/AI%20(artificial%20intelligence)/Close-%20up%20of%20computer%20chip%20with%20AI%20sign%20by%20YAKOBCHUK%20V%20via%20Shutterstock.jpg)
The semiconductor industry has taken a significant hit amid broader market volatility, with the S&P Semiconductor SPDR ETF (XSD) down 14% year-to-date. Yet, seasoned investors know that every temporary setback can pave the way for a robust rebound.
Despite disappointing January data, seasoned investors see opportunity amid the evolving AI landscape. Citi analysts have pinpointed two hard-hit semiconductor stocks, Micron Technology (MU) and Broadcom (AVGO), as compelling buys for long-term growth in artificial intelligence.
Recent figures show monthly semiconductor sales dropped to $50.8 billion in January, a 14% month-over-month decline. Nonetheless, this drop comes against a backdrop of robust AI demand, which now accounts for roughly 20% of semiconductor consumption. Citi analyst Christopher Danely remains optimistic, citing anticipated inventory replenishment in the analog segment throughout 2025.
For investors looking to capitalize on market corrections, MU and AVGO offer strategic entry points. With strong fundamentals and solid AI-driven prospects, these stocks could emerge as top performers.
Here’s a closer look at these two stocks.
AI Stock #1: Micron Technology
Based in Boise, Idaho, Micron Technology (MU) is a pioneer player in the semiconductor industry, renowned for its AI-driven memory and storage solutions that power everything from consumer electronics to advanced computing systems. Over the past several years, Micron has pushed technology boundaries with high-performance DRAM, NAND flash memory, and emerging innovations like 3D XPoint.
Valued at $98 billion by market cap, shares of Micron have been quite volatile over the past year. After rallying in the first half of 2024 and hitting a 52-week high of $157.54 in June, the stock has plunged nearly 43% from that peak. However, the stock has still managed to remain in positive territory, up 14% year-to-date.
After the correction, Micron stock is now trading at 14.3x forward earnings, significantly cheaper than the industry average of 22.5x. It also represents a discount of more than 80% from its historical average multiple of 83x forward earnings.
The company outperformed in its latest quarterly earnings, delivering a double beat against consensus estimates. Despite this, shares tumbled 16% after the release due to soft guidance that fell short of expectations.
In the first quarter of its fiscal 2025, revenue surged 84% to $8.7 billion, driven by strong data center sales, which grew 40% sequentially and over 400% year-over-year. Moreover, the company's improved margins, fueled by favorable demand-supply dynamics in the memory market, helped it swing from a loss of $0.79 per share in the previous year to a profit of $1.67 per share.
Looking ahead, management expects revenue of $7.9 billion and EPS of $1.43 for Q2, reflecting massive year-over-year improvements. For the full fiscal year, analysts project earnings to surge by an impressive 950%, reaching $6.08 per share, with an additional 75% increase expected next year to $10.67 per share.
Micron will continue benefiting from strong AI-driven demand, particularly for its high bandwidth memory (HBM) solutions, as data centers expand. Mordor Intelligence projects HBM growth at a CAGR exceeding 25% by 2030.
Analysts remain optimistic about MU stock’s growth prospects. The group of 30 analysts covering the stock have assigned a consensus “Strong Buy” rating, with a mean price target of $132.45, representing a 40% premium to current levels.
AI Stock #2: Broadcom
Based in San Jose, California, Broadcom (AVGO) is a global technology leader specializing in infrastructure software solutions. The company focuses on high-performance networking, broadband communications, and wireless connectivity, serving industries from smartphones and data centers to automotive and industrial applications. After briefly hitting a $1 trillion market cap in December, Broadcom fell below that milestone amid a broader market selloff and now stands at $893 billion.
Broadcom stock is down 16% year-to-date, mirroring the broader semiconductor slump. Yet, over the past 52 weeks, it has still soared 50%, thanks to a powerhouse December rally on the back of blockbuster AI-driven earnings.
In terms of valuation, Broadcom trades at premium pricing, with 34x forward earnings and 13.8x forward sales, both higher than the sector averages of 21x and 2.8x.
Broadcom’s fundamentals remain solid, having surpassed consensus estimates in each of the last four quarters. In its latest quarter, revenue climbed 25% to $14.9 billion. Recently, the company has become the largest supplier of custom AI chips to major tech firms. This drove a 77% increase in AI-related revenue to $4.1 billion as cloud providers ramped up investments in proprietary AI chips to compete with Nvidia’s (NVDA) GPUs.
On the profitability front, adjusted earnings per share reached $1.60, with EBITDA up 41% and free cash flow margins at 40%.
Looking forward, management projects next-quarter revenue of $14.9 billion, marking 19% year-over-year growth. Analysts estimate Q2 EPS of $1.26 and full-fiscal-year EPS of $5.40.
In December 2024, CEO Hock Tan announced plans to deploy millions of AI chip clusters by 2027, targeting a $60 billion to $90 billion market opportunity spanning chips and networking hardware. With an annual AI revenue run rate of approximately $16 billion, growth potential remains significant.
Till then, Broadcom holds a “Strong Buy” consensus rating, with an average price target of $250.31, suggesting over 28% upside potential.
