Semiconductor stocks have been volatile. Last day, VanEck Semiconductor ETF changed to +11.66%. Overall, the index has fallen 26% since mid-August, including Friday’s decline. Previously, the index had seen wild swings, first diving in July before recovering in early August, then tumbling again. The ETF is still up about 27% annually, however. Investors may be wondering: What are the prospects for semiconductor stocks – which have been driven by artificial intelligence – and are there pockets of buying opportunities? In a report released Tuesday, Morningstar said demand will continue to increase, while memory prices and profit margins are in the middle of a recovery phase. It expects orders for PCs and general servers to increase next year as AI-driven demand increases. For memory chips, supply is set to last at least until the first half of 2025, due to investment in high-bandwidth memory, Morningstar said. “To protect themselves from cash burn, memory suppliers, especially SK Hynix and Micron Technology, have significantly reduced capital spending in 2023. We expect memory companies to increase capex in 2025, supported by better profits and improved US capex . hyperscalers,” Morningstar analysts wrote. But pockets of value are still there, according to the company. The best stock picks The best picks include Taiwanese companies TSMC and GlobalWafers. It describes the former as the “main” AI beneficiary, being “immune” to the shift between cloud AI and edge AI because both are dependent on TSMC. Edge AI involves running AI algorithms directly on the user’s device, be it a smartphone, laptop or wearable, etc. GlobalWafers has a “head start” in the United States, and is a “catchup play” benefiting from growing demand for silicon wafers, Morningstar said. “The performance of wafer producers is less than that of customers for about two quarters, because customers supply only when the market is developing,” he said. “We expect sentiment to improve as electric vehicles, industrial and other non-AI applications recover in the second half of 2024.” Morningstar sees TSMC and Samsung as undervalued in particular – even after strong one-year returns – attributing the potential for higher returns to “outsized exposures” to AI and other advanced semiconductors. It also believes GlobalWafers stock trading at 16 times price-to-earnings 2025 is undervalued. Sentiment is “rock bottom,” but the company is becoming more successful in managing rising labor and energy costs, he said. The CNBC Pro screen also displays the Van Eck Semiconductor ETF for stocks on the list that analysts predict still have more than 20% upside, and have a buy rating of 50% or more. This stock is emerging.