Hedge funds loaded up on these two chip stocks this year. Should you buy them too?

Hedge funds significantly increased their positions in Lam Research Corp. (LRCX) and Micron Technology Inc. (MU) during Q1, with 27 and 36 funds holding the respective stocks. Goldman Sachs data indicates these stocks are now among the 50 most popular with institutional investors, as the firm's Hedge Fund VIP ETF has outperformed the S&P 500 in 59% of quarters since 2001. Micron and Lam rank third and 11th, respectively, within the iShares Semiconductor ETF (SOXX) based on projected sales growth through 2026, with Micron having a lower forward P/E ratio than Lam and Nvidia, suggesting it may be undervalued.

Analysis

Hedge funds demonstrated increased conviction in Lam Research Corp. (LRCX) and Micron Technology Inc. (MU) during the first quarter, as evidenced by Goldman Sachs research indicating these semiconductor firms newly feature among the 50 stocks most frequently comprising the top 10 holdings for institutional investors. Specifically, out of 509 funds with 10 to 200 distinct U.S. equity positions, 27 hedge funds held Lam Research and 36 held Micron Technology as of the end of March, with both stocks appearing in the top 10 holdings for at least 10 funds, based on May 15th 13-F filings. This heightened interest is noteworthy as the Goldman Sachs Hedge Fund VIP ETF (GVIP), tracking such popular holdings, has outpaced the S&P 500 in 59% of quarters since 2001 and has returned 6% so far this year, reportedly navigating 2025 market conditions in positive territory. Lam Research, providing equipment for semiconductor manufacturing, and Micron Technology, making memory and storage products, show promising growth outlooks. Within the iShares Semiconductor ETF (SOXX), Micron ranks third with a projected two-year compounded annual sales growth rate (CAGR) of 23% from calendar 2024 through 2026, while Lam Research ranks 11th with a 10.3% CAGR, per FactSet consensus estimates; for context, Nvidia (NVDA), a consistent hedge fund favorite, has an estimated CAGR of 39.8%. Valuation metrics present a contrast: Micron's forward price-to-earnings (P/E) ratio is 9.9, suggesting potential undervaluation, whereas Lam Research's is 20.9 and Nvidia's is 28.1, possibly reflecting greater investor confidence in the earnings growth paths of the latter two.

Key Decisions for Investors

• Investors should consider evaluating Lam Research (LRCX) and Micron Technology (MU) due to significant Q1 accumulation by hedge funds and their respective projected sales CAGRs of 10.3% and 23% through 2026.
• Micron Technology's forward P/E of 9.9, notably lower than Lam Research's 20.9 and Nvidia's 28.1, may indicate a relative value opportunity, whereas the higher P/Es for Lam and Nvidia suggest stronger market expectations for their earnings growth.
• Monitoring subsequent 13-F filings for sustained institutional interest, alongside semiconductor industry developments and individual company earnings performance, is advisable for assessing these investment opportunities.