We recently published a list of 10 Undervalued Semiconductor Stocks to Buy According to Analysts. In this article, we are going to take a look at where Applied Materials, Inc. (NASDAQ:AMAT) stands against other undervalued semiconductor stocks to buy according to analysts.
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).
A technician in a clean room assembling a semiconductor chip using a microscope.
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.
Overall, AMAT ranks 9th on our list of undervalued semiconductor stocks to buy according to analysts. While we acknowledge the potential of AMAT to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
