Two artificial intelligence (AI) chip companies that might surge in value by 2025.
In the ever-evolving tech landscape, AI is poised to revolutionize the global economy, delivering higher worker productivity, faster product development, and more efficient supply chains. This transformation has spawned a massive demand for top-tier semiconductor companies, providing cutting-edge processors that fuel AI advancements.
Amid impressive gains for leading chip stocks in 2024, two companies with promising venture prospects continue to trade at reasonable valuations, potentially opening the door to attractive returns in 2025 and beyond.
1. Micron Technology
Characterized by its critical role in fulfilling memory and storage demands for AI-optimized data centers, smartphones, and PCs, Micron Technology (MU -1.57%) currently experiences remarkable growth driven by AI's surging popularity.
Micron's impressive Q1 revenue record and operating leverage allow it to generate additional profits from increased revenue. An 84% year-over-year revenue jump in the most recent quarter yielded a net income of $1.67 per share, turning a previous loss of $1.12 into a profit.
Driven by strong demand and Micron's dedicated focus on data center SSD products, this tech giant showcases an encouraging outlook for record revenue in 2025. Management anticipates robust growth in earnings and positive free cash flow, with the high-bandwidth memory market projected to swell from $16 billion in 2024 to over $100 billion by 2030.
Although swings in selling prices for memory and storage may lead to lumpy revenue performance, the long-term demand curve for AI-optimized memory is incredibly promising. Consequently, the stock's fair forward price-to-earnings ratio of 14 seems a solid foundation for continued gains in 2025.
2. Taiwan Semiconductor Manufacturing
As the world's leading foundry, Taiwan Semiconductor Manufacturing (TSM -1.22%) serves a prestigious customer list, including Nvidia, AMD, Qualcomm, and Apple. Its role in the production of cutting-edge chips grants it a unique advantage in the AI semiconductor industry.
Armed by its manufacturing expertise and diverse customer base, TSMC basks in the blessings of double-digit share price growth over the last year. Despite its soaring value, the company still trades at a reasonable 23 times 2025 earnings estimates, representing an appealing discount to the average S&P 500 P/E of 30.
In the face of growing demand for advanced processors, TSMC makes strategic investments in its manufacturing processes, generating attractive growth prospects. Management forecasts a 29% increase in 2024 revenue, with AI server chips tripling in revenue. While accounting for just a mid-teens percentage of TSMC's revenue, the strong demand for AI-related applications also boosts its margins and earnings growth prospects.
TSMC boasts an impressive track record of generating high returns on capital, so its expanded global manufacturing footprint across the US, Japan, and Europe raises the bar for its advanced chip manufacturing capabilities. Such investments solidify the company's position as a leader in the AI semiconductor industry, poised to benefit from the ongoing AI revolution.
When considering potential investment opportunities in the tech sector, Micron Technology's (MU -1.57%) focus on fulfilling memory and storage demands for AI-optimized devices makes it an attractive choice. With a fair forward price-to-earnings ratio of 14 and strong growth prospects in the high-bandwidth memory market, investing in Micron could offer attractive returns.
In the world of semiconductor manufacturing, Taiwan Semiconductor Manufacturing (TSM -1.22%) stands out as a strategic partner for major AI players like Nvidia, AMD, Qualcomm, and Apple. With a reasonable 23 times 2025 earnings estimates, TSMC's stock represents an discounted entry point into the growing AI semiconductor industry, making it an intriguing investment option.
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