Check out Wall Street's favorite chip stocks

It might be time to seek purchasing opportunities in semiconductor stocks, a beaten-down area of the IT industry.

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Exchange-traded fund for semiconductors by VanEck (SMH) is down more than 4% over the last two years, compared to a 2% increase for the larger S&P 500 tech sector during the same period. The Covid-19 pandemic-related supply chain issues have put pressure on chip stocks.

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Nevertheless, as Covid limitations are lifted globally, particularly in China, those supply chain concerns are gradually diminishing. This has increased chip stocks in early 2023, along with the recent drive toward artificial intelligence technology. The SMH has increased by 19.6% so far this year.

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In light of this, CNBC Pro set out to identify the industry's largest winners in the coming years. The SMH was searched for equities that satisfied the following standards:

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• Purchase opinions from at least 55% of the analysts who cover them.

• A reasonable price target with a 10% or more upside implied

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More than 86% of analysts gave Marvell Technologies a buy rating, enabling it to advance. Although the stock has gained over 19% this year, it has lost 34% in the last 12 months.

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The company is well positioned to benefit from the rise in interest in AI, according to JPMorgan analyst Harlan Sur, who earlier in February noted that some of the company's chipsets are already being utilized by Google to power its artificial intelligence technology.

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The company has the highest implied upside potential of any name on the list, with an average analyst price target of 33%, according to Trade Algo data.

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Analog Devices is another stock that made the list. The average price objective for the company predicts an increase of 14% over the next 12 months, and over 60% of analysts recommend it as a buy.

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The company's fiscal first-quarter earnings and revenue topped analyst estimates when they were released last week. The second quarter guidance from Analog Devices exceeded expectations as well.

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CEO Vincent Roche stated in a statement that "ADI continues to execute extraordinarily well with revenue growth of 21% year over year and record earnings per share." "In the near future, ubiquitous connectivity, edge computing powered by AI, and pervasive sensing will enable new capabilities, applications, and markets at the Intelligent Edge."

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On the strength of those results, Bank of America analyst Vivek Arya dubbed the company a "best-in-class share gainer." Also, he increased his share price estimate for Analog Devices from $215 to $230. The new target suggests an increase of 18.6% from Friday's closing price.

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"ADI ought to be able to maintain profitability growth during a downturn in the sector. More crucially, we expect a path to 40%+ [free cash flow] margins, much beyond analog peer TXN (declining from the mid-30s to mid-20s), with capital intensity peaking likely around 8%-9% and coming down over time, Arya said.

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With over 60% of analysts giving it a buy recommendation and an average price target predicting an increase of 14.1%, Advanced Micro Devices also made the cut. The stock has increased by more than 21% so far this year. But, the business issued a late-last-month warning that it might experience a 10% decline in first-quarter revenue.

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Yet, most analysts, including Toshiya Hari of Goldman Sachs, have continued to support AMD.

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Given our anticipated considerable market share gain in server CPU and the possibility for improved margins in 2H23/2024, Hari said in a note, "We remain constructive on the stock." The analyst updated his buy recommendation for AMD.

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Synopsys, Microchip Technology, Applied Materials, KLA, and Broadcom are additional companies that made our list.