Nvidia, Broadcom, and Marvell Poised for Growth Amid AI Semiconductor Demand

The semiconductor industry witnessed a significant divide in 2024, according to analyst N. Quinn Bolton from Needham. Companies linked to sectors like PCs, smartphones, industrial applications, and automotive have faced considerable challenges, with demand pressure negatively impacting their financial performance.

In stark contrast, firms focused on artificial intelligence (AI) have thrived, driven by an increasing demand for AI infrastructure. This change has led to remarkable stock performance, particularly among AI-driven semiconductor companies, which experienced an astonishing 147% increase in stock prices throughout 2024. This is notably higher compared to the S&P 500 Index, which saw a respectable return of 23%.

Bolton observed that the semiconductor market in 2024 has distinctly separated into two categories: the "haves," which represent the successful AI-driven companies, and the "have nots," which are facing industry headwinds. The average performance for non-AI semiconductor stocks in his coverage was a disheartening -17%, illustrating the substantial gap between these groups.

As we look forward to 2025, Bolton anticipates a potential recovery for analog and mixed-signal semiconductor sectors. Notably, he has highlighted Allegro MicroSystems, Inc. (ALGM) as his top recommendation, placing it on Needham's Conviction List.

Bolton suggests that while AI-driven revenue growth might begin to slow, the fundamentals for analog and mixed-signal semiconductor companies could start to improve. He predicts that the performance of AI and non-AI stocks might move toward a mean reversion as the market stabilizes.

Despite this positive outlook, Bolton clarifies that he does not foresee a quick shift from AI-focused stocks to analog and mixed-signal alternatives. The upcoming months may still reflect underwhelming performance for many analog/mixed-signal stocks, while AI company revenues are expected to keep growing.

AI spending is likely to slow down, which may lead to lower valuations across the board. Yet, Bolton suggests that catalysts such as ending inventory adjustments and improved demand in various end markets could drive a resurgence. The trends of autonomy and electrification in the automotive sector remain strong and are likely to spur semiconductor demand moving forward.

In addition to Allegro MicroSystems, Bolton has expressed favorable views on companies like Silicon Laboratories, Inc. (SLAB), Lattice Semiconductor Corp (LSCC), and ON Semiconductor Corp (ON). He pointed out that Silicon Labs is positioned uniquely since it does not rely heavily on macroeconomic recovery due to new design wins in various technologies.

For Lattice Semiconductor, Bolton expects that recovery will manifest in the latter half of 2025 as inventory issues are resolved, and new product offerings are rolled out. As for ON Semiconductor, while sub-seasonal results are anticipated in the earlier part of 2025, Bolton believes it could capitalize on a cyclical rebound later in the year.

Regarding key players in the AI space, Bolton noted that both Nvidia Corp (NVDA) and Broadcom Inc (AVGO) are on track to benefit from the scalable growth of their respective products. Marvell Technology Inc (MRVL) is also in a favorable position due to the strong demand for general-purpose GPUs and custom ASICs tailored for AI applications.

Bolton has set price targets for several companies involved in the AI connectivity sector, including Astera Labs Inc (ALAB), Credo Technology (CRDO), MACOM Technology (MTSI), and Semtech Corp (SMTC). His price targets for Astera Labs and Credo Technology were raised significantly, reinforcing his bullish stance on these stocks.

AI, Semiconductor, Stocks