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While semiconductor industry giant Nvidia (NVDA) is pulling back after its latest quarterly earnings report today, it's not due to any signs of weakness in the company's results. In fact, the AI chip leader reported yet another consensus-crushing quarter - though it seems Wall Street has become accustomed to Nvidia's earnings beats by now, and are taking the opportunity to sell the news.
Amid continued indications of strong AI chip demand, it's worth considering some of the less crowded trades in the space with strategic positions in the supply chain - such as Micron Technology (MU), Synopsys (SNPS), and Marvell Technology (MRVL), three of the highest-rated semiconductor stocks in the Nasdaq-100 Index ($IUXX). These industry leaders are poised to benefit from the ongoing surge in artificial intelligence (AI)-driven demand, as well as a broader cyclical recovery.
#1. Micron Technology
Founded in 1978, Micron Technology (MU) is one of the world's leading chipmakers, specializing in computer memory and data storage solutions, including NAND and DRAM technologies. Micron supplies its innovative solutions and products to data centers and the automotive industry.
Valued at $105.1 billion, shares of Micron have soared 45.6% over the past 52 weeks, compared to the broader S&P 500 Index's ($SPX) gain of 25.3%. In 2024, MU shares have gained 13.8%, but have pulled back roughly 40% from their early June highs - providing an opportunity to buy the dip.
In terms of valuation, MU stock is currently trading at 10 times estimated 2025 earnings, suggesting that now is a good time to scoop up the shares at a reasonable price.
Micron has also paid dividends consistently since the second half of 2021. The company pays its shareholders an annualized dividend of $0.46 per share, which yields 0.48%. This demonstrates Micron's commitment to returning value to its shareholders while maintaining financial stability.
In fiscal Q3 of 2024, the company topped expectations, with revenue rising to $6.8 million, an 82% increase year-over-year, while EPS came in at a better-than-forecast $0.43.
During Q3, Micron's operating income reached $941 million, compared to last year’s loss of $1.47 million. This significant turnaround underscores the company’s enhanced operational efficiency and strategic focus, reflecting its ability to optimize cost structures, improve gross margins, and effectively manage its resources in a challenging market environment.
Micron plans to introduce new AI-driven products, including HBM4 and HBM4E chips, which are expected to significantly contribute to the company's revenue growth in the future. Another catalyst for Micron's growth is the recent announcement of its PCIe Gen6 data center SSD technology. This innovation expands Micron's memory and storage product lineup, strategically addressing the increasing demand for high-performance solutions fueled by AI advancements.
Overall, Micron has a consensus "strong buy" rating from 28 Wall Street analysts. The average target price of $160.93 suggests a 66% upside potential from the current price.
#2. Synopsys
Founded in 1986, Synopsys (SNPS) is an Electronic Design Automation (EDA) company that specializes in digital chip designs, crucial for designing and testing integrated circuits. Its offerings include solutions for digital and custom IC design, which help streamline digital design implementations; verification solutions that cover everything from virtual prototyping to emulation and debugging; and FPGA design products tailored for specific functions.
Valued at $78.1 billion, shares of SNPS have rallied 15.3% over the past 52 weeks but have underperformed the broader market on a year-to-date basis, with a gain of just 1.2%. Shares of this chip stock are trading at 38.7 times forward adjusted earnings, which is higher than the sector median, but in line with its own longer-term averages.
SNPS reported its fiscal Q3 earnings on Aug. 21, which topped consensus estimates. Revenue grew 13% to $1.5 billion, and adjusted EPS of $3.43 improved 27% year over year.
"For the full year, we expect to achieve revenue growth of approximately 15% and non-GAAP EPS growth of approximately 24% while expanding non-GAAP operating margin by two points," said CFO Shelagh Glaser. That translates to a range between $6.105 billion and $6.135 billion for the full year, encompassing the average analyst forecast of $6.13 billion.
Synopsys also increased its full-year adjusted EPS forecast to a range between $13.07 and $13.12, well above the consensus estimate of $12.95.
In the analyst community, SNPS has an average rating of “strong buy,” with 12 out of 14 analysts covering the stock giving it their highest rating. This bullish group has set the mean price target at $638.28, which implies a 23.9% upside potential.
#3. Marvell Technology
Founded in 1995, Marvell Technology (MRVL) is a well-established semiconductor company that specializes in providing data infrastructure solutions, spanning from the data center core to the network edge. The Delaware-based company operates in multiple countries, including the U.S., China, and India.
Marvell's strategic focus on high-growth areas like AI, cloud computing, and 5G has positioned it as a key supplier of innovative semiconductor solutions, making it a crucial player in enabling next-generation data infrastructure. The company's multiple acquisitions, including Inphi and Innovium, have solidified its position in the data infrastructure space. These acquisitions have enhanced its ability to capture market share in high-growth areas like data centers and AI.
Valued at $59.4 billion by market cap, shares of Marvell have rallied 26.3% over the past 52 weeks and are up by 17.5% year-to-date, keeping pace with the broader market's performance. With a price/earnings-to-growth (PEG) ratio of 1.44, MRVL seems reasonably valued at current levels, based on growth forecasts.
The company disappointed Wall Street with its fiscal Q1 earnings results, released in late May, which means investors should be aware of possible volatility around the release of Marvell's fiscal Q2 earnings, expected after tonight's closing bell. Analysts are looking for revenue to come in at $1.25 billion, on average, with adjusted EPS anticipated at $0.29.
Overall, 89% of the Wall Street analysts covering MRVL have given it their highest rating of “strong buy,” with the mean price target of $89.11 suggesting approximately 27.4% upside potential.
