5 Under-the-Radar Chip Stocks: The Case to Buy the Dip

The semiconductor industry has been on a rollercoaster ride in recent years, with stocks soaring on the back of artificial intelligence (AI) demand and then pulling back due to various factors. While the broader market trends and specific company-related issues have contributed to the recent pullback in under-the-radar chip stocks like Advanced Micro Devices (AMD) and Micron Technology (MU), their fundamentals and growth prospects remain strong. This article explores the case for buying the dip in these and other under-the-radar chip stocks.



Recent Pullback Factors

The recent pullback in under-the-radar chip stocks can be attributed to several factors. Firstly, broader market trends, such as recession concerns and geopolitical tensions, have led investors to sell some winners, including chip stocks, to build up cash or rotate into other stocks. Secondly, specific company-related issues, like AMD's gaming segment weakness and MU's inventory buildup, have contributed to their stock price declines. Lastly, the AI chip market's rapid growth has led to increased competition, with investors questioning the sustainability of these companies' growth rates.

Fundamentals Support Long-Term Investment Potential

Despite recent price declines, AMD and MU have strong fundamentals that support their long-term investment potential. AMD's data center revenue soared 122% year over year to a record $3.5 billion in Q3 2024, led by GPU sales, and the company expects around $5 billion in GPU revenue for the whole of fiscal 2024. AMD's forward P/E ratio is 24.4, a 22% discount to Nvidia's, indicating undervaluation. Micron's data center revenue increased 400% year over year to $4.4 billion in Q1 2025, and the segment accounted for more than half of the company's total revenue. Micron's forward P/E ratio is 10.5, suggesting a significant discount to its peers. Both companies have strong balance sheets, with AMD having $4.5 billion in cash and equivalents and Micron having $11.5 billion. Their debt levels are manageable, with AMD's debt-to-equity ratio at 0.3 and Micron's at 0.4.



Primary Catalysts for Growth

The primary catalysts for growth in these chip stocks are the increasing demand for AI-related products and services, as well as the overall growth in the semiconductor industry. For instance, Nvidia's data center GPU business has seen a fivefold increase in revenue from 2019 to 2022, and a more than threefold increase in 2023, driven by AI-related demand. Similarly, AMD's data center revenue soared 122% year over year in the fiscal 2024 third quarter, led by GPU sales, and the company expects around $5 billion in GPU revenue for the whole of fiscal 2024. Micron's data center revenue increased by 400% year over year in the fiscal 2025 first quarter, driven by demand for its high-bandwidth memory (HBM) products used in AI workloads. These growth catalysts align with the overall semiconductor industry's trajectory, as the global semiconductor market is expected to reach $1.137 trillion by 2033, up from $544.78 billion in 2023.

Undervalued Chip Stocks with Competitive Advantages

Based on the provided information, under-the-radar chip stocks like Infineon Technologies (IFNNY), STMicroelectronics (STM), MediaTek (TAI:2454), and Skyworks Solutions (SWKS) offer attractive valuations, growth prospects, and competitive advantages compared to more established players like Nvidia (NVDA) and AMD (AMD).

1. Valuation: Infineon and STMicroelectronics are favored by Morningstar analyst Brian Colello due to their lower valuations. As of April 1, 2024, Infineon traded at a 13% discount to its fair value estimate, while STMicroelectronics was at a 10% discount. In contrast, Nvidia was overvalued by 1%.
2. Growth Prospects: While Nvidia and AMD have been beneficiaries of the AI boom, other chip stocks have growth opportunities in various sectors. For instance, MediaTek is well-positioned in the smartphone market, with a growing presence in 5G devices. Skyworks Solutions, a leading supplier of radio frequency components, is expected to benefit from the rise of advanced 5G-enabled smartphones, which require higher RF content per phone.
3. Competitive Advantages: Infineon and STMicroelectronics have narrow economic moats, indicating a durable competitive advantage. Infineon's strengths lie in its power and sensor solutions, while STMicroelectronics excels in analog and mixed-signal chips, particularly in the automotive sector. MediaTek and Skyworks Solutions also have competitive advantages in their respective markets, with MediaTek's low-cost, high-performance chipsets and Skyworks' expertise in RF components.

In summary, the recent pullback in under-the-radar chip stocks like AMD and MU can be attributed to broader market trends, specific company-related issues, and increased competition in the AI chip market. However, their strong fundamentals, growth prospects, and undervalued status make them attractive long-term investments. Additionally, other under-the-radar chip stocks like IFNNY, STM, MediaTek, and SWKS offer attractive valuations, growth prospects, and competitive advantages compared to more established players. Investors should consider buying the dip in these chip stocks, as their fundamentals and growth prospects remain strong despite recent price declines.