Semiconductor Stocks in 2025: The One to Bet On and the Two to Avoid

The semiconductor sector is at a crossroads. While AI-driven innovation fuels growth for some, legacy players face inventory overhangs and shifting demand. Here’s how to navigate the divide.

The Stock to Consider: NVIDIA (NVDA) – Dominating AI’s New Frontier

NVIDIA remains the unequivocal leader in the AI chip race, leveraging its dominance in data center hardware and software to drive outsized returns. In Q1 2025, its data center revenue surged 279% YoY to $18.4 billion, fueled by H100 and H200 GPU demand. Gross margins hit 74.2%, a testament to its premium pricing power, while R&D spending soared to $7.2 billion—a 35% YoY increase—to develop next-gen B100 chips and AI software tools like NVIDIA AI Enterprise.

This isn’t just a hardware story. The software division added $1.2 billion in revenue in 2024 alone, diversifying its earnings stream. Analysts project 45% earnings growth through 2026, supported by a $42 billion cash reserve and partnerships with hyperscalers like Microsoft and Google.

Despite a 3% YTD dip, NVDA’s valuation remains justified. Wedbush’s $650 price target (vs. $535/share) hinges on its $325 billion global tech capex tailwind and the $500 billion AI infrastructure spend expected by 2030.

Stocks to Avoid: Texas Instruments (TXN) and Qualcomm (QCOM) – Legacy Risks Ahead

1. Texas Instruments (TXN) – Analog’s Decline

Barclays recently downgraded TXN to “underweight,” citing declining bookings and inventory corrections in its analog and MCU businesses. These segments face 5–15% revenue misses as demand softens, with automotive and industrial markets showing cracks.

Even at its discounted valuation (18x forward earnings), TXN’s margins are under pressure: gross margins have shrunk from 66% in 2022 to 59% in Q1 2025. Without a clear path to AI-driven growth, this stock is better left on the sidelines.

2. Qualcomm (QCOM) – Losing the iPhone Monopoly

Qualcomm’s dominance in smartphone modems is eroding. Apple’s iPhone 16, expected in 2026, will use an in-house modem, stripping 10% of Qualcomm’s revenue. Compounding this, Q1 2025 earnings missed estimates, with IoT and automotive segments lagging peers.

The stock’s 4.9% YTD gain pales compared to sector peers, and its AI/IoT pivot lacks the scale of NVIDIA’s ecosystem. With a $20 billion dividend payout obligation, QCOM’s financial flexibility is constrained—especially if consumer demand sours further.

Conclusion: Bet on AI, Avoid Analog and Smartphone Reliance

The semiconductor sector is bifurcating: AI-driven leaders like NVIDIA, AMD (AMD), and TSMC (TSM) are powering ahead, while legacy players tied to cyclical markets face headwinds.

NVIDIA’s $18.4 billion data center revenue and 74.2% margins underscore its AI leadership, while Broadcom’s (AVGO) $5.5 billion AI revenue and Micron’s (MU) 185% AI-driven growth add diversification.

Conversely, Texas Instruments’ analog struggles and Qualcomm’s iPhone overhang make them risky bets. Add geopolitical risks—like tariffs and supply chain bottlenecks—to the mix, and investors should stick to companies with direct exposure to AI’s $500 billion opportunity.

For now, NVDA is the clear standout—its valuation is justified by the numbers. Avoid TXN and QCOM unless you’re willing to bet on a sector rebound that may never come.