The semiconductor industry has achieved tremendous growth over the past several decades. Demand for chips can experience downturns, especially during economic downturns, but history shows that more advanced hardware and technologies require more powerful processors, creating an upward-sloping demand curve. In the near term, Artificial Intelligence (AI) It remains the main sales driver for leading chip suppliers.
IDC’s latest report expects the semiconductor market to grow 15% in 2025, led by demand for artificial intelligence. This could be a great buying opportunity for stocks that have recently declined in value.
Two stocks are earning praise on Wall Street Advanced micro devices(NASDAQ:AMD) and Micron technology(NASDAQ: MU). These stocks are trading well off their recent highs but have posted strong revenue growth from the data center market.
Wall Street average Price target 55% higher than AMD’s stock price of roughly $121 and 53% higher than Micron’s stock price hovering near $87. Let’s take a deeper look at these companies to see if betting your money on Wall Street’s opinion is a smart move.
Advanced Micro Devices stock has delivered outstanding returns in recent years. AMD is making a lot of gains in the server market, which is coming Intelaccount. Over the past few years, the market share of central processing units (CPUs) used in servers has increased from single digits to 34%.
AMD is also seeing strong demand for its graphics processing units (GPUs) in the data center market, and this is an opportunity that could push the stock higher in 2025. Despite weak results in the gaming and industrial markets, AMD’s growth in data center markets has helped… Data on revenue growth doubled by 100% in the third quarter compared to the same quarter last year. Analysts expect AMD to report 13% year-over-year revenue growth for 2024, according to Yahoo! finance.
Next year may witness an acceleration in growth if demand rises in other sectors. For example, AMD’s embedded chip revenue, including industrial market sales, fell 25% year over year in the third quarter, but revenue for the segment increased 8% sequentially.
With AMD shares selling off 43% from their previous highs and trading at just 23 times consensus earnings estimates for next year, Wall Street’s price target could be on the money.
AMD expects the market for artificial intelligence accelerators, or graphics processing units, to grow more than 60% annually to reach $500 billion by 2028. It has a potentially long runway for growth ahead of it, and these advanced processors are generating above-average profit margins. This would allow profits to grow faster than revenues.
Analysts expect AMD’s profits to grow at an annual rate of 41%. For 2025, the Street is calling for earnings to reach $5.13. If the stock continues to trade at its current price-to-earnings multiple, the stock price could rise along with earnings and reach Wall Street’s price target of $184.
Of course, a sudden decline in the chip industry would halt AMD’s momentum and limit the stock’s gains. But with the stock price already trading at a significant discount to previous highs, there’s a decent risk-reward setup for AMD investors heading into 2025.
Micron Technology is a leading supplier of memory and storage products to data centers, OEMs and consumer markets. The stock has performed well since bottoming out in 2022, with the share price up 71%. But shares are trading well off their highs as demand for dynamic random access memory (DRAM) weakens this year.
The company just announced its fiscal first-quarter results, with weak expectations sending the stock down again. Sales to data centers grew 400% year over year and 40% sequentially. Data center sales now make up more than half of Micron’s total revenue.
Micron also said its high-bandwidth memory (HBM) shipments exceeded expectations, with HBM revenue doubling over the previous quarter.
These positive demand trends offset management’s weak outlook for the fiscal second quarter. Revenue guidance was below Street estimates, but management said this represents a temporary bump in the road caused by inventory adjustments by customers in consumer-related markets. The company expects to complete this amendment soon.
Based on its updated forecasts, Micron still expects to achieve record revenues and positive free cash flow in fiscal 2025 (which ends in August).
The stock looks cheap at these low share prices, but there is a risk that it could be a value trap. The problem is that Micron has an inconsistent operating history. While revenue has grown steadily over the past decade, the competitive nature of the memory market has caused significant fluctuations in Micron’s earnings per share (EPS) and free cash flow.
The stock is cheap enough that if the company delivers on management’s full-year forecasts, the stock could return to its previous highs. At its current share price of $86, the stock trades at 10 times this year’s earnings estimates and 6.6 times fiscal 2026 estimates. These low valuation multiples are attractive.
However, AMD offers the better risk reward and is the safest bet to hit Wall Street’s price target in 2025. Micron’s latest quarter is a good reminder that there are a lot of variables affecting demand for its products that are difficult to predict, making the valuation The company is a challenge.
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John Ballard He has positions in advanced micro-instrumentation. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool has Disclosure policy.
