Over the past year, the semiconductor sector has seen a major breakout led by companies like Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD). Semiconductors are used to power most technology on the market today including our smartphones, electric vehicles and giant data centers. One of the driving forces behind the surge in semiconductor and chip demand has been the emergence of artificial intelligence (AI). Nearly every big tech company in the world has been integrating AI into their products and services.
As a result, powerful chips like graphics processing units (GPUs) have been in high demand and semiconductor companies have been scrambling to make more. The demand is so great that many companies are out of supply and are attempting to scale up production. We believe that these three semiconductor stocks are primed to extend their recent gains in April.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) is an American semiconductor company that was founded in 1978. It specializes in producing memory chips called DRAM or dynamic random access memory. Micron has an average analyst price target of $121.00 which is right in line with its current price. Recent upgrades have pushed the Street-high price target for MU to $200.00 per share.
This stock recently broke through a resistance from its previous all-time high that was set in 2022. Earlier this month, Micron surged through that level due to better-than-expected earnings and generous guidance through 2025. The increase in demand for Micron’s chips due to the AI revolution has drastically improved margins and pushed Micron back to a profitable company.
MU is currently trading at about 7x sales which is quite reasonable for a semiconductor company. The recent resurgence in revenue and profitability has skewed the earnings multiples and has Micron’s revenue compound annual growth rate (CAGR) back on track. Until the recent AI surge, Micron had a five-year revenue CAGR of -9.0%. But in the recent quarter, revenue grew by 58% year-over-year and Micron is projecting that to jump to 75% next quarter.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is an American semiconductor and infrastructure software company that was founded in 1961. As per Yahoo Finance, 27 of 29 analyst ratings in March had AVGO as a Buy or Strong Buy. It also has an average price target of $1,393.62 which is about 5.0% higher than its current price.
This semiconductor company builds what is known as custom chips otherwise known as application-specific integrated circuits (ASICs). As you might imagine, Broadcom saw the same tailwinds as companies like Nvidia and AMD. One issue with Broadcom has been the declining sales of its hardware segment. This is one reason why Broadcom has been unable to raise forward guidance despite the growing demand for its custom AI chips.
Broadcom’s stock seems expensive because of its share price. Below the surface, AVGO trades at just 28x forward earnings and 14x sales. The company has a five-year revenue CAGR of 13% but that could rise as Broadcom shifts more of its focus to its custom AI chips.
Marvell Technology (MRVL)
Marvell Technology (NASDAQ:MRVL) is a Delaware-based semiconductor company that also builds ASICs used in data centers and other technologies. The current share price of Marvell is below even the lowest analyst price target of $71.00 and is about 30% lower than the highest price target of $100.00. The average target is $88.33 which still represents about 20% upside.
As with most semiconductor companies, Marvell has seen a major boost from the AI industry. Data centers and custom chips are going to be the lifeblood of AI. Fortunately, Marvell specializes in both of these products. Top-line revenue growth in the double digits is forecasted through fiscal year 2026. That is a nice acceleration from its pre-AI revenue.
MRVL trades at a bit of a premium compared to some of its semiconductor peers. Currently, shares trade at about 47x forward earnings and 11x sales. With revenue forecast to accelerate, these multiples should either return to Earth or provide a major boost to Marvell’s market cap and share price moving forward.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
