In this piece, we will look at Jim Cramer’s bold predictions about these semiconductor stocks.
As 2024 comes to a close, the semiconductor industry has seen its fair share of fireworks. While firms like Wall Street’s favorite AI GPU stock are the ones that have caught investor attention, not all chip stocks have performed well. Just like the economy, where firms exposed to AI-driven data center spending have performed well, semiconductor stocks that are geared towards AI have also seen their fortunes soar while others haven’t been so lucky.
As an example, consider the stock price performance of two of the most well-known semiconductor stocks in the world. The first ranks 3rd on our list of Jim Cramer’s Bold Predictions About These 15 AI Stocks while the second ranks 12th. The first stock is the GPU stock we mentioned above while the second is the world’s largest integrated chip manufacturer. An integrated chip manufacturer, for those out of the loop, is a firm capable of designing and manufacturing its chips. Looking at their share price performance, the first stock has gained 184% year-to-date while the second is down by 57.5% over the same time period.
So why does their performance lie on the opposite ends of the spectrum? Well, the first company has sustained investor optimism because its products are market leaders in terms of computing AI workloads. Even so, while the shares are up by 184%, they had already gained 173% by mid-October. Since then, the stock has added just 4% as Wall Street is in wait-and-watch mode regarding the demand for AI services among businesses and users and the GPU supply chain of the company.
However, while the GPU maker hasn’t impressed in terms of returns in the final quarter, the integrated chip manufacturer has stunned with its fall from grace. From the start of the year to July-end, its shares had lost 36%. While that was bad on its own, the firm’s second-quarter earnings report led to nothing but a bloodbath. It caused a whopping 34.6% share price drop over the next couple of days. So what happened? Well, starting from the financial figures, its Q2 earnings per share of two cents fell way short of consensus analyst estimates of $10 cents. The revenue wasn’t great either, as while the firm earned $12.83 in the second quarter, analysts had expected it to bring in $12.94 billion.
But an earnings and revenue miss rarely wipes a third of a stock’s value. Along with the dismal financial results, the firm also revealed that not only would it cut 15% of its workforce, but it would also stop paying a dividend in Q4. Naturally, investors weren’t impressed and they weren’t optimistic about the firm’s future trajectory either. Since the earnings, the stock is up by 2.5% though as its CEO’s sudden exit and whispers of a divestiture of the costly chip manufacturing business to ease costs seemed to have piqued investor attention.
The start of December has also seen another interesting, albeit long-term, development for the semiconductor industry. The semiconductors, or chips, that currently power our computers and phones rely on classical computing which uses bits for computing. Quantum computing, on the other hand, expands the processing power significantly over classical computing by relying on qubits instead. In December, Google revealed its Willow quantum computing chip which it claims is capable of processing a problem that would take a classical supercomputer 10 septillion years in less than five minutes. More importantly, Google claimed to have manufactured the chip itself – a development that broadens the number of companies capable of manufacturing advanced processors.
The announcement injected fresh life into quantum computing stocks which have gained as much as 281% since Willow was revealed. This is despite the fact that no semiconductor foundry is capable of manufacturing quantum computing chips at scale. And why would they? After all, the use cases for quantum computers are limited as well, as opposed to the billions of chips used in personal computing applications.
For his part, Cramer isn’t a fan of quantum computing either. Commenting on the negative share price movements following the Federal Reserve’s well-televised conference earlier this month, he likened the sentiment in quantum computing to a hype bubble. The market won’t recover quickly according to Cramer as “rampant Bitcoin speculation, after speculation in nuclear power, after speculation in quantum computing” pushed stocks higher than their fundamentals would justify. Further commenting on the industry, he stated:
“How are these companies going to, how is D-Wave Quantum by the way, how is that going to quantum? When we don’t even know what quantum is? It’s a nonfungible token, right? Cause you know what a fungible token was?”
Our Methodology
To compile our list of Jim Cramer’s bold predictions about semiconductor stocks, we scanned the stocks he mentioned in Mad Money and Squawk on the Street as far back as in August. Then, we picked out semiconductor stocks and ranked them by the number of hedge funds that had bought the shares in Q3 2024.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds invest in? 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).
9. STMicroelectronics N.V. (NYSE:STM)
Number of Hedge Fund Holders In Q3 2024: 18
Date of Cramer’s Comments: 10-04-24/10-07-24
Performance Since Then: 10.38%
STMicroelectronics N.V. (NYSE:STM) is a Swiss semiconductor company that primarily caters to the needs of automotive and industrial firms. Since non-AI semiconductor demand has been soft in 2024 due to global economic sluggishness and high interest rates, the stock is down 47% year-to-date. STMicroelectronics N.V. (NYSE:STM) has cut forecasts multiple times in 2024. In July, the firm cut guidance to a midpoint of $13.45 billion down from an earlier $14.5 billion which led its stock to shed 15%. The shares have been muted since then, and while they haven’t posted any gains, they haven’t lost much either. Cramer didn’t think the stock would fall further in October, as when he was asked about STMicroelectronics N.V. (NYSE:STM)’s prospects, he simply replied that he thought “it’s fine.” Since his remarks, the shares have lost an additional 10% particularly as Europe’s slow economic growth and Germany’s economic problems have meant that STMicroelectronics N.V. (NYSE:STM)’s nine-month revenue from Europe dropped by 31% in September.
8. ARM Holdings plc (NASDAQ:ARM)
Number of Hedge Fund Holders In Q3 2024: 38
Date of Cramer’s Comments: 09-09-24
Performance Since Then: 2.92%
ARM Holdings plc (NASDAQ:ARM) is a British semiconductor design firm whose designs are used in most of the world’s smartphone processors and GPUs. Additionally, advances in semiconductor fabrication have made its designs suitable to be implemented on data center and laptop processors as well. Consequently, ARM Holdings plc (NASDAQ:ARM) plays a key role in the semiconductor company. The firm’s shares nevertheless dipped in November when its midpoint fiscal Q3 revenue forecast of $945 million was just a million over analyst forecasts. Investors were expecting ARM Holdings plc (NASDAQ:ARM) to profit from the AI revolution, but the disappointing forecast meant that the shares dipped by 2%. The shares fell by an additional 4% in December when a court sided with Qualcomm in a patent licensing dispute with ARM Holdings plc (NASDAQ:ARM). Here’s what Cramer said in September:
“Don’t forget about ARM Holdings plc (NASDAQ:ARM), the 7-nanometer kingpin whose stock has more than doubled since it came public again roughly a year ago. That’s despite pulling back from $188 in early July to $125 today. ARM Holdings plc (NASDAQ:ARM) got a nice boost today on now-confirmed reports that its chip designs are being used in the just-launched iPhone 16. The processor is built on their architecture—that’s not a shocker, but some people don’t understand that.
“On Friday, many were buzzing about the relentless decline in semiconductor firm Arm Holdings. The stock fell from $123 down to $117, and this was after already coming down from $132 at the end of the previous week. Arm seemed spent, done. Then, today, it shoots back up to $125—up 7%, supposedly because the new iPhone is using their latest design for custom processors. Something that should have been obvious to everyone for months! Was Friday’s sell-off based on pure emotion, and today’s rally just emotion right back? Or did nothing truly happen at all to Arm on either Friday or Monday?
“ARM Holdings plc (NASDAQ:ARM) is unique in that it designs semiconductor architecture, licenses it out to chipmakers, and collects royalties on their sales. This gives them a nice, predictable revenue stream. Their technology is firmly entrenched in data centers, mobile devices, and even the CPU portion of NVIDIA Corporation (NASDAQ:NVDA)’s top AI platforms. They’ll be big winners from a new smartphone upgrade cycle fueled by all this new AI functionality.
“There’s a reason Apple Inc. (NASDAQ:AAPL) went with ARM Holdings plc (NASDAQ:ARM)’s architecture—they dominate the mobile space. Again, I’d be a buyer into the recent weakness because I think the long-term upside potential is enormous, and I don’t mind that it’s up that much today. It can go further.
“Here’s the bottom line: it’s time to fall back in love with semiconductors. Some of the most beaten-down chip stocks have been punished enough, and now you’re finally getting a chance to buy ARM Holdings plc (NASDAQ:ARM) and Micron Technology, Inc.(NASDAQ:MU) at a discount.”