Last year was a solid year for semiconductor companies, as evidenced by the 21% growth reported PHLX semiconductor sector index during this period.But not all semiconductor stocks have benefited from the broader market’s rise.
For example, before shares Broadcom:(NASDAQ: AVGO) have grown by an impressive 115% in the last year, Advanced Micro Devices(NASDAQ: AMD) shares moved in the opposite direction and lost 14% of their value. Both companies play a key role in the semiconductor market as they design chips used in personal computers (PCs), smartphones, game consoles and data centers.
Let’s take a closer look at the prospects of these two semiconductor stocks and decide which is the better buy after their contrasting performances last year.
While 2024 was a bad year for AMD, the company could see a good turnaround in 2025 thanks to a sunny outlook for the PC and data center markets. A closer look at AMD’s Q3 2024 results (released in October 2024) tells us , that the turnaround is already underway.
The chipmaker’s quarterly revenue rose 18% year-over-year to $6.8 billion, and earnings per share rose 31% to $0.92 per share is a 22% increase in its revenue to $7.5 billion.Analysts predict that the company’s profit will increase by 41% to $1.09 per share.
The forecast for 2025 is even rosier. AMD’s bottom line is forecast to rise 54% to $5.13 a share in the new year on a 27% rise in revenue to $32.5 billion.It’s easy to see why analysts expect AMD will go on gas in 2025. The company’s data center business gained momentum in 2024 as AMD was able to attract more customers. for its graphics processors (GPUs) used in servers. artificial intelligence (AI) model training and inference.
AMD originally expected to sell $2 billion worth of data center GPUs in 2024, but has increased that forecast to more than $5 billion.The company could see further growth in this segment in 2025 thanks to an improved supply chain that should allow AMD to drive greater demand for its AI GPUs. Meanwhile, CEO Lisa Su notes that PC OEMs (original equipment manufacturers) are set to triple the number of products powered by AI-enabled Ryzen PC processors by 2025.
As a result, it wouldn’t be surprising to see AMD gain more share of the client processor market. Mercury Research reports that AMD’s share of the client processor market grew by 4.6 percentage points year over year to 23 in the third quarter of 2024. .9%. AMD’s strong position in AI PCs should allow it to capture more of this space in 2025, which should be good enough to help the company maintain its outstanding growth in this sector.
Overall, there are plenty of positives for AMD in the new year that could help this chip stock break out of the rut it’s in. AMD has an average 12-month price target of $183 based on the 55 analysts covering it. are what points to a 46% increase from current levels.
Broadcom is already a bigger player in the AI ​​chip market than AMD, bringing in $12.2 billion in sales of its custom AI processors and networking chips last fiscal year, up 220% from the previous year. More importantly, AI has set the stage for tremendous long-term growth at Broadcom, as the company sees its target market in this space grow to the $60-90 billion range by fiscal year. The year 2027.
Broadcom is in a strong position to make the most of this lucrative growth opportunity, as it controls 55% to 60% of the custom processor market. processor market size increases to $75 billion (based on the midpoint of its guidance range), its AI revenue could reach $45 billion after three. years.
That would be a big jump, nearly four times the revenue the company generated from the segment in fiscal 2024. The impressive performance of Broadcom’s AI-specific semiconductor business is strong enough to help the company offset the weakness it faces AI semiconductor business.
More specifically, Broadcom’s non-AI semiconductor revenue fell 23% year-over-year to $4.5 billion in the fourth quarter of fiscal 2024. That contrasted sharply with a 150% year-over-year increase in AI semiconductor product revenue to $3.7 billion. The good news is that Broadcom’s semiconductor non-AI business has already bottomed out, and the company expects a recovery in this segment in the future.
As such, it’s not surprising to see Broadcom’s growth in fiscal 2025 stronger than last year gives the following chart, Broadcom is expected to step on the gas in fiscal 2025, followed by healthy growth over the next two years as well.
So Broadcom is likely to remain a leading semiconductor stock thanks to AI’s solar prospects and a potential recovery in other markets. during.
We saw that both AMD and Broadcom are likely to see solid growth in 2025 and beyond, suggesting that both semiconductor stocks may be worth buying now. However, Broadcom is trading richer appreciating more than the dram after its impressive growth last year.This is evident in the chart below.
Broadcom’s sales and earnings multiples are much higher than AMD’s.Of course, Broadcom’s dominance in the custom AI processor market explains why it deserves that rich valuation.However, AMD is expected to grow faster in the new year : This is why investors looking for a growth stock that trades at an attractive valuation will likely prefer to buy AMD over Broadcom, as the former can break out of its slump and rise in 2025.
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