Semiconductor chips are the building blocks of telecommunication equipment, electronic goods and IoT devices. Continuous advancement in chip development, especially considering the burgeoning demand for artificial intelligence (AI) technologies, is the need of the hour. With computing requirements escalating, particularly in the realm of AI, there is a pressing need for bolstered semiconductor production to meet these rising demands.

The 2022 Chips Act, allocating $39 billion in direct grants and $75 billion in loans and loan guarantees, stands as a cornerstone initiative by the U.S. government to revitalize domestic semiconductor production. This substantial financial injection is poised to catalyze innovation and expansion within the industry. 

By fostering collaboration between industry stakeholders and government entities, the government funding aims to bolster America's position as a global leader in semiconductor manufacturing. As domestic semiconductor firms embark on ambitious expansion plans propelled by government support, the stage is set for a transformative shift in the semiconductor landscape, with far-reaching implications for technological advancement and economic growth.

Three stocks set to gain in this landscape are MACOM Technology Solutions Holdings, Inc. (MTSI Quick QuoteMTSI - Free Report) , NVIDIA Corporation (NVDA Quick QuoteNVDA - Free Report) and Semtech Corporation (SMTC Quick QuoteSMTC - Free Report) .

5G Rollout, IoT Devices Buoy Chip Demand

A steady pace of 5G deployment and investments by leading carriers to increase their fiber footprint in rural areas to bridge the digital divide have led to healthy demand trends for semiconductor chips. In addition, a seamless transition from an economy-of-scale network operating model to demand-driven operations that offer easy programmability and flexible automation were tailwinds.

Billed as the technology of the future with faster download speed and low latency, 5G is touted as the primary catalyst for next-generation IoT services. These include connected cars, augmented reality, virtual reality platforms, smart cities and connected devices that are likely to revolutionize key industry verticals. 

To maintain superior performance standards, there is a continuous need for network tuning and optimization, which creates demand for state-of-the-art wireless products and services. Moreover, a faster pace of 5G deployment is expected to augment the scalability, security and universal mobility of the telecommunications industry and propel the wide proliferation of IoT devices, smartphones, wearables and tablets.

Network Convergence

With operators moving toward converged or multi-use network structures, combining voice, video and data communications into a single network, the industry is increasingly developing solutions to support wireline and wireless network convergence. The industry players have enabled enterprises to rapidly scale communications functionalities to a vast range of applications and devices with easy-to-use software application programming interfaces.

The wide proliferation of cloud networking solutions further results in increased storage and computing on a virtual plane. As both consumers and enterprises use the network, there is tremendous demand for quality networking equipment, resulting in higher chip demand.

Focus on Novel Technologies

Adoption of state-of-the-art technologies such as AI, ML (machine learning), DOCSIS (Data Over Cable Service Interface Specification), DSL (Digital Subscriber Line) and Next Generation PON (Passive Optical Network) platforms for the highest bandwidth applications has led to higher demand for semiconductor chips. 

Further, a combination of network-based video transcoding, packaging, storage and compression technologies required to deliver new IP video formats and home gateways to connected devices inside and outside the home are increasingly driving the industry growth.

3 Semiconductors Stocks to Bet on

Based on robust growth drivers, we have selected a handful of semiconductor stocks that are likely to lead the next tech rally in 2025. In addition to solid Zacks Rank and strong fundamentals, these stocks have a healthy Zacks Industry Rank and are placed within the top half of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.  

MACOM Technology Solutions Holdings, Inc. (MTSI Quick QuoteMTSI - Free Report) : Based in Lowell, MA, MACOM offers power analog semiconductor solutions to varied markets. The company develops and produces analog radio frequency (RF), microwave and millimeter wave semiconductor devices, and components for applications in optical, wireless and satellite networks. 

Changing data consumption patterns with a growing propensity to consume video content over IP has created the need for a faster data transfer rate. Solid demand for cloud-based services and the upgrade of data center architectures to 100G, 200G, 400G and 800G interconnects is expected to drive the adoption of MACOM’s higher-speed optical and photonic components. MACOM is witnessing solid demand for components that enable 100GB connectivity in the data centers and service provider markets.

MACOM has a Zacks Industry Rank #82 (top 33%). With an average broker recommendation (ABR) of 1.75, the stock has gained 40.9% over the past year. It has long-term earnings growth expectations of 21%. MACOM sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation (NVDA Quick QuoteNVDA - Free Report) : Santa Clara, CA-based, NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, the company’s focus has evolved from PC graphics to AI-based solutions that now support high-performance computing (HPC), gaming and virtual reality (VR) platforms.

NVIDIA’s GPUs are rapidly benefiting from the proliferation of AI. By applying its GPUs to AI models, the company is expanding its base in other untapped markets like automotive, healthcare and manufacturing. Its H100 and Blackwell GPUs are hailed as runaway successes. Leading technology companies are reportedly piling up NVIDIA’s GPUs to build clusters of computers for their AI work, leading to exponential revenue growth.

NVIDIA carries a Zacks Rank #2 (Buy) and has a Zacks Industry Rank #58 (top 23%). With an ABR of 1.25, the stock has gained 161.4% over the past year. Earnings estimates for NVIDIA for the current and next fiscal year have moved up 47.7% and 83.3%, respectively, since December 2023. It has long-term earnings growth expectations of 20% and delivered an earnings surprise of 9.8%, on average, in the trailing four quarters. It has a VGM Score of B. 

Semtech Corporation (SMTC Quick QuoteSMTC - Free Report) : Headquartered in Flynn Road Camarillo, CA, Semtech manufactures and markets a wide range of analog and mixed- signal semiconductors for commercial applications. The company's devices are used in a variety of applications including computer, communications, industrial, military-aerospace and automotive. The company also provides a limited amount of wafer foundry services to other electronic component manufacturers.

The company has been targeting analog/mixed-signal sub-segments of some of the most potential and fast-growing end markets. Semtech carries on product differentiation and price competition simultaneously. While there is a continuous focus on creating new, unique and proprietary products that add performance and value, they are priced competitively. The company continues to attain design wins with new and existing customers, underscoring its strong growth potential.

Semtech carries a Zacks Rank #2 and has a Zacks Industry Rank #82. With an ABR of 1.42, the stock has gained 190% over the past year. It has long-term earnings growth expectations of 20%. Earnings estimates for Semtech for the current and next fiscal year have moved up 40% and 34.4%, respectively, since December 2023.