Nvidia, Broadcom, and Marvell Leading the Charge in Semiconductor Growth Amidst AI Demand

The semiconductor industry is experiencing a significant divide in performance based on exposure to different end markets. In 2024, companies focused on traditional markets like PCs, smartphones, and automobiles faced considerable challenges. These suppliers saw fundamental pressures that translated into declining revenues and earnings.

In stark contrast, firms leveraging artificial intelligence (AI) reported robust demand as investments in AI infrastructure surged. This strong demand for AI applications drove substantial growth among AI-focused semiconductor companies, pushing their stock prices skyward.

AI-Driven Semiconductor Stocks Surge

According to analyst N. Quinn Bolton from Needham, the difference in performance between AI-driven semiconductor firms and their traditional counterparts was stark. While companies linked to the broader market struggled, AI-centric firms thrived, achieving an impressive average stock price increase of 147% in 2024. This outperformance is notably above the S&P 500 Index’s return of 23% for the same year.

Bolton noted that 2024 was defined by a clear split in the industry, identifying a group of 'haves'—companies benefitting from AI demand—and 'have nots'—those that struggled amid weak market conditions and excess inventory.

Expectations for 2025

Looking towards 2025, Bolton anticipates a potential recovery for analog and mixed-signal semiconductor companies as the sector begins to stabilize. Allegro MicroSystems Inc (NASDAQ:ALGM) has been singled out as a top pick for this coming year, joining Needham’s Conviction List.

Bolton expressed that while growth in AI revenue might start to slow, there could be a shift in market dynamics as analog and mixed-signal firms begin to recover. He suggests that this rotation may not happen immediately but could commence in the spring to summer of 2025.

Moreover, he highlighted that even if AI funding experiences some deceleration, it is anticipated to maintain a growing trajectory, partly stabilizing AI-themed semiconductor valuations.

Potential Catalysts for Market Shifts

Bolton outlines several catalysts that could facilitate a shift back to broader semiconductor investments, such as the conclusion of inventory digestion and an uptick in end-market demand. He remains optimistic about the trends toward autonomy and electrification in the automotive sector, which he believes will further propel semiconductor growth.

Beyond Allegro, Bolton maintains a favorable outlook on companies like Silicon Laboratories, Inc., Lattice Semiconductor Corp, and ON Semiconductor Corp.

Silicon Labs is highlighted as a unique opportunity, as their growth is not overly reliant on a broad market recovery, instead focusing on innovative product applications such as smart meters and new Bluetooth technologies.

Furthermore, Lattice Semiconductor is expected to rally in the latter part of 2025, as market corrections clear, while ON Semiconductor is positioned to capture growth stemming from a cyclical recovery later in the year.

Key Players in the AI Semiconductor Space

Bolton cites Nvidia Corp, Broadcom Inc, and Marvell Technology Inc as key players that will benefit from the expected growth in both general-purpose GPUs and hyperscaler custom ASICs in the coming years.

In addition, Bolton recommends specific companies associated with the connectivity trend in AI data centers:

• Astera Labs Inc (NASDAQ:ALAB) — Buy, $140 price target
• Credo Technology (CRDO) — Buy, $80 price target
• MACOM Technology (MTSI) — Buy, $150 price target
• Semtech Corp (SMTC) — Buy, $74 price target

Additionally, he has recently increased his price targets for Astera Labs from $100 to $140 and for Credo Technology from $70 to $80, reflecting his bullish outlook for these companies.

Semiconductor, AI, Growth