Can These 3 Semiconductor Stocks Outpace Nvidia's Growth?

October 20, 2023 at 09:45 AM EDT

Semiconductor stocks

Nvidia Corp. (NASDAQ: NVDA) has been the S&P 500’s big winner this year on the strength of its AI chips, but other chip stocks are also going along for the ride.

While stocks like Broadcom Inc. (NASDAQ: AVGO), Advanced Micro Devices Inc. (NASDAQ: AMD), Cadence Design Systems Inc. (NASDAQ: CDNS) and Lam Research Corp. (NASDAQ: LRCX) are also topping the S&P 500 charts, there are some chip stocks whose future growth is expected to rival Nvidia’s.

Those stocks include Micron Technology Inc. (NASDAQ: MU), Wolfspeed Inc. (NYSE: WOLF) and SiTime Corp. (NASDAQ: SITM).

One caveat with the chip industry: It’s notoriously volatile and cyclical, with periods of boom and bust driven by fluctuations in demand and economic conditions.

As we’ve seen, supply chain disruptions, geopolitical tensions, and trade conflicts can impact the industry's sales.

Chip Industry Highly Competitive

The industry is home to intense competition and innovation, as the recent boom in AI-related chips has shown. For example, Microsoft Corp. (NASDAQ: MSFT), which buys AI chips from Nvidia, is reportedly working on its own version of AI chips.

Here’s a look at three chip stocks expected to post fast growth in the coming years.

Micron Technology

Micron Technology specializes in semiconductor memory products.

Its biggest competitor in the space is Samsung Electronics Co. Ltd. (OTCMKTS: SSNLF), which has seen a slowdown in its chip business, due to sluggish PC and smartphone sales.

Samsung recently inked deals to supply memory chips for customers including Alphabet Inc. (NASDAQ: GOOGL) prices 10% to 20% above previous contracts.

Analysts say that could benefit Micron. A look at MarketBeat’s Micron Technology analyst ratings shows a consensus view of “moderate buy” with a price target of $77.75, an upside of 15.13%.

Wall Street expects Micron’s revenue and earnings to bounce back, with the company reporting net income of $3.98 per share in 2025. Sales are expected to grow at a rate of 34.4%, which is approaching Nvidia’s expected growth rate of 35.2%.

Micron stock is up 39.03% year-to-date. A look at the Micron Technology chart shows the stock slicing through its 50-day average as the broad market closed lower on October 19.

Wolfspeed

Wolfspeed makes energy-efficient chip components used in applications such as electric vehicles, renewable energy systems, and fast 5G communication networks. It also sells chips into the aerospace industry.

The company specializes in silicon carbide technology, which is increasingly used in EVs. Wolfspeed chips are used by automakers including General Motors Co. (NYSE: GM), Stellantis N.V. (NYSE: STLA) and Tesla Inc. (NASDAQ: TSLA) among others.

In an October investors’ presentation, Wolfspeed said it anticipates a $5 billion opportunity in transportation applications by 2027, driven mostly by automotive. It also sees a $1 billion opportunity in other applications by 2027.

The Wolfspeed chart doesn’t exactly indicate that potential yet. Wolfspeed analyst ratings tell a more optimistic story, though. Analysts’ consensus view is “hold,” with a price target of $64, which represents an upside of 88.29%.

That’s some serious optimism, and it signals that analysts believe the company’s story about the potential for its silicon carbide chips.

Wolfspeed sales are expected to grow at a rate of 34.1%, although analysts don’t forecast profitability in the next two years.

SiTime

This isn’t as well known as some of the bigger chipmakers, both because it’s smaller and it focuses on a somewhat obscure niche within the semiconductor industry.

SiTime, with a market capitalization of $2.483 billion, specializes in manufacturing integrated circuits that provide precision timing solutions.

While it doesn't produce traditional microprocessors or memory chips, SiTime's oscillators and clock generators are essential semiconductor components used in various electronic devices, making the company a significant player in the broader semiconductor industry.

Its largest end customer is Apple Inc. (NASDAQ: AAPL), which the company said accounted for about 20% of its total revenue in 2022, down from 40% in 2020.

SiTime stock has been underperforming the iShares Semiconductor ETF (NYSEARCA: SOXX) as demand for end-user products has slowed. As is the case with other chipmakers, SiTime is facing weakening sales in the broadband industrial market, as well as in mobile devices, Internet of Things applications, and other consumer electronics gear.

The company’s management is forecasting the current slump in end-user sales will ding revenue, and Wall Street expects income of 16 cents a share this year, down 96%, which is a tremendous decline from 2022.

However, that’s expected to bounce back at a rate of 688% next year, to $1.26 per share.

This is a case of a company that’s currently in the doldrums but could be a good value if Wall Street’s forecasts of a two-year 30.7% sales rate are accurate.

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Can These 3 Semiconductor Stocks Outpace Nvidia's Growth?

Chip Industry Highly Competitive

Micron Technology

Wolfspeed

SiTime

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