The Best Chip and Data Center Stocks to Watch for Growth in 2025 News ad

It may come as a surprise to some that, generally speaking, semiconductor stocks have underperformed in 2024. The PHLX Semiconductor Index, a widely used measure of semiconductor industry performance, has gained 21% this year.

This is significantly less than the S&P 500’s total return of 28%. In addition, 36 of the 70 largest companies in the US semiconductor industry have negative total returns this year.

Additionally, only 14 U.S. semiconductor stocks are outperforming the S&P 500. Below, I’ll detail two chip stocks that will be in this minority of outperformers in 2024. I’ll also add a technology company with strong ties to chips and data. centers. I’ll explain why I think this stock can continue to rise next year. All returns are as of the close of trading on December 3.

Semtech: a growing data center segment with room to grow

Semtech NASDAQ: SMTS provided investors with a total return of 206% in 2024. The company is growing due to strong sales performance in the infrastructure end market. Semtech products help data centers. They improve the clarity and strength of electrical and optical signals.

Because data is constantly transmitted, signals can become weak over time. This creates the need for Semtech signal amplification and integrity solutions. In two of the last three quarters, Semtech’s revenue in this segment grew more than 40% year-over-year.

One reason to be worried about Semtech is that sales in this market are still low. The company earned just $66 million last quarter. Additionally, sales in the company’s largest end market, industrials, are recovering. It returned to growth last quarter after two quarters of double-digit declines.

One of the company’s flagship technologies, LoRa, is experiencing explosive growth. Sales grew 104% last quarter, a significant acceleration from the previous quarter.

Continued growth in its still small data center business, coupled with accelerating growth in its largest end market, could spell big things for the stock in 2025. Wall Street analysts remain bullish on the stock, with a consensus rating of a Moderate Buy rating.

Impinj: Inventory Tracking Chips with a Huge Addressable Market

Demon NASDAQ:PI is another name that had an outstanding 2024. The stock provided a total return of 109%. The company develops radio frequency identification (RFID) devices. These small chips tag and track inventory items. They offer many advantages over traditional inventory management methods.

For example, scanners used to detect items tagged with these chips simply have to be within 30 feet of the items to find them. This is much better than barcodes, which require the scanner to have a direct line of sight to the product.

Despite Impinj’s growth this year, I believe the company’s overall addressable market remains severely underserved. Over the past 12 months, the company generated just $354 million in revenue.

Companies produce and move trillions of products and packaging every year. While it doesn’t make sense to use an Impinj tag for every one of them, there are definitely a large number of places where it is possible. I think this is a business that is going to get bigger and bigger.

The company has certainly faced periods of declining demand, but I view these as headwinds to a long-term uptrend. Analysts are also optimistic. Wall Street’s average price target for the stock suggests an upside of 19%.

Arista Networks: Data Center Inventory Delivering Great Value to Customers

Arista Networks New York Stock Exchange: ANET provided investors with a high total return of 76% in 2024. Technically, it is the communications equipment industry; but it’s incredibly tied to the semiconductor and data center space.

Arista provides networking capabilities in data centers. Its switching and Ethernet technology essentially connects servers and storage systems in a data center to each other, allowing them to communicate. One of the key aspects of Arista solutions is their modularity. This means you can upgrade parts of your data center without having to upgrade the entire system at once.

In addition, Arista technology can work with equipment from many companies. This is due to its open source platform, which makes its devices fully programmable. The company is similar to Cisco NASDAQ:CSCO also offer network solutions, but they are less flexible. Allowed Arista to take market share.

Arista is already a large firm with a market capitalization of $130 billion. However, I believe the company’s strong value proposition and relationships with hyperscaler customers will allow it to continue to impress.

Before you consider Arista Networks, you should hear this.

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While Arista Networks currently has analyst ratings as a Moderate Buy, the top-rated analysts rate these five stocks as Strong Buys.

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