According to Deloitte’s 2025 global semiconductor industry outlook, released on February 4, 2025, the semiconductor industry is set for a much better 2025, with projected sales reaching $697 billion, representing an 11.2% year-over-year growth. This projection suggests the industry is on track to achieve the widely accepted goal of $1 trillion in sales by 2030. Deloitte analysts also highlight that “average” chip stock performance over the past two years has been a “tale of two markets”: Companies involved in the generative AI chip market have outperformed, while those in automotive, computer, smartphone, and communications semiconductors have lagged.
This growth story aligns with the significant expansion the semiconductor industry has experienced over the past decade, largely driven by advancements in artificial intelligence and high-performance computing. The entire supply chain, from lithography to equipment and packaging, has benefited from this surge, resulting in unprecedented demand for advanced semiconductors. While the majority of investments in these technologies have come from large-cap companies, small-cap companies are often leading the charge on the innovation front within the emerging technologies, and at the same time, offer diversification away from the crowded large-and-mega-cap stocks.
In November 2024, Francis Gannon, Co-chief Investment Officer at Royce Investment Partners, discussed his thesis on small-caps during an interview with Yahoo Finance. He noted that small-caps have been out of favor for an extended period, with the Russell 2000 reaching its peak three years ago and experiencing negative returns since then. Gannon believes the new Trump administration, reshoring efforts, leading innovation, and a favourable earnings season will significantly boost the small-cap companies, describing this shift as nothing short of a “revolution.”
In summary, semiconductors represent a long-term investment opportunity, with the small-cap segment garnering attention as a hot topic in recent months. Exciting return opportunities are anticipated in the coming years. With that, let’s explore the top 12 opportunities in the small-cap semiconductor space that we have identified for you.
A technician looking at a circuit board of analog semiconductor products.
Our Methodology
To identify the 12 small-cap semiconductor stocks to buy now, we screened U.S. listed semiconductor companies with a market capitalization between $300 million and $2 billion. The stocks were then arranged in ascending order of the number of hedge fund holders for each company, based on hedge fund data from Insider Monkey’s database as of Q3 2024.
Note: All pricing and market cap data is as of market close on February 7.
At Insider Monkey we are obsessed with 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).
12 Small-Cap Semiconductor Stocks to Buy Now
12. Aehr Test Systems Inc. (NASDAQ:AEHR)
Market Capitalization: $320 million
Number of Hedge Funds: 12
Aehr Test Systems Inc. (NASDAQ:AEHR) provides advanced solutions for testing, burning-in, and stabilizing semiconductor devices in wafer level, singulated die, and package part form. The company’s focus includes high-performance semiconductor devices for applications such as electric vehicles, EV charging infrastructure, solar and wind power, computing, data and telecommunications infrastructure, and solid-state memory storage.
On January 7, Aehr Test Systems Inc. (NASDAQ:AEHR) announced receiving an initial production order from a prominent automotive semiconductor supplier for its FOX-XP wafer level test and burn-in system. This system, featuring an integrated FOX WaferPak Aligner, is designed for the production testing of gallium nitride (GaN) power semiconductor devices. Aehr Test Systems Inc. (NASDAQ:AEHR) views this milestone as a testament to its ongoing success in the automotive sector. The company recognizes GaN as a transformative and rapidly expanding technology in the power semiconductor market. According to Yole Group’s Power SiC/GaN Compound Semiconductor Market Monitor, the GaN market is expected to grow at a compound annual rate of over 40%, reaching $2.5 billion in annual device sales by 2029.
11. Alpha and Omega Semiconductor Ltd. (NASDAQ:AOSL)
Market Capitalization: $1.2 billion
Number of Hedge Funds: 13
Alpha and Omega Semiconductor Ltd. (NASDAQ:AOSL) is a designer, developer, and global supplier of a wide range of power semiconductors. The company’s product portfolio includes MOSFETs, IGBTs, and other power devices that are crucial for various high-volume applications, such as computing, consumer electronics, automotive, and industrial sectors.
On February 6, an analyst from Benchmark raised the price target for Alpha and Omega Semiconductor Ltd. (NASDAQ:AOSL) to $42 from $40 and maintained a Buy rating. Despite FY Q2 results exceeding expectations, the analyst said that the June quarter revenue outlook was 2% below consensus, with gross margin pressure leading to a significant bottom-line miss. However, he remains optimistic about the potential benefits from Nvidia’s Blackwell product family and encouraged investors to “buy the dip” in Alpha and Omega Semiconductor Ltd. (NASDAQ:AOSL) shares.
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