Semiconductors are the backbone of our tech-driven world, powering everything from smartphones and computers to data centers, automotive systems, and consumer electronics.
However, recent headlines about the Biden administration’s potential export restrictions on critical chipmaking equipment to China have created a ripple of uncertainty for major players in the industry. Plus, former President Trump’s comments suggesting that Taiwan should pay for U.S. defense further fueled negative market sentiment toward chip stocks, given Taiwan Semiconductor’s (TSM) critical industry role.
Despite the recent geopolitical turbulence, Cantor Fitzgerald and Deutsche Bank analysts remain bullish on the industry’s prospects, thanks to the ongoing artificial intelligence (AI) boom and recovery in memory markets, which are creating a favorable environment for select semiconductor companies.
With both Cantor Fitzgerald and Deutsche Bank highlighting reasons to be optimistic about AI-driven semiconductor stocks as earnings season ramps up, here’s a closer look at three standout chip picks that made the cut among both broker's top recommendations.
Semiconductor Stock #1: Broadcom
Commanding a massive market cap of about $749.7 billion, California-based global tech giant Broadcom Inc. (AVGO) is renowned for its innovative semiconductor, enterprise software, and security solutions. Serving crucial markets like cloud, data center, networking, broadband, wireless, storage, and industrial sectors, Broadcom's cutting-edge products power everything from mobile and broadband connectivity to mainframe and cybersecurity.
Shares of this chip giant have rallied about 82% over the past 52 weeks, easily dwarfing the broader S&P 500 Index’s ($SPX) gains of 22.7% during the same time frame. Additionally, in 2024, the stock is up 46.3%, outperforming the SPX’s 16.7% return on a YTD basis.
With a respectable 13-year streak of consecutive dividend increases, Broadcom exemplifies its unwavering commitment to shareholder value. The company’s annualized dividend of $2.10 translates to an attractive 1.26% dividend yield. Plus, the company maintains a healthy payout ratio of 53.46%.
On June 12, Broadcom announced a 10-for-1 stock split alongside its better-than-expected Q2 earnings results, which triggered a 12.3% surge in its shares in the subsequent trading session. The company’s historic first-ever stock split took effect after the close of trading on July 12, and as of July 15, AVGO shares are now trading at split-adjusted prices.
The chipmaker also demonstrated a strong financial performance in Q2, with revenue soaring an impressive 43% year over year to $12.5 billion, and sailing past projections by 4%. Adjusted EPS of $10.96 climbed 6.2% annually, and narrowly edged past estimates.
Discussing the Q2 performance, CEO Hock Tan said, “Broadcom's second quarter results were once again driven by AI demand and VMware. Revenue from our AI products was a record $3.1 billion during the quarter. Infrastructure software revenue accelerated as more enterprises adopted the VMware software stack to build their own private clouds."
Encouraged by the strong Q2 performance, management raised its fiscal 2024 revenue and adjusted EBITDA guidance. Revenue for the entire year is now expected to hit approximately $51 billion, while adjusted EBITDA is expected to be approximately 61% of the projected revenue.
Analysts tracking Broadcom project the company’s profit to climb 31.3% year over year to $4.91 per share in fiscal 2025, following a projected 3% drop in EPS this fiscal year.
AVGO stock has a consensus “Strong Buy” rating overall. Of the 32 analysts in coverage, 29 suggest a “Strong Buy,” and the remaining three give a “Hold” rating.
The average analyst price target of $190.51 indicates a potential upside of 15.8% from the current price levels. The Street-high price target of $240 suggests that the stock could rally as much as 45.8%.
Semiconductor Stock #2: NXP Semiconductors
Netherlands-based NXP Semiconductors N.V. (NXPI) is the trusted partner for cutting-edge solutions in automotive, industrial IoT, mobile, and communications infrastructure markets. With a market cap of around $72.5 billion, NXP blends advanced technology with innovative talent to create systems that enhance the connected world, making it safer and more secure. With operations in over 30 countries, the company has emerged as a global leader driving the future of connectivity.
Shares of NXP Semiconductors have surged 21.5% over the past 52 weeks and 12.8% on a YTD basis.
The stock is down sharply today after its most recent earnings report, and is now off more than 10% from its July 17 high - which means investors may want to watch for NXPI to stabilize over the coming sessions for a potential “buy the dip” opportunity.
The company announced its Q2 earnings results after Monday’s closing bell. Despite dropping 5% year over year, the company’s revenue of $3.1 billion still managed to slightly exceed Wall Street’s expectations. Additionally, on an adjusted basis, the company earned $3.20 per share, in line with estimates.
During the quarter, the chip company generated $761 million in cash flow from operations, with net capex investments of $184 million, resulting in a solid non-GAAP free cash flow of $577 million.
Commenting on the Q2 performance, CEO Kurt Sievers said, “With our second-quarter results and guidance for the third quarter NXP has successfully navigated the cyclical trough in our businesses and we expect to resume sequential growth.”
Specifically, management expects Q3 revenue to range between $3.15 billion and $3.35 billion, while gross profit is projected to land between $1.79 billion and $1.94 billion. Adjusted EPS is anticipated to range between $3.21 and $3.63.
Analysts tracking NXP Semiconductors project the company’s profit to improve by 14.3% year over year to $14.25 per share in fiscal 2025, preceded by a 1.8% dip in EPS this fiscal year.
On July 10, NXP paid its shareholders an interim dividend of $1.014 per share. This brings its annualized dividend to $4.06, offering a solid 1.43% yield. With a conservative payout ratio of 31.88%, NXP strikes a balance between investing in future growth and returning value to its investors.
NXPI stock has a consensus “Moderate Buy” rating overall. Among 25 analysts, 14 suggest a “Strong Buy,” two recommend “Moderate Buy,” eight advise “Hold,” and the remaining one has a “Strong Sell” rating.
The average analyst price target of $294 indicates a potential upside of 13% from the current price levels. The Street-high price target of $370 suggests that the stock could rally as much as 42.4%.
Semiconductor Stock #3: Marvell Technology
Delaware-based Marvell Technology, Inc. (MRVL) is a global leader in advanced semiconductor solutions that power the backbone of data infrastructure. Trusted by top technology companies for over 25 years, Marvell excels in moving, storing, processing, and securing global data with tailor-made semiconductor solutions. From the core of data centers to the network edge, Marvell's cutting-edge System-on-a-Chip designs integrate analog, mixed-signal, and digital processing capabilities.
Valued at $59.7 billion by market cap, Marvell's shares have climbed 8.4% over the past 52 weeks, and roughly 14% on a YTD basis.
On June 21, Marvell announced a quarterly dividend of $0.06 per share, set to be distributed to its shareholders on July 31. The company’s annualized dividend of $0.24 translates to a 0.35% dividend yield. With a conservative payout ratio of 30.72%, the company has room for further dividend increases.
Marvell reported its fiscal 2025 Q1 earnings results on May 30. While the company’s net revenue of $1.2 billion missed Wall Street’s forecasts by about $1 million, its adjusted EPS of $0.24 was in line with estimates. Despite falling short of analysts’ expectations, the company’s net revenue came in above the midpoint of management’s guidance, thanks to stronger-than-expected AI demand.
During the quarter, Marvell’s data center revenue soared an impressive 87% year over year, fueled by new AI programs and a solid electro-optics foundation. Plus, the company’s cash flow from operations stood at $324.5 million, highlighting its strong operational efficiency.
“We see a favorable setup for the second half of this fiscal year, driven by continued growth in data center and the beginning of a recovery in enterprise networking and carrier infrastructure," said CEO Matt Murphy.
For fiscal Q2, management expects net revenue of approximately $1.250 billion, with a potential variance of plus or minus 5%. GAAP and non-GAAP gross margins are expected to be approximately 46.2% and 62%, respectively. Adjusted EPS is projected to come in at $0.29.
Full-year GAAP EPS is projected to decline 6.25% to $0.75, on average. Looking forward to fiscal 2026, analysts tracking Marvell project the company’s profit to hit $1.72 per share, up 129.3% annually.
MRVL stock has a consensus “Strong Buy” rating overall. Of the 29 analysts covering Marvell, 26 suggest a “Strong Buy,” two recommend “Moderate Buy,” and the remaining one backs a “Hold” rating.
The average analyst price target of $89.11 indicates a potential upside of 29.4% from the current price levels. The Street-high price target of $100 suggests that the stock could rally as much as 45.2%.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
