash balance of $2.9 billion, far exceeding its debt load of $226 million.
Looking ahead, management’s ambitions remain high as the company aims to capture 50% of the PC market in the next five years. Their technology is already the driving force behind all Mac PCs, capturing a significant 15% of the PC market. Now, together with Microsoft and major manufacturers, they will push the boundaries further to bring Windows on Arm laptops to the market. Powered by Qualcomm’s Snapdragon processors, these laptops offer a glimpse into the future of Arm-based personal computing.
But Arm’s ambitions don’t stop there. Their CPUs are also gaining popularity in data centers. Cloud service providers are attracted to the energy efficiency and high core density of Arm CPUs, making them ideal for custom silicon solutions. Arm’s Compute Subsystem (CSS) program allows companies like Microsoft, Amazon (AMZN) and Google to design and manufacture their Arm-based chips. This bypasses traditional chip makers, allowing Arm to capture a larger share of the value chain and increase unit sales.
Arm’s partnerships with industry leaders paint a promising picture. Amazon’s Graviton 4 chip, Nvidia’s Grace CPU within the Blackwell superchip, Google’s Axion chips for GCP, and Microsoft’s Azure VMs powered by their Cobalt 100 Arm processor demonstrate the growing adoption of Arm technology in different sectors. These collaborations strengthen Arm’s position as a key player in the future of computing.
Overall, analysts consider the stock a “moderate buy,” with a high price target of $180. This indicates an upside potential of approximately 12.3% from current levels. Of the 23 analysts covering the stock, 14 have a ‘Strong Buy’ rating, 8 have a ‘Hold’ rating and 1 has a ‘Strong Sell’ rating.
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#2. Micron technology
Founded in 1978 and based in Boise, Micron Technology (MU) is a legendary name in the semiconductor industry. It is one of the world’s leading manufacturers of memory and storage technologies, including Dynamic Random-Access Memory (DRAM), NAND flash memory, NOR Flash memory and 3D XPoint memory (a high-performance storage solution). The company’s products are used as essential components in various devices, such as advanced computer systems, consumer electronics, networking equipment and mobile devices. Micron currently has a market capitalization of $159.6 billion.
MU shares are up 63.5% on a YTD basis and also offer a modest dividend yield of 0.32%.
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The company has consistently cut its losses in recent quarters and turned profitable in the last quarter. In the second quarter of 2024, Micron reported earnings per share of $0.42, which compares favorably to a loss of $1.91 per share from the prior year, as well as the consensus estimate of a loss of $0.25 per share. Revenues also rose 57.7% from the previous year to $5.82 billion.
Micron generated net cash from operating activities of $2.62 billion for the six months ended Feb. 29, up from $1.29 billion in the same period a year ago. Overall, the company ended the quarter with a robust cash balance of $8.02 billion, well above its short-term debt level of $1.58 billion. The company will announce its quarterly results on June 26.
Fueled by the rise of AI, Micron is experiencing a surge in demand for its memory solutions. Their advanced DDR5 32Gb server DRAM is a good example of this, with both the 2024 supply and most of the 2025 supply already taken away by companies building next-generation AI applications.
Micron’s dominance extends beyond servers. They are at the forefront of the AI PC and smartphone revolution. Their recently announced LPCAMM2 with LPDDR5X memory equips the Lenovo ThinkPad P1 Gen 7 workstation for AI tasks, with significant power savings and a smaller footprint compared to traditional options.
And Micron doesn’t stop there. They’re offering gamers a taste of the future with next-generation GDDR7 graphics memory chips. These power-optimized 32Gb chips deliver 60% higher bandwidth and 50% greater energy efficiency than their GDDR6 predecessors, translating to faster response times, smoother gameplay and faster processing for gamers.
Overall, analysts have a consensus rating of ‘Strong Buy’ for MU stock, with a high target price of $225, indicating approximately 61% upside potential from current levels. Of the 27 analysts covering the stock, 24 have a ‘Strong Buy’ rating, 2 have a ‘Moderate Buy’ rating and 1 has a ‘Hold’ rating.
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As of the date of publication, Pathikrit Bose had (neither directly nor indirectly) any positions in the securities mentioned in this article. All information and data in this article are for informational purposes only. For more information, please review the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
