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Semiconductors are the unsung heroes of modern civilization, forming the foundation of nearly every technological breakthrough. As artificial intelligence (AI) continues its meteoric rise, the demand for advanced AI chips powering machine learning, autonomous systems, and generative AI is skyrocketing. From revolutionizing cloud computing to enabling self-driving vehicles, AI is driving an unrelenting need for cutting-edge semiconductor technology.
As AI continues to penetrate every corner of the global economy, the semiconductor industry is set for transformative growth, with sales projected to grow 15% to a stunning $725 billion in 2025, according to Bank of America analyst Vivek Arya. In a recent note, Arya pointed out 2025 as a pivotal year for the semiconductor industry, one defined by dual trends.
While the first half will see sustained AI-driven momentum and robust investments from U.S. cloud customers, Arya predicts a shift in the latter half toward “less crowded” industrial chipmakers as inventory replenishment and increased vehicle production align with a potential global economic recovery.
Nevertheless, despite the looming uncertainties tied to AI sentiments, China, and broader macro trends, Arya is optimistic about the resurgence of M&A activity, which could inject fresh energy into the sector. Plus, the analyst also remains confident that AI momentum will hold strong, at least until the second half of the year. Keeping all these factors in mind, as we step into 2025, here’s a closer look at three AI chip players that Arya believes are well-positioned to ride the AI momentum into 2025.
AI Chip Stock #1: Nvidia
Nvidia (NVDA) barely requires an introduction. The company has evolved from a trailblazer in PC graphics to a global powerhouse driving AI innovation. With its GPUs powering everything from high-performance computing to gaming and virtual reality, Nvidia is reshaping the tech landscape.
In 2024, the company shattered records, even briefly surpassing tech titan Apple (AAPL) to become the world’s most valuable company. Now valued at an eye-popping $3.4 trillion by market cap, shares of this chip giant are on a blistering rally over the past year, delivering roughly 177.6%, dwarfing the broader S&P 500 Index’s ($SPX) 23.8% annual return.
Nvidia dropped its fiscal 2025 third-quarter earnings report on Nov. 20, which shattered Wall Street’s projections on both top and bottom lines. The company posted record revenue of $35.1 billion, marking a remarkable 94% year-over-year increase and easily surpassing analysts’ projections of $33.1 billion. On the earnings front, the chipmaker reported adjusted earnings of $0.81 per share, reflecting a stunning 103% jump from the previous year and surpassing Wall Street’s forecast by an 8.6% margin.
At the heart of Nvidia’s record-breaking revenue is its data center division, which powers the company’s AI processors and related components. This segment delivered an extraordinary $30.8 billion in revenue, reflecting 112% year-over-year growth. The results underscore Nvidia’s dominant role in the AI revolution, as its cutting-edge chips continue to lead the charge in transforming industries and reshaping the future of computing.
Reflecting on the Q3 performance, CEO Jensen Huang declared that the "age of AI is in full steam,” fueling a global shift toward Nvidia-powered computing. He pointed to the surging demand for Hopper GPUs and the increasing anticipation surrounding the full-scale production of Blackwell, signaling a new era of AI-driven innovation.
Looking ahead to Q4 of fiscal 2025, management expects revenue to reach $37.5 billion, with a slight 2% variance. Gross margins are projected to be robust, at 73% on a GAAP basis and 73.5% on a non-GAAP basis, each with a 50-basis-point flexibility. Analysts are equally optimistic, forecasting a remarkable 135.6% year-over-year jump in Nvidia’s earnings to $2.78 per share for fiscal 2025, followed by a 41% increase to $3.92 per share in fiscal 2026.
Wall Street appears highly bullish on NVDA stock, with a consensus “Strong Buy” rating overall. Of the 43 analysts offering recommendations, 36 advise a “Strong Buy,” three give a “Moderate Buy,” and the remaining four suggest a “Hold.”
The average analyst price target of $175.55 indicates 27.7% potential upside from the current price levels, while the Street-high price target of $220 suggests that NVDA could rally as much as 60% from here.
AI Chip Stock #2: Broadcom
Headquartered in Palo Alto, Broadcom Inc. (AVGO) is a technology titan with a diverse and innovative portfolio spanning semiconductors, enterprise software, and security solutions. Dominating key markets like cloud computing, data centers, networking, wireless communications, and storage, Broadcom’s products are pivotal. Whether it's powering mobile connectivity, revolutionizing broadband, fortifying enterprise networks, enhancing cybersecurity, or fueling private cloud infrastructure, Broadcom's solutions are the backbone of digital transformation, driving everything from industrial innovation to the global tech revolution.
Valued at $1.1 trillion, Broadcom, like many of its industry peers, has been a beneficiary of the AI wave so far, with its shares skyrocketing almost 108% over the past year. Over the past month alone, the stock has staged a remarkable performance, with shares up nearly 45%.
Broadcom continues to captivate investors with its steadfast dedication to rewarding shareholders, proudly marking 15 consecutive years of dividend increases and a 51.18% payout ratio. On Dec. 31, the company paid its shareholders a quarterly dividend of $0.59 per share. With an annualized dividend of $2.36 per share, offering a modest 1% yield, Broadcom stands out as an appealing choice for those seeking a blend of reliable passive income and strong growth potential.
Following the company’s stellar Q4 earnings report disclosed on Dec. 12, Broadcom's shares took off more than 24% in the subsequent trading session. Despite total revenue of $14.1 billion falling just short of Wall Street’s expectations, it still represented 51% year-over-year growth. The company’s adjusted EPS of $1.42 surged nearly 28% from the previous year, comfortably surpassing Wall Street’s consensus estimate of $1.39.
Broadcom’s Semiconductor Solutions Group, home to its advanced AI chips, saw a 12% year-over-year revenue boost, reaching $8.2 billion, highlighting the company’s foothold in the rapidly evolving tech landscape. The company is riding the wave of skyrocketing demand driven by the generative AI revolution, with AI revenue soaring an astonishing 220% year-over-year to reach $12.2 billion in fiscal 2024.
The company believes that a major driver behind this AI revenue growth in fiscal 2024 is the surge in demand for Ethernet networking components, which play a vital role in connecting the vast network of AI chips. By the end of Q4, Broadcom boasted a cash position of approximately $9.4 billion, alongside $5.6 billion in cash generated from operations. The company strategically invested $122 million in capital expenditures during the quarter to fuel its ongoing growth.
For fiscal 2025 Q1, management is targeting revenue of around $14.6 billion, with adjusted EBITDA margin expected to hit approximately 66% of that projected revenue. Meanwhile, analysts tracking Broadcom project significant long-term growth, with earnings expected to rise 44.2% year-over-year to $5.35 per share in fiscal 2025. This momentum is projected to continue, with earnings forecast to grow another 17.8%, reaching $6.30 per share in fiscal 2026.
Overall, Wall Street appears highly optimistic about AVGO stock, with a consensus “Strong Buy” rating. Of the 33 analysts offering recommendations, 30 advise a “Strong Buy,” and only three suggest “Hold.”
The average analyst price target of $242.24 indicates only 2.8% potential upside from the current price levels, while the Street-high price target of $300 suggests that the stock could rally as much as 27.4%.
AI Chip Stock #3: Marvell Technology
For over 25 years, Delaware-based Marvell Technology, Inc. (MRVL) has earned the unwavering trust of the world’s leading tech giants by providing innovative semiconductor solutions that power the future of global data. From the heart of advanced data centers to the edge of the network, Marvell’s state-of-the-art System-on-a-Chip (SoC) designs combine cutting-edge analog, mixed-signal, and digital processing technologies.
These integrated solutions are engineered to deliver unparalleled performance and efficiency. With a market cap of around $96.6 billion, shares of Marvell have outpaced the broader market, with gains of roughly 84% over the past year.
On Dec. 13, the company announced a quarterly dividend of $0.06 per share, set to be distributed to its shareholders on Jan. 30, 2025. This translates to an annualized dividend of $0.24 per share, offering a modest 0.22% dividend yield. With a conservative payout ratio of 31.97%, the company is in a strong position to boost its dividends in the future, signaling potential for further shareholder returns as it continues to grow.
After Marvell’s impressive fiscal 2025 Q3 earnings results revealed on Dec. 3, which not only exceeded Wall Street expectations but also set the stage for a promising Q4 outlook, the company’s shares popped almost 23.2% in the next trading session. The quarter saw 6.9% year-over-year revenue growth, reaching $1.5 billion, blowing past estimates by approximately 4%. At the same time, Marvell’s adjusted EPS of $0.43 marked a 4.9% increase from the previous year, surpassing projections by nearly 5.5%.
Marvell delivered an outstanding quarter, with data center revenue skyrocketing 98.1% year-over-year to reach $1.1 billion, now representing approximately 73% of its total revenue. This impressive growth was propelled by the soaring demand for AI-related products, particularly its custom AI chips. The company also showcased remarkable operational efficiency during the quarter, generating a hefty $536.3 million in cash flow from operations.
Looking ahead to Q4 of fiscal 2025, Marvell is projecting net revenue of around $1.8 billion, with a margin fluctuation of plus or minus 5%. The company expects to maintain a solid GAAP gross margin of about 50%, while its non-GAAP gross margin is anticipated to reach an impressive 60%. On the earnings front, management forecasts adjusted EPS for the quarter to range between $0.54 and $0.64.
Commenting on the company’s Q3 results, CEO Matt Murphy pointed out that "The exceptional performance in the third quarter, and our strong forecast for the fourth quarter, are primarily driven by our custom AI silicon programs, which are now in volume production, further augmented by robust ongoing demand from cloud customers for our market-leading interconnect products.”
Analysts tracking Marvell Technology expect the company’s bottom line to jump 12.5% year-over-year to $0.90 per share in fiscal 2025 and grow a stunning 121.1% to $1.99 per share in fiscal 2026.
MRVL stock has a consensus “Strong Buy” rating overall. Out of the 30 analysts covering the stock, 26 recommend a “Strong Buy,” two suggest a “Moderate Buy,” and the remaining two give a “Hold” rating.
The average analyst price target of $122.62 indicates potential upside of 9.8% from the current price levels. However, the Street-high price target of $160 suggests that MRVL could rally as much as 43.3%.
