This has been a difficult year for semiconductor stocks, which is evident from the 23% decline in the PHLX Semiconductor Sector index so far. Investors have decided to book profits and preserve capital owing to the uncertainty caused by the tariff-fueled trade war. This, in turn, has led to an increase in the possibility of a global recession.

However, recent developments suggest there could be a reason for investors to remain optimistic. These include the 90-day pause in reciprocal tariffs to allow time for negotiations between the U.S. and its trade partners, the exemption of duties on imports of semiconductors, computers, processors, and some other electronic items, and news that the U.S. and China are engaged in trade negotiations.

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Favorable trade deals between the U.S. and its trading partners could bring the stock market out of the rut it is in. Moreover, disruptive trends such as artificial intelligence (AI) are here to stay thanks to the massive productivity gains they can deliver in the long run.

That's why now would be a good time for savvy investors to take a closer look at a couple of top semiconductor stocks that have pulled back of late but have the potential to fly higher in the next year -- and in the long run thanks to the massive AI-driven opportunity they are sitting on.

1. Broadcom

Shares of Broadcom (NASDAQ: AVGO) have retreated 28% in 2025, and that drop doesn't seem justified in light of the company's remarkably solid growth in recent quarters. Not surprisingly, analysts are upbeat about Broadcom's performance on the stock market in the coming year. The shares carry a 12-month median price target of $250 as per 44 analysts covering the stock, which points toward potential gains of 50% from current levels.

Also worth noting here is that 89% of analysts covering Broadcom recommend buying it. That isn't surprising considering the impact of AI on the company's business. The company's AI revenue increased an impressive 77% year over year in the first quarter of fiscal 2025 (which ended on Feb. 2) to $4.1 billion.

That was faster than the 25% growth in the company's overall quarterly revenue, which landed at $14.9 billion. AI, therefore, is now producing 27% of Broadcom's top line. Importantly, AI chips are likely to move the needle in a bigger way for Broadcom going forward as the company's custom processors are in tremendous demand from cloud hyperscale customers.

Broadcom is expecting a 44% year-over-year increase in its fiscal Q2 AI revenue to $4.4 billion. However, don't be surprised to see the company doing better than that as more customers are expressing interest in its custom AI chips. Each of Broadcom's existing three hyperscale cloud customers is expected to deploy AI server clusters powered by more than 1 million of its custom AI chips, known as XPUs, over the next three years.

Management says that "these three hyperscale customers will generate a Serviceable Addressable Market or SAM in the range of $60 billion to $90 billion in fiscal 2027." Considering that Broadcom is in the final stages of the development of custom AI accelerators for two more hyperscale customers, its AI-driven addressable market should ideally become bigger.

Even better, Broadcom's AI-focused customer lineup is about to get bigger as "two additional hyperscalers have selected Broadcom to develop custom accelerators to train their next-generation frontier models." So, the company could eventually sell its AI chips to a total of seven cloud hyperscale companies in the future.

That could open up the possibility for exponential growth in the company's AI revenue from fiscal 2024 levels of $12.2 billion. Its addressable market from the current three customers is quite huge already. All this explains why analysts are expecting Broadcom's earnings to jump by an impressive 36% in the current fiscal year to $6.64 per share.

However, Broadcom delivered stronger earnings growth of 45% in fiscal Q1, suggesting that it has the potential to beat Wall Street's expectations, especially considering the new AI customers that it is bringing on board. So, investors looking to add a top AI stock to their portfolios right now would do well to buy this chip designer before it starts flying higher.

2. Marvell Technology

Marvell Technology (NASDAQ: MRVL) is Broadcom's competitor in the custom AI chip market, and shares of the company have slipped a massive 55% this year. As a result, Marvell is now trading at just 22 times trailing earnings. Buying this chip stock at this valuation is a no-brainer given its phenomenal growth.

After reporting 27% year-over-year growth in fiscal 2025's Q4 (which ended on Feb. 1), Marvell is expecting its fiscal 2026 Q1 revenue to jump at a greater pace of 61%. Meanwhile, it is expecting earnings to jump by more than 2.5 times from the year-ago period. This tremendous growth makes it clear why Marvell's 12-month price target of $105 as per 39 analysts covering the stock points toward a potential jump of 112% from current levels.

What's more, 92% of the analysts suggest buying Marvell stock, which is not surprising considering its red-hot growth. Importantly, its growth seems sustainable going forward. Marvell is the second-largest player in the custom AI chip market after Broadcom, with the latter controlling an estimated 70% of this space. However, analysts are expecting both companies to be on equal footing in the future, driven by Marvell's recent wins in the custom AI processor market.

Marvell currently has two high-volume customers for its custom AI chips, and the good part is that it is expecting both customers to expand the adoption of its processors. Also, management pointed out on the company's March earnings conference call that it is on track to start production of custom AI chips for a third customer in 2026. The company points out that this third customer can drive "a very significant amount of incremental revenue for Marvell over the next several years."

What's more, Marvell is pushing the envelope on the product-development front. The company is working with its foundry partner TSMC to roll out custom AI processors and connectivity chips made using a 2-nanometer (nm) manufacturing process. The two companies have already developed a working sample of the 2nm silicon, according to an update issued last month.

This could give Marvell an advantage over Broadcom considering that the 2nm chip samples of the latter are expected in June this year. So, the possibility of Marvell gaining ground in the AI chip market is definitely solid. All this explains why analysts are expecting remarkable growth of 79% in the company's earnings in the current fiscal year, which could indeed help this semiconductor stock deliver the remarkable returns that it is expected to deliver over the next year.

Throw in Marvell's cheap valuation, and it is easy to see why it would be a good idea to buy this stock hand over fist following its big drop this year, as it may not be long before it regains its momentum thanks to its outstanding AI-fueled growth.

Should you invest $1,000 in Broadcom right now?

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.

Shares of Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly known as TSMC, have been under pressure in 2025. Investors have concerns surrounding the health of artificial intelligence (AI) infrastructure spending earlier this year followed by the recent tariff-related turmoil, which sparked a stock market sell-off. Still, the company's latest results show that these factors haven't derailed the company's impressive growth trajectory.

TSMC released its first-quarter results on April 17. The company's revenue and earnings rose impressively from the year-ago period, and management's guidance clearly indicates that it isn't expecting a slowdown in its growth on account of the tariff-fueled trade war.

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Let's take a closer look at TSMC's latest quarterly results and check why it may be one of the best bets in the AI chip sector right now.

AI-fueled demand is powering TSMC's impressive growth

TSMC's Q1 revenue jumped 35% year over year to $25.5 billion, while earnings shot up nearly 54% from the year-ago period thanks to an improvement in its margins. Specifically, TSMC's net profit margin increased by 5 percentage points from the year-ago quarter, and this can be attributed to the higher prices that it can charge customers.

The company enjoys a commanding lead in the global foundry market with an estimated share of 67% in the fourth quarter of 2024, according to Counterpoint Research. Its share of the foundry market increased by 6 percentage points from Q4 last year, thanks to the technology advantage it enjoys over rivals as well as the impressive customer base it has built.

TSMC's chip manufacturing services are used by AI chip giants such as Nvidia, Broadcom, Marvell, AMD, and Intel. These companies make various kinds of AI accelerators ranging from central processing units (CPUs) to graphics processing units (GPUs) to custom AI processors. The demand for these AI accelerators is expected to jump significantly in the future. Grand View Research estimates that the AI chip market could clock annual growth of 29% through 2030.

Given that TSMC fabricates chips for all the major designers of AI semiconductors, it is one of the best ways to capitalize on this massive end-market opportunity. However, TSMC's AI-related growth potential doesn't end here. That's because the company also manufactures chips for the likes of Samsung, Qualcomm, and Apple. Along with AMD and Intel, which manufacture chips used in personal computers (PCs), TSMC is well placed to make the most of the growing adoption of AI-enabled devices such as smartphones and PCs.

The generative AI-capable smartphone and PC market is expected to clock annual growth of almost 35% through 2029, presenting yet another massive growth opportunity for TSMC. So, it is easy to see why TSMC is expecting another quarter of solid growth. Its Q2 revenue guidance of $28.8 billion would be an improvement of 38% over the year-ago period, and this points toward an acceleration in the company's growth in the current quarter.

What's more, TSMC is expecting its operating profit margin to jump by 5.5 percentage points year over year in Q2. This should translate into outstanding earnings growth for the company. Another important thing worth noting here is that TSMC has maintained its capital expenditure forecast for 2025 despite tariff-related concerns.

This suggests that the company is confident of witnessing strong demand for its chips. This is precisely what CEO C.C. Wei pointed out on the latest earnings conference call:

Now let me talk about the recent tariff. We understand there are uncertainties and risk from the potential impact of tariff policies. However, we have not seen any change in our customers' behavior so far. Therefore, we continue to expect our full year 2025 revenue to increase by close to mid-20s percent in U.S. dollar term.

TSMC expects its AI chip revenue to double this year. That's why the company is focused on doubling its advanced chip packaging capacity this year to meet the robust demand for AI GPUs and custom processors, along with other chips needed for AI training and inference.

The stock is a no-brainer buy right now

We have already seen that TSMC's earnings are growing at a remarkable pace, and that trend is expected to continue in the current quarter as well. Moreover, the long-term potential of the AI chip market and TSMC's dominant position in the foundry space should ensure that it keeps growing at a nice clip for the remainder of the year and for the long run.

Analysts are expecting a 31% increase in the company's earnings this year. Importantly, TSMC is expected to maintain double-digit earnings growth for the next couple of years as well.

TSM EPS Estimates for Current Fiscal Year data by YCharts

However, the long-term opportunity in the AI chip market, which is expected to grow at an annual rate of almost 35% through 2035, could help TSMC's earnings grow at a faster pace than the market's expectations. Throw in the fact that TSMC is trading at less than 20 times earnings, and it is easy to see why it is a no-brainer buy right now to make the most of the fast-growing AI chip market.

So, investors looking to add a top AI stock to their portfolios should consider buying TSMC following its 25% decline this year as its strong earnings growth and attractive valuation could eventually translate into healthy gains on the market.

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*Stock Advisor returns as of April 21, 2025

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Marvell Technology and recommends the following options: short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.