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3 'Strong Buy' Semiconductor Stocks With 37% Upside or More
Semiconductors are the heart of modern technology, powering everything from smartphones to advanced computing. Thanks to the explosive growth of technologies such as artificial intelligence (AI), Internet of Things (IoT), and 5G, the demand for these essential components is rapidly skyrocketing. In fact, AI has been a game-changer for several chipmakers over the past year, driving their financial success to unprecedented levels.
According to the latest data from the Semiconductor Industry Association (SIA), global semiconductor sales soared to a whopping $149.9 billion in fiscal 2024 Q2, marking a notable 18.3% year-over-year improvement and a 6.5% boost from the previous quarter. This surge includes a remarkable 42.8% annual growth in the Americas alone, highlighting the region's booming demand for semiconductors.
With projections indicating global semiconductor revenue to hit a massive $607.4 billion by this year’s end, investors looking to tap into this thriving industry can consider these three “Strong Buy”-rated semiconductor picks, each offering at least 37% upside to their analyst mean price targets.
Semiconductor Stock #1: Micron Technology
Idaho-based Micron Technology, Inc. (MU) is a pioneer in memory and storage solutions, committed to leveraging information to enhance lives around the globe. With a strong emphasis on customer satisfaction, cutting-edge technology, and operational excellence, Micron offers top-quality DRAM, NAND, and NOR products under its Micron and Crucial brands. The company’s ongoing innovations propel the data economy forward, powering AI advancements and supporting sophisticated applications from data centers to the intelligent edge.
Commanding a market cap of around $114 billion, shares of this chip giant have rallied 55.2% over the past 52 weeks and 15.9% on a YTD basis, blowing past the broader S&P 500 Index’s ($SPX)gain of 27.5% over the past 52 weeks and 17.8% on a YTD basis.
On July 23, Micron Technology rewarded its shareholders with a quarterly dividend of $0.115 per share. This brings the annualized dividend to $0.46 per share, offering a modest 0.47% yield. With a conservative payout ratio of just 28.87%, Micron leaves plenty of room for future dividend increases.
On June 26, the company unveiled its better-than-expected fiscal Q3 earnings results, showcasing a spectacular 81.5% year-over-year revenue boost to $6.8 billion, which topped Wall Street’s forecast of $6.7 billion. This exceptional topline growth was propelled by booming AI demand and the company’s strong foothold in high-margin products, such as High-Bandwidth Memory (HBM).
The company’s adjusted EPS of $0.62 also topped Wall Street’s estimates by a solid 17.3% margin, and marked an incredible turnaround from the year-ago quarter’s adjusted loss per share of $1.43. During the quarter, Micron invested roughly $2.1 billion in capital expenditures, and reported adjusted free cash flow of $425 million. With an impressive $9.2 billion in cash, marketable investments, and restricted cash on hand, Micron is strategically poised for continued growth and investment opportunities.
For Q4, management anticipates revenue to come in at $7.6 billion, plus or minus $200 million, while adjusted gross margin is forecasted to be somewhere around 34.5%. Additionally, adjusted EPS for the quarter is anticipated to be $1.08, with a potential variance of plus or minus $0.08. Management is confident that the company is strategically positioned to harness the growing AI opportunities and is set to achieve a significant revenue milestone in fiscal 2025.
Analysts tracking Micron Technology project the company to book a profit of $0.58 per share in fiscal 2024, reversing last year’s loss. Looking forward to fiscal 2025, profit is expected to climb significantly year over year to $8.75 per share.
Overall, Wall Street is highly optimistic, with a consensus “Strong Buy” rating for MU stock. Of the 28 analysts in coverage, 25 advise a “Strong Buy,” two advocate a “Moderate Buy,” and one recommends a “Hold.”
The average analyst price target of $161.30 indicates a potential upside of 63% from the current price levels. The Street-high price target of $225 suggests that the MU could rally as much as 127.5% from here.
Semiconductor Stock #2: Allegro MicroSystems
Valued at a market cap of around $4.7 billion, New Hampshire-based Allegro MicroSystems, Inc. (ALGM) is a powerhouse in designing, developing, and marketing sensor-integrated circuits and application-specific analog power integrated circuits (ICs). Catering to the automotive and industrial sectors, Allegro's diverse product lineup drives innovation in vehicle electrification, ADAS safety systems, Industry 4.0 automation, and energy-efficient solutions for data centers and green energy.
Shares of Allegro have dropped 34.8% over the past 52 weeks and 19.2% on a YTD basis.
On July 29, Allegro completed the first phase of repurchasing 39 million shares from its largest shareholder, Sanken Electric Co., Ltd., with 29 million shares acquired for $666 million. All of the repurchased shares will be retired, ultimately bringing Sanken’s ownership stake from 50.8% to 32.5%.
Shares of Allegro popped more than 7% on July 31 after the company announced a $400 million new term loan to achieve several strategic objectives, including the repurchase of the remaining 10 million shares from Sanken Electric, refinancing of existing debt, and general corporate activities.
Allegro reported its fiscal 2025 Q1 earnings results on Aug. 1, which surpassed Wall Street’s top- and bottom-line forecasts. Total net sales reached $166.9 million, while adjusted earnings of $0.03 per share smashed estimates by an impressive margin of almost 47.6%.
For Q2, management forecasts net sales to range between $182 million and $192 million, while interest expense is projected to be around $7 million. Non-GAAP projections for the ongoing quarter include a gross margin of 49% to 51% and EPS of $0.08.
ALGM stock has a consensus “Strong Buy” rating overall. Out of the eight analysts in coverage, seven suggest a “Strong Buy,” and one recommends a “Moderate Buy” rating.
The average analyst price target of $33.50 indicates a potential upside of about 37% from the current price levels. The Street-high price target of $40 suggests that ALGM stock could rally as much as 63.5%.
Semiconductor Stock #3: Himax Technologies
Founded in 2001, Taiwan-based Himax Technologies, Inc. (HIMX) is a fabless semiconductor leader specializing in display imaging processing technologies. Renowned for its market-leading display driver ICs and timing controllers, Himax powers a wide range of consumer electronics, including TVs, mobile devices, automotive systems, and VR/AR applications.
With a market cap of roughly $1 billion and a portfolio of around 3,000 patents, Himax continues to drive innovation in touch sensor displays, AMOLED ICs, AI image sensing, and more, solidifying its position as a key player in the semiconductor industry.
Shares of this chipmaker are down 4.3% over the past 52 weeks and 4.1% on a YTD basis.
On July 12, the company paid its shareholders an annual dividend of $0.29 per share, which translates to a dividend yield of 4.98%. With a solid payout ratio of 63.58%, Himax demonstrates a strong commitment to rewarding its investors.
From a valuation standpoint, HIMX stock is priced at 1.10 times sales, trading much lower than the semiconductor industry average.
The company announced its Q2 earnings results on Aug. 8, which exceeded Wall Street’s expectations on both the top and bottom lines. Himax reported Q2 net revenues of $239.6 million, marking a 15.5% sequential increase that surpassed the 8% to 13% guidance range. Gross margin rose to 32%, up from 29.3% last quarter and 21.7% a year ago, thanks to cost improvements, a favorable product mix, and stronger sales in high-margin automotive IC and Tcon product lines.
The company’s profit of $0.17 per share topped Wall Street’s estimates by a 13.3% margin. As of June 30, Himax held approximately $253.8 million in cash and financial assets, up from $219.5 million in the same period last year.
For fiscal Q3, Himax forecasts a 12% to 17% revenue drop, with gross margin anticipated to be around 30%.
Wall Street is bullish on HIMX stock, with two analysts in coverage unanimously rating it a “Strong Buy.”
Their consensus price target of $8 indicates a potential upside of 37.5% from the current price levels.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
