It may come as a surprise to some that, broadly speaking, semiconductor stocks have underperformed in 2024. The PHLX Semiconductor Sector Index, a widely used proxy for semiconductor industry performance, has returned 21% this year.
That is substantially less than the 28% total return of the S&P 500 Index. Additionally, 36 of the largest 70 semiconductor stocks in the United States have a negative total return this year.
Furthermore, only 14 U.S. semiconductor stocks are beating the performance of the S&P 500. Below, I’ll detail two chip stocks falling into that minority of outperformance in 2024. I’ll also throw in a tech company with strong ties to chips and data centers. I’ll explain why I think these stocks can continue rising through the coming year. All return figures are as of the Dec. 3 close.
Semtech: Burgeoning Data Center Segment with Room to Grow
Semtech (NASDAQ: SMTC) has provided investors a total return of 206% in 2024. The company has been rising off the back of strong performance from sales to its infrastructure end market. Semtech's products help data centers. They improve the clarity and strength of electrical and optical signals.
As data is constantly transmitted, signals can become weak over time. This creates a need for Semtech’s amplification and signal integrity solutions. In two of the last three quarters, Semtech has had over 40% revenue growth in this segment from the previous year.
One reason to get excited about Semtech is that sales to this market are still small. It only generated $66 million last quarter. Additionally, sales to the company’s largest end market, industrials, is recovering. Last quarter, it returned to growth after two quarters of double-digit declines.
One of the company’s flagship technologies, LoRa, is seeing explosive growth. Sales increased 104% last quarter, a significant acceleration from the prior quarter.
Continued growth in its still small data center business combined with accelerating growth for its largest end market could spell big things for this stock in 2025. Wall Street analysts remain bullish on this stock with a consensus Moderate Buy rating.
Impinj: Inventory Tracking Chips with a Massive Addressable Market
Impinj (NASDAQ: PI) is another name that has had a remarkable 2024. Shares have provided a total return of 109%. The company designs radio-frequency identification (RFID) devices. These small chips tag and track items of inventory. They offer many advantages over traditional methods of managing inventory.
For example, scanners used to detect items tagged with these chips simply need to be within 30 feet of the items to find them. This is much better than barcodes, which require the scanner to have a line of sight with the item.
Despite Impinj’s run-up this year, I believe the company’s total addressable market remains highly underpenetrated. It has only generated $354 million in revenue over the past 12 months.
Companies produce and move trillions of items and packages every year. While it doesn’t make sense to need an Impinj tag on each of them, there are certainly a large number where it would. To me, this just feels like a business that will keep getting bigger and bigger.
The company certainly has faced periods of declining demand, but I view those as bumps in the road on a long-term upward trend. Analysts are also bullish. The average Wall Street price target for the stock implies a 19% upside.
Arista Networks: Data Center Stock Providing Customers Huge Value
Arista Networks (NYSE: ANET) has provided investors with a strong total return of 76% in 2024. It is technically in the communications equipment industry; but it is incredibly tied into the semiconductor and data center space.
Arista provides networking capabilities in data centers. Its switching and Ethernet technology essentially connects the servers and storage systems in a data center to each other, allowing them to communicate. One of the key aspects of Arista’s solutions is that they are modular. This means that you can upgrade parts of a data center without having to upgrade the whole system at once.
Additionally, Arista’s technology can work with the hardware of many companies. This is due to its open-source platform that makes its devices completely programable. Firm’s like Cisco (NASDAQ: CSCO) also offer networking solutions but are less flexible. Has allowed Arista to take market share.
Arista is already a massive firm with a market capitalization of $130 billion. However, I believe the company’s strong value proposition and customer relationships with hyperscalers can allow it to continue impressing.
