Prediction: 2 chip stocks to be worth more than Intel in 2 years

Intel (INTC -3.33%) was one of the most valuable chip makers in the world. But today, it’s worth $94 billion, making it far less valuable than Advanced microdevices, Nvidia, Qualcomm, Broadcom, Texas Instrumentsand other major chip makers.

Intel was once considered a centerpiece of the semiconductor sector, as it was the largest manufacturer of x86 processors for PCs and servers. However, it has become much less relevant as chip makers have gravitated towards ArmMore energy-efficient chip designs for mobile, automotive and Internet of Things (IoT) chips. Intel also lagged behind Taiwan Semiconductor Manufacturingthe world’s largest and most advanced contract chipmaker, in the “process race” to make smaller, denser chips. As a result, AMD, which has outsourced its production to TSMC, has moved ahead of Intel with the latest generation chips.

Image source: Getty Images.

Intel struggled to modernize its own foundries to regain control of the process from TSMC, but it was a costly and futile effort. Several recent reports suggest that Intel may be shutting down its capital-intensive foundry unit to cushion its losses.

For now, analysts expect Intel’s revenue to grow at a compound annual growth rate (CAGR) of 4% from 2023 to 2026 as it releases its newest chips and the PC market stabilizes. But assuming it hits those targets and still trades at 2.5 times sales, Intel’s market cap would only grow to about $154 billion by 2026 — making it less valuable than AMD, Nvidia, Qualcomm, Broadcom and Texas Instruments today.

I think two other smaller chipmakers could join this growing list and eclipse Intel’s market cap in two years: Marvell technology (MRVL 1.21%) and Micron technology (MU 0.80%).

1. Marvell technology

Marvell manufactures a wide range of data processing, infrastructure, Wi-Fi and custom chips for the cloud, 5G, automotive, enterprise networking and AI markets. It currently has a market cap of $66 billion, and analysts expect its revenue to grow at a CAGR of 18% from fiscal 2024 to fiscal 2027 (which ends in February 2027).

Marvell shares are trading at 12 times this year’s sales, which might seem like a high valuation for a diversified chipmaker. However, that’s because most of the recent growth has been driven by growing market demand for its optical and networking chips, which are used to upgrade data centers so they can handle the torrent of data from the latest AI applications.

Marvell already generated 10% of its revenue from AI-oriented chips in fiscal 2024 and expects that percentage to increase in fiscal 2025. This expansion should complement the recovery in its transportation, enterprise networking, consumer markets , automotive and industrial in a warmer macroeconomic environment.

If Marvell matches Wall Street expectations and continues to trade at 12 times sales through fiscal 2027, its market cap could rise to $108 billion, making it more valuable than Intel today. If it trades at 20 times sales, its market cap could reach $180 billion.

2. Micron technology

Micron is one of the world’s largest manufacturers of DRAM and NAND memory chips. Its market cap surpassed Intel’s earlier this year, and it’s currently worth about $107 billion. I think Micron can easily maintain this lead for the next couple of years.

Micron’s business is highly cyclical. In fiscal 2023 (which ended in August 2023), its revenue fell 49% and became unprofitable. This deceleration was caused by declining PC shipments and the end of the 5G smartphone upgrade cycle.

But from fiscal 2023 to fiscal 2026, analysts expect Micron’s revenue to grow at a CAGR of 42% as it begins a new cycle of cyclical growth. It is also expected to turn profitable again in 2024 and grow its earnings per share (EPS) at a CAGR of 306% over the next two years. Those are amazing growth rates for a stock that trades at just 4 times this year’s sales.

If Micron meets Wall Street expectations and continues to trade at the same price-to-sales ratio through fiscal 2026, its market capitalization could rise to more than $190 billion by the final year. This rapid expansion should be driven by stabilizing PC and smartphone markets, growing automotive and industrial markets, and increasing sales of SSDs and high-bandwidth memory (HBM) drives to process more AI tasks to data centers.

Are Marvell and Micron better buys than Intel?

Intel isn’t up to par yet, but it clearly faces existential challenges. So instead of betting on Intel’s long-term recovery, I think it’s smarter to invest in Marvell’s secular expansion or the start of Micron’s latest multi-year growth cycle.