The semiconductor index (SOX) has been on a tear over the last couple of years. The SOX surged by a whopping 66.95% in 2023, followed by a solid 23.79% in 2024. In comparison, the broader S&P 500 index returned 24.73% and 24.01% in the same period. However, the semiconductor index has fallen by 7.71% year-to-date.
In an interview with CNBC, Glen Kacher, the founder and Chief Investment Officer of Lights Street Capital, underscored his bullishness on chip stocks despite the underperformance in 2025. Kacher remains very bullish on generative AI, which needs the processing power of chips. Kacher said that there is nothing in the tech pipeline as innovative as Gen AI.
Gen AI creates customized answers for the user based on real underlying data. Gen AI has created a massive investment cycle of over $200 billion a year, Kacher said. The ‘Magnificent 7’ companies have been leading capex spenders on Gen AI, and according to Kacher, they will continue to spend big on Gen AI, which is a huge plus for semiconductor companies. The big tech companies are competing intensely over supremacy in Gen AI. Light Street Capital has been shifting a lot of its funds into what Kacher calls the ‘AI 5’.
Semiconductor Valuations are Reasonable Now
According to Kacher, since the summer of 2024, the SOX index has been flat, while the S&P 500 index has returned 15% during the same period. Kacher pointed out that the semiconductor fundamentals have continued to improve in that period. He said, the PE ratio for the SOX index is down by 20% since July 2024, and now stands at 24.5. Meanwhile, the PE ratio for the S&P 500 index is currently 22 and is up 9% in the same period, according to Kacher. Deloitte recently reported that the sales of the semiconductor industry grew 19% in 2024 to $627 billion and expects the sales to go up by over 11% in 2025. According to Deloitte, industry sales could easily surpass the $1 trillion mark by 2030.
According to Kacher investors are irrationally bearish on the semiconductor stocks. He said that the short exposure of hedge funds in the semiconductor stocks is at a five-year high. But given the steadily improving fundamentals and a reasonable valuation, semiconductor stocks could soon be market darlings again as many have a very high upside potential according to analysts.
Our Methodology
We have curated a list of ten semiconductor stocks that have the highest upside potential. For this, we used Finviz screener and set the industry as ‘semiconductor’. We also sorted by market cap and handpicked the stocks with the highest upside potential. Additionally, we have mentioned the hedge fund sentiment for each stock, as of Q4 2024.
Note: All data was recorded on March 19, 2025.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Best Semiconductor Stocks With the Highest Upside Potential
10. Broadcom Inc. (NASDAQ:AVGO)
Upside Potential: 29.32%
Market Capitalization: $919.56 Billion
Number of Hedge Fund Holders: 161
Broadcom Inc. (NASDAQ:AVGO) is a semiconductor giant. It designs, develops, and supplies a wide range of semiconductor and infrastructure software solutions. The company creates products that are used in a wide range of industries. Broadcom Inc.’s (NASDAQ:AVGO) custom ASICs are specialized semiconductor chips designed for specific tasks or applications, rather than general-purpose use, and are likely to be a key driver of the company’s growth. Custom ASICs help the company support the massive scale of data centers that power AI applications today.
Broadcom Inc. (NASDAQ:AVGO) saw solid growth in 2024, with revenue growing 44% year-over-year to $51.6 billion. The 2024 growth was driven by the VMware acquisition in November 2023 and advancements in AI. According to the company, its revenue from AI grew by a staggering 220% year-over-year to $12.2 billion in FY 2024, making up 41% of its revenue from semiconductors. Revenue from AI is likely to make up an increasing portion of the company’s revenue. Broadcom anticipates a substantial market opportunity in AI, projecting an AI-related revenue serviceable addressable market (SAM) of $60-90 billion by 2027. The semiconductor business, especially AI XPUs, is expected to outgrow the non-AI segment in the coming years, with strong growth in AI-driven components like networking chips.
9. Monolithic Power Systems Inc. (NASDAQ:MPWR)
Upside Potential: 32.40%
Market Capitalization: $30.15 Billion
Number of Hedge Fund Holders: 51
Monolithic Power Systems, Inc. (NASDAQ:MPWR) is a global company that makes energy-efficient power electronics using semiconductors. Its products are used in industries like storage, computing, automotive, and communications. Founded in 1997, this company stands out for its expertise in creating small, integrated solutions with advanced technology. With over 4,000 employees worldwide, it focuses on Asia, Europe, and the U.S. The company invests a lot in research and development to stay competitive in the semiconductor industry.
The company expects a flat growth for the enterprise data segment for the year, with growth heavily weighted toward the second half. This is likely to be driven by ramp-ups in hyperscalers, new product launches in AI, and increases in demand from existing customers in AI. Additionally, sectors like memory, optical, and networking are expected to contribute to growth in 2025. It is optimistic about its leadership in AI due to its innovation and first-mover advantage. However, the competitive environment in the AI accelerator space is increasing with other ASIC vendors. Monolithic Power Systems, Inc. (NASDAQ:MPWR) is investing in new technologies. In 2024, the company introduced a silicon carbide inverter for high-powered clean energy applications. The company also plans to introduce other silicon carbide-based applications soon.
