Semi Stocks Riding AI Wave: Buy NVIDIA and Amtech

Companies in the Semiconductor – General industry are at the forefront of the ongoing technological revolution based on HPC, AI, electrified and automated driving, IoT and so forth. The semiconductors they produce enable the cloud to function and help analyze data into actionable insights that can be used by companies to operate more efficiently.  Therefore, the long-term outlook can only be considered bright.
 
In the immediate future, however, there could be some challenges. While geopolitical instability and the arms race among nations may sound like positive drivers for some, actual wars disrupt supply chains, delay deliveries and drive up prices. The U.S. government’s tariffs at this juncture will only exacerbate the inflation on end products using semiconductors and potentially disrupt trade routes, resulting in more of the same challenges.

Given the growing uncertainty, we are concerned that share prices continue to soar, leading to a rich valuation. We don’t think the uncertain macro affects the NVIDIA Corp. NVDA story, and that there are certain positives to picking Amtech Systems ASYS right now.
 
The latest data coming out of WSTS, which is also typically quoted by the Semiconductor Industry Association (SIA), is extremely encouraging. Accordingly, global semiconductor sales are now expected to grow 22.5% in 2025 (previously 11.2%), on the back of the 19% increase in 2024. In 2026, the market is expected to grow another 26.3% (also up significantly).
 
IDC expects 17.6% growth, driven by AI infrastructure and accelerated computing as well as datacenter networking markets. Overall, it expects compute segment growth of 36% in 2025 (from hyperscale AI workloads); networking 13% (as cloud providers, telecom firms and enterprises ramp up investment in networking chips and optical interconnects, led by high-capacity Ethernet switches, SmartNICs and DPUs); industrial 11% (from military and aerospace applications, manufacturing, edge AI adoption and electrification trends); smartphones 5% (5G adoption, richer multimedia capabilities, on-device AI, higher ASPs as revenue remains concentrated in higher-end devices and content per device grows), automotive 3% (despite some continued challenges).
 
Garter expects 15.7% growth in 2025 following the 18.1% growth in 2024. Growth will be driven by AI, high-bandwidth memory, networking chips and power modules despite rising market volatility, leading to shifts in supply chain strategies such as increasing safety stock supplies, buying buffer stock, as well as spot pricing and device consolidation where applicable.
 
The U.S. government’s target of reducing dependence on China, and onshoring projects with national security implications are shaping the future of this industry.

About the Industry

The companies grouped under the Semiconductor – General category produce a broad range of semiconductor devices, both integrated and discrete, like microprocessors, graphics processors, embedded processors, chipsets, motherboards, wireless and wired connectivity products, DLPs and analog, serving multiple end markets. It includes companies like NVIDIA, Texas Instruments, Intel and STMicroelectronics.

Major Themes Shaping the Industry

• Artificial intelligence is the single biggest driver of the industry because of the transformation it is bringing in efficiency, cost-effectiveness, automation, safety, environmental benefits and so forth. AI has become an imperative for effective competition, irrespective of the industry. Technology companies are building their own where possible and buying where it makes sense. Moreover, the more companies that use it, the more necessary it becomes. In this backdrop, data-intensive applications, advancements in machine learning algorithms and increasing urbanization, as well as dynamics in the data center, auto, healthcare, financial services and other markets are major drivers. The growth this is spurring in the semiconductor industry is likely to continue for years to come. 

 

• Current geopolitics is negative for growth. Geopolitical tensions are adding a dimension to semiconductor demand, as countries increasingly adopt the latest technology in defense, infrastructure and other critical applications. As defense spending accelerates the world over, particularly on fighter planes and unmanned aerial vehicles currently being used in military operations, demand for the most sophisticated underlying electronics will only go up. Technavio estimates that semiconductors used in the military and aerospace market will grow 6% between 2025 and 2029. However, war is not conducive to trade overall because of the disruptions in trade routes, uncertainty in demand and price escalation in key commodities. Therefore, ongoing tensions around the world could actually dampen demand, raise prices or cause other disruptions in the larger computing, consumer, data center, auto and industrial markets. 

 

• China is an important angle in itself as it is the largest buyer of U.S. chips, even as its technological advancements have put western countries, particularly the U.S., on edge. There is also considerable concern that most of the important leading-edge chips are currently made in Taiwan, a country that China threatens to annex. Since this has national security implications, there is an ongoing drive to onshore or nearshore manufacturing. The CHIPS Act is facilitating the process.

 

• Notwithstanding the fact that the long-term prospects are extremely bright because the industry is on the building-block side of technology, making it crucial for the proliferation of the Internet and the ongoing broad-based digitization, there are some near-term issues. Macro concerns are mounting by the day. U.S. tariffs are expected to raise prices on all the consumer electronics, computing, data center, industrial and other applications of semiconductors, severely hitting consumer confidence, neutralizing the positive effects of relatively low inflation and a somewhat lower interest rate. The automotive electronics segment is an area of evolving needs, as the world continues to move toward EVs and hybrids. However, some recent trends indicate that customers are moving away from premium offerings. ADAS, infotainment and electronic control units (ECUs) remain attractive, with safety and fuel efficiency being top concerns. The unemployment rate has climbed every month since June (except October, for which we don’t have the number). 

 

• The personal savings rate is trending down partly because inflation has been a tough nut to crack. Consumer confidence has mostly trended down since August and missed expectations in every month except October. This is not the best thing for consumption, including of expensive EVs. The adoption of automation and robotics across industrial operations is positive, but industrial markets are directly impacted by any macro slowdown.

 

• Semiconductor supply chains are adjusting. Efficient semiconductor supply chains based on the just-in-time model are no longer coveted, as the cost advantages they enable are not as important as resilience in times of unforeseen disruptions. Players continue to adjust for these external disruptions, such as COVID, wars and tariffs. This, along with other factors, such as the U.S.-imposed restraints on dealing with China has led semiconductor companies to diversify their supply chains and reduce their dependence on the country. This is an ongoing process that will take several years. Some companies are also building inventory so disruptions from geopolitical and other issues may be limited.

Zacks Industry Rank Indicates Strong Prospects

The Zacks Semiconductor-General Industry is a stock group within the broader Zacks Computer and Technology Sector. It carries a Zacks Industry Rank of #20, which places it in the top 8% of nearly 250 Zacks-classified industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates that near-term prospects are improving. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of 2 to 1.

An industry’s positioning in the top 50% of Zacks-ranked industries is normally because the earnings outlook for the constituent companies in aggregate is relatively strong. The opposite is true for stocks in the bottom 50% of industries. In this case, the aggregate earnings estimate for 2025 is down 29.1% from the year-ago level, although the aggregate earnings estimate for 2026 is up 31%.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Stock Market Performance Remains Strong

Tracking the performance of the Zacks Semiconductor – General Industry over the past year shows that the industry has traded at a discount to both the broader Zacks Computer and Technology Sector and the S&P 500 index up to May 2025, pulling ahead after that and maintaining its lead to date.

The industry has gained 33.4% over the past year. The broader technology sector gained 26.3% while the S&P 500 index gained 19.3%.

One-Year Price Performance

Image Source: Zacks Investment Research

Current Valuation: Rich

On the basis of forward 12-month price-to-earnings (P/E) ratio, we see that the industry is currently trading at a 29.06X multiple, which is a discount to its median value of 31.32X over the past year. However, since the S&P 500 trades at 23.31X and the sector trades at 27.91X, the industry appears significantly overvalued. Overall, the industry has traded between a low of 26.21X and a high of 38.34X over the past year, always at a premium to both.

Forward 12 Month Price-to-Earnings (P/E) Ratio

Image Source: Zacks Investment Research

2 Stocks To Consider

Macro and geopolitics notwithstanding, the industry stands to benefit from interest cuts this year, which typically drives more money into risky assets. Several of the technology heavyweights in this industry are the core suppliers to the AI mega cycle we are seeing now, so we remain optimistic over the long run. The only stumbling block is the valuation. We continue to like NVIDIA and think that ASYS is worth the deal as well: 

NVIDIA Corporation (NVDA): Santa Clara, California-based NVIDIA provides graphics, and compute and networking solutions in the U.S., Taiwan, China and other markets. Its graphics processing units (GPUs) are the most popular in the gaming segment. NVIDIA is also at the leading edge of enterprise, data center, cloud and automotive deployments today.

Generative AI is driving exponential growth in compute requirements. Because NVIDIA’s accelerated computing is versatile, energy-efficient and has low total cost of ownership, companies are rapidly transitioning to its products to train and deploy AI. NVIDIA GPUs, CPUs, networking, AI foundry services and NVIDIA AI Enterprise software are all growth engines. They are opening up opportunities and leading to broad-based growth across geographies and markets.

The company is benefiting from three platform shifts, involving accelerated computing, powerful AI models and agentic applications. Management has said that the AI ecosystem is scaling fast with more new foundation model makers and more AI startups across more industries, and in more countries. Compute and inference demand is going through the roof.

As a result, there is tremendous momentum in the business. Revenues last quarter grew strong double-digits both sequentially and from the prior year, which is huge given the sheer scale it already has. What’s more, management expects this momentum to continue, with visibility into $500 billion of revenue (Blackwell-Rubin) from the beginning to the end of calendar year 2026. With continued product innovation and full-stack design, management expects the company to remain the provider of choice for their estimated $3 trillion-$4 trillion in annual AI infrastructure build by the end of the decade.

Some of its largest cloud customers include AWS, CoreWeave, Google Cloud Platform (GCP), Microsoft Azure and Oracle Cloud Infrastructure (OCI). Healthcare partners like IQVIA, Illumina, Mayo Clinic and Arc Institute are using its products to advance genomics, drug discovery and healthcare. NVIDIA is also seeing momentum across professional visualization and automotive (through collaborations with companies like Toyota, Hyundai, Mercedes-Benz and Audi). The company also gives away billions to shareholders in dividends and share repurchases.

The Zacks Consensus Estimate for 2026 (ending January) has gone from $4.46 60 days ago to the current level of $4.66 (up 4.5%). There’s also an increase of a dollar (16%) in the 2027 estimate. At current levels, analyst estimates represent a 62.4% increase in revenue and 55.9% increase in earnings for 2026 and a 43.2% revenue increase and 55.2% earnings increase in 2027.

The Zacks Rank #1 (Strong Buy) stock is up 35% in the past year.

Price & Consensus: NVDA

Image Source: Zacks Investment Research

 

Amtech Systems, Inc. (ASYS): Amtech Systems manufactures and sells capital equipment and related consumables and services for semiconductor device packaging, wafer production and device fabrication. Products are sold to semiconductor device packaging, electronic assembly and device fabrication companies worldwide and used to fabricate and package semiconductor devices, such as graphic processing units (GPU’s) used in AI applications, silicon carbide (SiC) and silicon power devices and other optical, analog and digital devices.

While there were pockets of weakness in both segments, reflow ovens used in AI applications drove demand in Asia and fueled a sequential increase in revenue in the last quarter. AI-related revenue was also up from the previous year although offset by softness at mature semiconductor nodes for wafer cleaning equipment and parts, impacting the Semiconductor Fabrication segment. Diffusion furnaces and high-temperature furnaces in the TPS segment were also softer than in the previous year. With its debt paid down and cost efficiencies ongoing, Amtech is poised for much stronger results going forward.

In the last quarter, Amtech posted a positive surprise of 433.3% as earnings of 10 cents came way ahead of the expected loss of 3 cents. For the year ending September 2026, the Zacks Consensus Estimate has gone from 15 cents to 43 cents in 60 days, up 186.7%.

The Zacks Rank #1 stock is up 145.9% in the past year.

Price & Consensus: ASYS

Image Source: Zacks Investment Research

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This article originally published on Zacks Investment Research (zacks.com).

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