The semiconductor market made a solid rebound last year after suffering for most of 2022 and 2023. Higher demand from a variety of industries coupled with the ongoing enthusiasm surrounding artificial intelligence saw semiconductor sales soar last year.
Semiconductor stocks, especially those focused on AI, took a beating last week following the debut of a low-cost Chinese AI model, DeepSeek, which sparked concerns that it could challenge the dominance of U.S. tech firms in the AI space. However, the fears ebbed shortly and the enthusiasm resumed.
Given the positive sentiment, semiconductor stocks like Semtech Corporation SMTC, Taiwan Semiconductor Manufacturing Company Limited TSM, NVIDIA Corporation NVDA and Photronics, Inc. PLAB appear to be lucrative buys. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Semiconductor Sale Jump
Global semiconductor sales totaled $626 billion in 2024, an increase of 18.1% from the previous year, according to data from Gartner. Besides, fresh data shows that semiconductor sales are projected to $705 billion in 2025.
Sales were driven by surging demand for AI processors and GPUs in data centers. According to Gartner, data centers emerged as the second-largest semiconductor market after smartphones, with revenues surging to $112 billion in 2024 — almost twice the $64.8 billion recorded in 2023.
The memory market staged a solid rebound in 2024, with revenues jumping a whopping 71.8% year over year. The segment contributed 25.2% of total semiconductor sales, with DRAM revenues jumping 75.4% and NAND revenues soaring 75.7% from the year-ago levels.
Meanwhile, non-memory semiconductor revenues increased 6.9%, accounting for 74.8% of the industry's total revenues.
AI Optimism to Drive Semiconductor Sales
Several tech companies have been making significant investments in AI and its advancement. Businesses that have deeply integrated AI into their products have experienced considerable growth in the last few years.
Last week, Chinese start-up DeepSeek challenged the U.S. AI space by offering a low-cost open-source free assistant, which it claims uses cheaper chips and less data. DeepSeek claimed that the AI model cost less than $6 million to design, casting doubt on expectations that AI will fuel demand across the supply chain, from chipmakers to data centers.
This caused tech and semiconductor stocks to take a massive beating. However, the fears soon subsided as experts believed the Chinese model was overhyped.
Experts see AI as having immense untapped potential, with much still to be discovered. This growing excitement is likely to drive demand even higher as more semiconductor companies join the AI competition.
4 Semiconductor Stocks With Upside
Semtech Corporation
Semtech Corporation designs, manufactures and markets a wide range of analog and mixed-signal semiconductors for commercial applications. SMTC’s product line comprises Signal Integrity Products, Protection Products, Power and High-Reliability Products, Wireless and Sensing Products, and Systems Innovation Group.
Semtech’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings improved 14.9% over the past 90 days. SMTC presently sports a Zacks Rank #1.
Taiwan Semiconductor Manufacturing Company Limited
Taiwan Semiconductor Manufacturing Company Limited is the world's largest dedicated integrated circuit foundry. As a foundry, TSM manufactures ICs for its customers based on their proprietary IC designs using its advanced production processes. Taiwan Semiconductor Manufacturing Company Limited’s goal is to establish itself as one of the world's leading semiconductor companies by building upon the strengths that have made it the world's leading IC foundry.
Taiwan Semiconductor Manufacturing Company Limited’s expected earnings growth rate for the current year is 29.6%. The Zacks Consensus Estimate for current-year earnings has improved 2.9% over the past 90 days. TSM presently carries a Zacks Rank #2.
NVIDIA Corporation
NVIDIA Corporation is a major player in the semiconductor industry and has been one of the standout success stories of 2023 and 2024. As a leading designer of graphic processing units (GPUs), the value of the NVDA stock tends to surge in a thriving crypto market. This is primarily due to the crucial role that GPUs play in data centers, artificial intelligence, and the mining or production of cryptocurrencies.
NVIDIA’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 90 days. Currently, NVIDIA has a Zacks Rank #2.
Photronics, Inc.
Photronics, Inc. is a leading worldwide manufacturer of photomasks. Photomasks are high-precision quartz plates that contain microscopic images of electronic circuits. PLAB produces photomasks in accordance with product designs provided by customers at strategically located manufacturing facilities in Asia, Europe, and North America.
Photronics’ expected earnings growth rate for the current year is 12.2%. The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the past 60 days. PLAB currently sports a Zacks Rank #1.
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