11 favored semiconductor stocks expected to -2-

For Nvidia, it is difficult to estimate results in what still seems to be the new industry of using GPUs to support AI. But the analysts keep trying. Here are projected compound annual growth rates for sales and EPS for the same group of 12 companies for the next two calendar years. The 2026 estimates are available for all but Semtech Corp. (SMTC) and Micron, with a 2026 sales estimate available for Broadcom Inc. (AVGO). We have used consensus estimates as adjusted by FactSet from calendar 2024 through calendar 2026, because some of the companies have fiscal years that don't match the calendar.

At the bottom of the table are expected CAGR for the PHLX Semiconductor Index and the S&P 500. Some notes about the data follow.

   Company                                      Ticker   Expected two-year sales CAGR through 2026  Expected two-year EPS CAGR through 2026 
   Semtech Corp.                                 SMTC                                          N/A                                      N/A 
   Allegro MicroSystems Inc.                     ALGM                                        14.0%                                    38.8% 
   Ichor Holdings Ltd.                           ICHR                                         9.8%                                   142.2% 
   Marvell Technology Inc.                       MRVL                                        24.2%                                    50.3% 
   Advanced Micro Devices Inc.                   AMD                                         23.2%                                    43.3% 
   SiTime Corp.                                  SITM                                        27.7%                                    89.6% 
   Onto Innovation Inc.                          ONTO                                        15.2%                                    31.6% 
   Micron Technology Inc.                         MU                                           N/A                                      N/A 
   Broadcom Inc.                                 AVGO                                        11.3%                                      N/A 
   First Solar Inc.                              FSLR                                        22.0%                                    47.3% 
   Taiwan Semiconductor Manufacturing Co. ADR    TSM                                         18.0%                                    21.8% 
   Nvidia Corp.                                  NVDA                                        26.1%                                    26.5% 
   PHLX Semiconductor Index                      SOX                                         12.4%                                    22.7% 
   S&P 500                                       SPX                                          5.8%                                    13.2% 
                                                                                                                            Source: FactSet 

For Semtech, estimates are not available for calendar 2026. The consensus among analysts polled by FactSet is for the company's revenue to increase by 19% in calendar 2025, with EPS increasing by 143%.

For Micron, analysts expect calendar 2025 sales to increase 35%, with EPS increasing 173%.

For Broadcom, the table shows an expected two-year sales CAGR of 11.3% through 2026, but no EPS estimate is available for 2026. For 2025, EPS is expected to increase by 24%.

Market Extra: As Nvidia drives a chip rally in 2024, why are some AI stocks getting left behind?

Looking back through up/down cycles

Take a look at this five-year total-return chart for SOXX against SPY, with dividends reinvested. It shows not only that the semiconductor group has been outperforming, but also how volatile these stocks can be. During 2022 - a down year for the stock market - SPY fell 18%, but SOXX dropped 35%.

Can you ride out these difficult cycles for several years? If so, narrowing some of your portfolio allocation to semiconductors may be worthwhile over the long term.

You should do your own research to form your own opinions before making any investment. One way to begin is by clicking on the tickers for any company, ETF or index above.

Click here for Tomi Kilgore's detailed guide to the wealth of information available for free on the MarketWatch quote page.

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-Philip van Doorn

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06-29-24 0648ET

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