Nvidia's stock has room to run - but analysts see more upside for 6 other chip makers

By Emily Bary and Philip van Doorn

Heavily favored semiconductor stocks include Micron, Marvell and AMD

The semiconductor space has been an important driver for the stock market, helped especially by Nvidia Corp.'s dramatic sales growth - the company's most recent quarterly revenue was 4.5 times as high as it was two years earlier.

Even though Nvidia (NVDA) isn't expected to grow at anywhere near that rate going forward, the company still is projected to see rapid expansion. It ranked fourth on our screen last week of semiconductor companies expected to increase their revenue most quickly through calendar 2026.

There are various dynamics at play when it comes to Nvidia shares. Given all the recent attention on the company, some of the enthusiasm for future growth is already baked into the share price. Investors have even started to nitpick growth that would be the envy of nearly every other industry player, but which marks a slowdown relative to Nvidia's recent levels.

Read: Nvidia among chip stocks declining. Here's what buyers are waiting for.

At the same time, Nvidia shares have come down from their June highs, and the broader chip sector is down from July. In light of those pullbacks, analysts' consensus price targets still imply considerable upside for shares, as today's screen will show.

SOXX: The benchmark for semiconductor stocks

Today we have done a different type of stock screen for the semiconductor industry, based on ratings and consensus price targets among analysts polled by FactSet. Nearly all analysts working for brokerage firms set price targets looking out 12 months, based on their own projections for companies' financial results.

Before getting to the screen, let's take a look at the performance of the iShares Semiconductor ETF SOXX, which tracks the performance of the PHLX Semiconductor Index SOX by holding all 30 of its stocks.

Here is a five-year chart showing the total return for SOXX through Monday, compared with that of the SPDR S&P 500 ETF SPY, which tracks the S&P 500 SPX.

Returns include reinvested dividends and are net of the exchange-traded funds' expenses. SOXX has more than doubled the return of SPY over the past five years, but investors have needed to be patient, because this industry group tends to be more volatile than the broad market. It can be a rough ride. For example, in 2022, SOXX declined 35.1% while SPY was down 18.2%.

Investors have experienced the sector's volatility more recently than that as well. SOXX is down 17% from its July highs.

Mixed opinions: Why Nvidia and Broadcom shares can't save the chip sector by themselves

The S&P 500 is weighted by market capitalization. The PHLX Semiconductor Index is maintained by Nasdaq Inc. (NDAQ) and uses a modified weighting methodology, which caps its largest three components at 12%, 10% and 8%, respectively. The index is rebalanced quarterly, and you can learn more about the process it follows to adjust weightings here. As of the close Monday's close, the top holding of SOXX was Broadcom Inc. (AVGO), with a 10.51% weighting, followed by Nvidia, at 9.07% and Advanced Micro Devices Inc. (AMD), with a 7.76% weighting.

Now, here's a chart showing returns for the previous five-year period, from Sept. 16, 2014, through Sept. 16, 2019:

And now, to illustrate the compounding effect for dedicated long-term investors, here is a comparison of 10-year returns for SOXX and SPY through Monday:

For 10 years through Monday, SOXX's total return was more than triple that of SPY.

Looking at analysts' favorite semiconductor stocks

For the new screen, our list included the 30 components of SOXX, to which we added 31 more companies in the S&P 1500 Composite Index XX:SP1500 within the semiconductor industry, as determined by FactSet, or in the Semiconductors and Semiconductor Equipment Global Industry Classification Standard group, as per companies' filings with the Securities and Exchange Commission. The S&P Composite 1500 Index is made up of the S&P 500, the S&P MidCap 400 Index MID and the S&P Small Cap 600 Index SML.

We narrowed the list to 54 companies covered by at least five analysts working at brokerage firms polled by FactSet. Then we narrowed further to 13 stocks rated "buy" or the equivalent by at least 80% of the analysts. Here they are, sorted by 12-month upside implied by the consensus price targets:

   Company                                           Ticker   Share "buy" ratings  Sept. 16 price  Consensus price target  Implied 12-month upside potential 
   Micron Technology Inc.                              MU                     90%          $87.18                 $167.85                                93% 
   Ichor Holdings Ltd.                                ICHR                   100%          $28.33                  $43.00                                52% 
   Allegro MicroSystems Inc.                          ALGM                    80%          $22.68                  $33.88                                49% 
   Semtech Corp.                                      SMTC                    92%          $40.06                  $55.60                                39% 
   Onto Innovation Inc.                               ONTO                   100%         $189.46                 $261.21                                38% 
   Power Integrations Inc.                            POWI                    83%          $58.58                  $80.20                                37% 
   Nvidia Corp.                                       NVDA                    94%         $116.78                 $149.49                                28% 
   Marvell Technology Inc.                            MRVL                    94%          $73.40                  $92.59                                26% 
   Taiwan Semiconductor Manufacturing Co. Ltd. ADR    TSM                     95%         $169.08                 $209.84                                24% 
   Advanced Micro Devices Inc.                        AMD                     83%         $152.08                 $187.96                                24% 
   CEVA Inc.                                          CEVA                    83%          $23.64                  $27.83                                18% 
   Broadcom Inc.                                      AVGO                    87%         $164.02                 $192.50                                17% 
   SiTime Corp.                                       SITM                    86%         $148.23                 $138.33                                -7% 
                                                                                                                                             Source: FactSet 

Micron Technology Inc. (MU) ranks first on this list, illustrating a disconnect between analysts' rampant enthusiasm for the company's artificial-intelligence opportunities and the recent downward move for the shares. They're down more than 40% from their June highs, reflecting concerns about industry growth outside of high-bandwidth memory, which is a technology that's become highly relevant in the AI era.

"We expect the slowdown to be temporary given stable end demand across markets and disciplined supply," a Raymond James analyst wrote last week, adding that the data-center business still looks on track for more than 300% growth this year, fueled by AI interest.

As for Nvidia, which ranks seventh on the screen with 28% upside to analysts' average price target, analysts have noted a few recent blips, such as concerns about a less gigantic beat in the latest quarter and the potential for some margin pressure as the company works to ramp its new Blackwell chip offering.

Most are undeterred, as 94% rate the stock a buy. "Yes, the numbers are so good (and moving so high, so fast) that investors worry about sustainability," Bernstein's Stacy Rasgon wrote recently. "However, the time to worry is clearly not now."

Marvell Technology Inc. shares (MRVL), meanwhile, are off about 14% from their March highs, but analysts remain optimistic about upside potential. The company is dealing with a dynamic that highlights a broader industry trend: While AI demand is strong, fueling growth in the data-center segment, Marvell saw sharp year-over-year declines for all its other revenue segments last quarter.

Still, there's enthusiasm for the company's AI opportunities, including in application-specific integrated circuits. The company "remains convinced ASICs will be too complicated and time-sensitive for smaller competitors or even internal efforts to remain viable at the leading edge," Jefferies analyst Blayne Curtis wrote recently.

Then there's Advanced Micro Devices Inc. (AMD), which clocks in at the No. 10 spot on this screen. As with Marvell, AMD's high for the year came in March, not over the summer as was the case for SOXX. AMD shares were strong last year as investors saw the company as a "second source" to Nvidia in the market for AI graphics-processing units. And while AMD serves that role, revenue from AI doesn't seem to be manifesting as quickly as bulls had been hoping for earlier in the year.

AMD shares are down 28% from their high point hit in March. Analysts, on average, see 24% upside from current levels, based on their 12-month targets.

One year might not be sufficient time for a long-term investment to play out - even one for a company that's performing well. But this is the old Wall Street tradition and brokerage firms use their analysts' ratings and price targets when recommending individual stocks to clients.

No method of selecting stocks is perfect. If you see any stocks of interest here, you should do your research to form your own opinions about how likely a company is to remain competitive over the long term. You can begin this process by clicking on any of the tickers in this article for news coverage, financials, estimates, price ratios and charts.

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09-21-24 1159ET

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