Nvidia, Broadcom, Marvell Positioned For Growth As AI Demand Drives Semiconductor Momentum

Needham analyst N. Quinn Bolton noted 2024’s divergence of the fortunes of semiconductor companies exposed to different end markets.

Semiconductor suppliers exposed to the PC, smartphone, industrial, and automotive sectors generally noticed fundamentals under pressure throughout the year.

On the other hand, the AI segment experienced strong demand for accelerating deployments of AI infrastructure.

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As a result, AI-driven semiconductor stocks significantly outperformed the S&P 500 Index and non-AI-driven semiconductor stocks in 2024.

The performance of AI and non-AI stocks may begin to see some mean reversion, Bolton says. Growth in AI revenue will begin to decelerate and fundamentals for analog/mixed-signal semiconductor companies will start to recover.

Bolton named Allegro MicroSystems Inc ALGM his top pick for 2025 and added the company to Needham’s Conviction List.

Bolton noted that 2024 was the year of the “haves” and the “have nots” in the semiconductor industry. Due to the combination of weak demand conditions and digestion of excess inventory, semiconductor suppliers exposed to the PC, smartphone, industrial, and automotive end markets generally experienced revenue and earnings declines in 2024.

While the S&P 500 Index returned 23% in calendar year 2024, the average return for the “non-AI”-driven semiconductor companies in Bolton’s coverage universe was -17 %.

On the other hand, driven by strong demand for accelerating deployments of AI infrastructure, semiconductor companies with exposure to AI saw robust revenue and earnings growth.

On average, the stock prices of AI-driven companies in Bolton’s coverage universe increased 147% in 2024, significantly outperforming the 23% return of the S&P 500 over this period.

Bolton noted that broad-based, analog/mixed-signal, and cyclical recovery stocks may outperform in 2025. In 2025, Bolton expects the performance of AI and non-AI stocks to begin to see some mean reversion as growth in AI revenue begins to decelerate and fundamentals for analog/mixed-signal semiconductor companies begin to recover.

Bolton did not call for this rotation from AI names to analog/mixed-signal or other semiconductor cycle plays to necessarily occur in early 2025. The near-term outlook for many analog/mixed-signal stocks remains muted in the near-term while he expects continued momentum in revenue and earnings for the AI-related stocks. However, Bolton noted this rotation could begin in the Spring to early Summer.

AI spending is decelerating, which may lead to multiple contractions.

Potential catalysts for the rotation included the end of inventory digestion and improvements in end market demand. The trend toward autonomy and electrification in autos is intact and should drive semiconductor growth, and valuations that are more compelling than those for AI-driven stocks.

Bolton also remains positive on Silicon Laboratories, Inc. SLAB, Lattice Semiconductor Corp LSCC, and ON Semiconductor Corp ON.

Bolton noted Silicon Labs as an idiosyncratic semiconductor play that is not dependent on a macro recovery in 2025 as new design win ramps in smart meters in India, electronic shelf labeling and continuous glucose monitors, as well as the ramp of new single-stream WiFi 6 and Bluetooth 6 products, should drive sequential growth through the year.

Bolton also explained that Lattice Semiconductor is poised for the second half of calendar 2025 recovery as the inventory correction in its Industrial & Automotive segment clears and the company ramps up new Nexus and Avant product offerings.

Lastly, while ON Semiconductor management expects sub-seasonal results in the first half of calendar 2025, Bolton noted the company is highly leveraged to a cyclical recovery and could see the name perform well in the second half of calendar 2025.

Bolton noted Nvidia Corp NVDA (Buy, $160 price target), Broadcom Inc AVGO, and Marvell Technology Inc MRVL (Buy, $120 price target) will all benefit from the strong unit growth of XPUs, both general purpose GPUs and hyperscaler custom ASICs, over the coming years.

Bolton’s favorite ways to play the connectivity trend in AI data centers include: