Nvidia Corp. has long been the star of the semiconductor manufacturing industry, and for good reason. With its dominant position in the graphics processing unit (GPU) market—crucial for data centers powering artificial intelligence (AI) development—the company’s market cap has soared to an impressive $2.61 trillion from $358 billion just two years ago. Nvidia now constitutes 5.7% of the SPDR S&P 500 ETF Trust (SPY), making it the third-largest holding after Apple Inc. and Microsoft Corp. But while Nvidia continues to shine, investors should not overlook the many other chipmakers poised to deliver significant gains over the next few years.
Nvidia’s Growth Story Faces Uncertainty Ahead
Nvidia has more than doubled its sales in the past year and is expected to do the same this year. Yet, the market is beginning to question how long the company can maintain such rapid growth. Analysts currently project Nvidia’s revenue to grow at a compound annual growth rate (CAGR) of nearly 33% through 2026. However, recent signs of slowing revenue growth and concerns over the return on investment for AI spending have some investors on edge. If major cloud providers and other AI clients do not see sufficient revenue to justify their heavy investments, they may be reluctant to commit more capital to AI infrastructure, potentially impacting Nvidia’s growth trajectory.
Exploring Opportunities in the Broader Semiconductor Space
While Nvidia has largely defined the AI hardware market, competition is heating up as more companies seek a slice of the lucrative GPU pie. Moreover, as businesses that have heavily invested in new AI hardware come under pressure to generate profits from AI-related products and services, there may be a pause in GPU adoption. For investors, this suggests a good time to look ahead and evaluate growth prospects across the semiconductor sector.
To identify promising opportunities, we screened companies within the semiconductor industry for expected revenue growth. Starting with the 30 components of the iShares Semiconductor ETF (SOXX), which tracks the PHLX Semiconductor Index, we added 31 other companies from the S&P 1500 Composite Index that are classified as semiconductor companies by FactSet or under the Global Industry Classification Standard. We then analyzed revenue estimates through 2026 from analysts polled by FactSet, focusing on those with the highest two-year sales CAGR projections.
Out of the 61 companies initially considered, 53 had consensus sales estimates available through 2026. Of these, 17 are expected to grow sales at an annualized rate exceeding 20% from 2024 to 2026. For perspective, the estimated two-year sales CAGR for the PHLX Semiconductor Index itself is 17.1%.
Top Contenders for Revenue Growth
SolarEdge Technologies Inc. leads the list for expected revenue growth, despite facing a challenging year with its stock down over 80% in 2024 due to sector-wide pressures and a weak solar market. Analysts remain optimistic about its future growth, but concerns about negative free cash flow persist, making it a popular target for short-sellers, with short interest exceeding 30% of its float.
Wolfspeed Inc. ranks second, specializing in silicon carbide components for electric vehicles and other applications. While the company is not expected to post a profit for at least two more years, moves to cut capital expenditures and the potential for federal funding via the CHIPS Act could address some investor concerns.
Silicon Laboratories Inc. also stands out, despite a forecasted decline in sales for 2024. The company is expected to rebound strongly through 2026, reflecting broader trends in the semiconductor sector where firms outside the AI bubble—like those focused on automotive and industrial applications—may see a significant turnaround if market conditions improve.
Shifting Focus: Market Dynamics and Investor Concerns
As Nvidia’s future growth remains a hot topic, investors are keenly watching AI’s return on investment. Analyst Jordan Klein of Mizuho highlighted that the biggest question on investors’ minds is the growth outlook for cloud capital spending in 2026 versus 2025. While confidence remains high for 2024 and 2025, there is uncertainty around 2026, with Nvidia’s future performance heavily dependent on demand from its largest customers—cloud hyperscalers, sovereign entities, enterprises, and edge device operators.
Meanwhile, Advanced Micro Devices Inc. (AMD) is positioning itself to challenge Nvidia’s dominance in AI GPUs while looking to recover in other business areas, such as gaming. Although AMD’s gaming revenue plummeted by 61% in the most recent quarter, analysts expect a return to positive growth in the near future.
Nvidia isn’t standing still, however, and its aggressive one-year product release cycle aims to maintain its competitive edge. This could keep rivals like AMD in a constant state of catch-up.
Key Takeaways for Investors
For traders and investors, the semiconductor sector presents both risks and opportunities. While Nvidia remains a market leader, concerns over its growth trajectory and AI’s ROI could impact its stock performance in the coming years. Meanwhile, other semiconductor companies offer promising growth potential, especially those poised for recovery in non-AI segments.
As the landscape evolves, maintaining a diversified portfolio and keeping an eye on both established players and rising stars could be key to capitalizing on the sector’s dynamic growth potential.