Can These 3 Semiconductor Stocks Lead the Next Tech Rally in 2025?

Semiconductor chips play a crucial role in a variety of technologies, including telecommunication equipment, consumer electronics, and Internet of Things (IoT) devices. As the demand for artificial intelligence (AI) technologies grows, there is an increasing necessity for advancements in chip development. The rise in computing needs, especially in AI, mandates an urgent increase in semiconductor production to accommodate this surge.

The 2022 Chips Act, which provides $39 billion in direct grants and an additional $75 billion in loans and loan guarantees, serves as a pivotal initiative to rejuvenate semiconductor manufacturing within the United States. This significant infusion of capital aims to stimulate innovation and growth throughout the semiconductor industry.

By encouraging partnerships between governmental bodies and industry players, this funding seeks to enhance America's standing as a global leader in semiconductor production. As domestic semiconductor companies embark on ambitious growth plans supported by government initiatives, the semiconductor landscape is primed for a considerable transformation that promises significant technological and economic benefits.

Among the stocks likely to benefit from these trends are MACOM Technology Solutions Holdings, Inc. (MTSI), NVIDIA Corporation (NVDA), and Semtech Corporation (SMTC).

5G Rollout and IoT Device Demand

The ongoing rollout of 5G technology, along with significant investments from leading telecommunications companies to expand fiber infrastructure into rural regions, has resulted in an increased demand for semiconductor chips. Additionally, changing the operational models from scale-based to demand-driven approaches has introduced greater programmability and flexibility in network automation.

5G is seen as a key driver for next-generation IoT services, enabling innovations such as connected vehicles, augmented and virtual reality, smart cities, and an array of connected devices. Continued network optimization is crucial to deliver superior performance, leading to the demand for advanced wireless products and services. A more rapid deployment of 5G is expected to enhance scalability, security, and mobility across the telecommunications landscape, driving further growth in smartphones, wearables, tablets, and IoT devices.

Network Convergence Trends

As network operators adopt converged architectures that combine voice, video, and data communications, the industry is increasingly focused on developing solutions that facilitate this convergence. Companies are enabling organizations to expand their communication capabilities rapidly, supported by user-friendly software application programming interfaces (APIs).

The popularity of cloud-based networking solutions further escalates the demand for storage and computing power available in virtual environments. As both businesses and consumers utilize these networks more extensively, the need for high-quality networking equipment leads to a substantial increase in chip demand.

Emphasis on Innovative Technologies

The rise of advanced technologies, including AI, machine learning (ML), DOCSIS, digital subscriber lines (DSL), and next-generation passive optical networks (PON), has spurred a higher demand for semiconductor chips. The industry is witnessing burgeoning growth fueled by network-based video transcoding, packaging, storage, and compression technologies, which are essential for delivering new IP video formats and connecting devices.

Key Semiconductor Stocks to Watch

Considering the strong growth factors at play, we have identified three semiconductor stocks that are well-positioned to lead the next tech rally in 2025. These companies boast solid fundamentals, strong Zacks Ranks, and are part of the top half of over 250 Zacks industries, a group that historically outperforms the lower half by a ratio of over 2 to 1.

MACOM Technology Solutions Holdings, Inc. (MTSI): Headquartered in Lowell, Massachusetts, MACOM specializes in power analog semiconductor solutions across diverse markets. Their significant focus on analog radio frequency, microwave, and millimeter-wave semiconductor devices has made them a vital player in optical, wireless, and satellite networks. MACOM has witnessed robust demand for components that facilitate 100GB connectivity, thanks to shifting data consumption patterns and the expansion of cloud services. Currently, MACOM has a Zacks Industry Rank among the top 33%. Over the past year, MACOM stock has appreciated by 40.9%, demonstrating a long-term earnings growth forecast of 21% and holding a Zacks Rank of 1 (Strong Buy).

NVIDIA Corporation (NVDA): Based in Santa Clara, California, NVIDIA is a leader in visual computing technologies and the originator of the graphics processing unit (GPU). Over the years, the company has shifted its focus from PC graphics to AI-based solutions that support various applications such as high-performance computing, gaming, and virtual reality. NVIDIA's GPUs have become essential for powering AI models, pushing the company into new markets, including automotive and healthcare. The exponential revenue growth experienced by NVIDIA can be attributed to its cutting-edge products, especially the H100 and Blackwell GPUs. NVIDIA currently holds a Zacks Rank of 2 (Buy) and has a Zacks Industry Rank within the top 23%. The stock has seen a remarkable 161.4% gain in the past year, with long-term earnings growth expectations of 20%.

Semtech Corporation (SMTC): Located in Camarillo, California, Semtech focuses on manufacturing analog and mixed-signal semiconductors for a range of applications, including industrial, automotive, and military sectors. The company strategically targets high-potential segments within the analog and mixed-signal markets, enabling it to simultaneously compete on product differentiation and pricing. Semtech's consistent innovation and design wins underscore its growth prospects, as evidenced by a 190% increase in stock price over the last year. The company has a Zacks Rank of 2 and a long-term earnings growth outlook of 20%.

semiconductors, stocks, investment