Global market intelligence firm IDC, in its most recent report, projected a 15% growth for the global semiconductor market in 2025, driven by the relentless rise in demand for artificial intelligence (AI) and high-performance computing (HPC). According to their analysts, this surge will be fueled by forthcoming upgrades in key application markets, notably cloud data centers. Further emphasizing the industry’s promising growth outlook, Nicolas Gaudois, head of Asia-Pacific technology research at UBS, stated in a recent CNBC interview that AI-compute will continue to underpin growth in 2025. He observed:

“The 21% growth in the semiconductor market was mostly driven by AI-compute demand while non-AI growth actually declined. In 2025, AI would remain the growth driver with 40% growth but we expect non-AI portion to also grow by 17% due to several factors such as autos and industrial markets growth improving, restocking (customers buying for their inventories) in those markets and also increase in semiconductor content in devices to support edge (on-device) AI.”

Nicolas also suggested that GPU chipmakers and foundries will remain the main beneficiaries of AI demand and will make the most money from it. With the semiconductor space ripe for further growth, we have picked 10 semiconductor stocks that are undervalued and are best placed to benefit from this growth.

Our Methodology

To identify the 10 undervalued semiconductor stocks, we carried out thorough research and used stock screeners to compile a list of U.S.-listed companies. Our criteria included a market capitalization of over $2 billion, an expected share price upside of at least 10%, and a Forward PE ratio below 30x. Ultimately, the stocks were ranked in ascending order of their upside potential. These stocks are also popular among elite hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

10. Lam Research Corporation (NASDAQ:LRCX)

Upside Potential: 14%

Fwd. PE: 23.1

Lam Research Corporation (NASDAQ:LRCX) is a prominent semiconductor equipment manufacturer that supplies wafer fabrication equipment and services to the semiconductor industry. The company’s innovative systems for wafer etching and deposition are crucial for the advanced nodes of semiconductor technology, as they enable the creation of smaller and more efficient integrated circuits for devices.

The increasing demand for high-performance computing and broader AI applications is generating more opportunities for Lam Research Corporation (NASDAQ:LRCX). The company has made significant investments in cutting-edge technologies, such as Gate-All-Around transistor architecture and advanced EUV patterning, which provide a competitive edge over other suppliers. Additionally, Lam Research Corporation (NASDAQ:LRCX) is focused on reducing per-bit costs to enhance the efficiency of existing tools for memory players, thereby creating value for customers.

On January 17, a KeyBanc analyst upgraded the rating on Lam Research Corporation (NASDAQ:LRCX) to ‘Overweight’ from ‘Sector Weight,’ with a price target of $95. According to the analyst, the company is well-positioned to benefit from the AI-driven growth cycle, owing to advancements in memory market technology, particularly in HBM-related offerings. The company’s offerings are expected to benefit from any recovery in the semiconductor market in 2025 and the long-term demand for leading-edge advancements.

9. Applied Materials, Inc. (NASDAQ:AMAT)

Upside Potential: 15%

Fwd. PE: 20.6

Applied Materials, Inc. (NASDAQ:AMAT) operates in a manner somewhat similar to Lam Research, but it has diversified its range of equipment offerings and its customer base. As the world’s largest wafer fabrication equipment manufacturer, Applied Materials is also a leading provider of materials engineering solutions. The company is a direct beneficiary of advancements in AI and the increasing semiconductor content in connected devices. Leveraging its cutting-edge equipment and materials engineering capabilities, Applied Materials, Inc. (NASDAQ:AMAT) is positioning itself to be at the forefront of technological inflections—significant shifts in wafer processing schemes or device architectures. For instance, the company anticipates its transistor and wiring addressable market to expand from $6 billion to $7 billion due to Gate-All-Around (GAA) and Backside Power Delivery (BPD) inflections.

The growth outlook for semiconductor equipment manufacturers is closely linked to the capital expenditure of large foundries and other chip manufacturers. In mid-January 2025, TSMC announced its Q4 2024 earnings results and projected 2025 capital expenditures of $38 to $42 billion, which is a 33% increase over 2024’s capex. TSMC plans to allocate approximately 70% of this total for advanced process technologies, 10%-20% for specialty technologies, and 10%-20% for advanced packaging, testing, mask-making, and related activities. Given its expertise in etching and deposition markets, Applied Materials, Inc. (NASDAQ:AMAT) is poised to capture a substantial portion of this planned expenditure.

Following these announcements from TSMC, the KeyBanc analyst upgraded their rating on Applied Materials, Inc. (NASDAQ:AMAT) to ‘Overweight’ with a price target of $225, highlighting the company’s focus on materials engineering, advanced packaging, and enhanced production efficiency.

8. GlobalFoundries Inc. (NASDAQ:GFS)

Upside Potential: 16%

Fwd. PE: 28.0

GlobalFoundries Inc. (NASDAQ:GFS) is a US-based semiconductor foundry that manufactures integrated circuits for various markets, including automotive, mobile devices, Internet of Things (IoT), data centers, and communications infrastructure. The company is advantageously positioned within the North American semiconductor ecosystem, especially given the recent escalations in chip export restrictions and the US efforts to bring production closer to home.

Before leaving office in January 2025, the Biden Administration imposed new curbs on exports to China and other countries to block China’s access to advanced technology. These restrictions over the past 5-7 years have driven supply chain diversification in the US, bringing substantial benefits to GlobalFoundries Inc. (NASDAQ:GFS).

GlobalFoundries Inc. (NASDAQ:GFS) is also making substantial investments to significantly enhance its production capacity and advance its technology development efforts within the U.S. In November 2024, the company secured $1.5 billion in government funding under the CHIPS and Science Act, contributing to its broader domestic production expansion plan, which totals $13 billion over the next decade. In mid-January 2025, GlobalFoundries Inc. (NASDAQ:GFS) announced a plan to create an advanced packaging and photonics center within its New York manufacturing facility. The overall investment is expected to be $575 million, with an additional R&D investment of $186 million over the next 10 years.