Semiconductor stocks are thought of as cyclical stocks. However as technology continues to evolve, the cycles for semiconductors have become almost indiscernible. And for the last 18 months, semiconductor stocks have been some of the most volatile stocks.
But the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) is up nearly 17% (16.8%) in 2020. That far outpaces the S&P 500. And this is on the heels of 2019 when the normally “boring” index surged over 60%.
What are the catalysts for semiconductor stocks? At this point, the better question may be what isn’t a catalyst for this group. The 5G buildout looks to finally be underway despite the pandemic. Data centers keep on growing, new gaming consoles will be out later this year, and work from anywhere will continue to be the reality for many Americans.
Each of these segments will define the semiconductor industry for at least the rest of this year. And are likely to continue to dominate our national conversation long after the pandemic is over.
But those aren’t the only catalysts. Online learning is going to increase in importance. And that means students will need the laptops and tablets that are capable of handling the speed and processing power needed for remote learning.
And there’s still time for you to profit from this growing sector. In this presentation, we’ve identified seven of the best semiconductor stocks that still offer good growth opportunities.
Quick Links
- Taiwan Semiconductor Manufacturing
- Advanced Micro Devices
- Nvidia
- Broadcom
- Skyworks Solutions
- Qorvo
- Qualcomm
#1 - Taiwan Semiconductor Manufacturing (NYSE:TSM)
The first stock we’re looking at also happens to be the largest semiconductor manufacturer in the world. This means that many of the biggest names in this presentation contract with Taiwan Semiconductor Manufacturing (NYSE:TSM) to deliver the parts needed for its innovative products. To put the size of this company into perspective, at the time of this writing Taiwan Semiconductor Manufacturing (or TSMC) has a market capitalization that is bigger than Walmart.
TSMC has a 54% market share. But don’t let that fool you. TSM stock is up 34% for the year. The company’s revenue streams provide a good example of how semiconductors cut across many different verticals. For example, in the second quarter 47% of the company’s revenue came from smartphones. But 33% came from high-performance computing. While the company may not get that kind of growth from those two units, it’s also a significant player in 5G and data centers.
To put it mildly, the Taiwanese company is vital to the United States, a country that only manufacturers 12% of its own chips. TSMC is planning to build a $12 billion factory in Arizona, but the production capacity would be a fraction of what the company has in Taiwan.
About Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing Company Limited, together with its subsidiaries, manufactures, packages, tests, and sells integrated circuits and other semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally. It provides a range of wafer fabrication processes, including processes to manufacture complementary metal- oxide-semiconductor (CMOS) logic, mixed-signal, radio frequency, embedded memory, bipolar CMOS mixed-signal, and others.
Read More - Current Price
- $188.30
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 4 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $209.00 (11.0% Upside)
#2 - Advanced Micro Devices (NASDAQ:AMD)
For the first half of the year, Advanced Micro Devices (NASDAQ:AMD) was trading in a tight range. But since July 1, the stock is up nearly 65%. This is a case of AMD benefiting from another chipmaker’s struggles. And the importance of having the right product at the right time.
Intel (NASDAQ:INTC) won’t be releasing its 7 nanometer (nm) chips for six months. That benefits AMD because it already produces the chips. In fact, the company’s Ryzen CPUs dominate the 7nm market. But Advanced Micro Devices is not resting on its laurels. It is planning to introduce the next generation 7nm chip, Zen 3, for the consumer market late in 2020.
And Advanced Micro Devices had a comfortable beat on both the top and bottom lines when it reported earnings on July 28. But AMD is not without its challenges. The most significant one may come from China. The country may extend its prohibition of foreign components and software in its computers to include server chips. This represented 26% of the company’s revenue in 2018.
However, with the advances the company is making in other areas, analysts are still bullish on the stock, and recent price targets suggest it may have significant room to grow.
About Advanced Micro Devices
Advanced Micro Devices, Inc operates as a semiconductor company worldwide. It operates through Data Center, Client, Gaming, and Embedded segments. The company offers x86 microprocessors and graphics processing units (GPUs) as an accelerated processing unit, chipsets, data center, and professional GPUs; and embedded processors, and semi-custom system-on-chip (SoC) products, microprocessor and SoC development services and technology, data processing unites, field programmable gate arrays (FPGA), and adaptive SoC products.
Read More - Current Price
- $139.06
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 29 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $192.79 (38.6% Upside)
#3 - Nvidia (NASDAQ:NVDA)
In advance of its earnings report on May 21, Nvidia (NASDAQ:NVDA) stock was generating significant interest from investors. The Covid-19 pandemic forced Americans to shelter in place. As a result, demand for video games — and the devices that power them — soared. And investors expected this trend would create surging demand for the company’s graphic processing units (GPUs).
Nvidia did not disappoint. The chip maker delivered results that should continue to power NVDA stock well into the second half of 2020 and beyond. For the second consecutive quarter, Nvidia’s year-over-year growth was being powered by its artificial intelligence data-driven platform.
And Nvidia is also beginning to reap the benefits from its $6.9 billion purchase of Mellanox, the data center networking company. This deal shocked some investors because it was out of character for the company. However, the importance of this market is impossible to understate and investors are now seeing why Nvidia made the move.
Advanced Micro Devices is coming hard at Nvidia. And this will be one of the fascinating stories as the sector continues to play a critical role in so many aspects of our lives. Right now, neither stock is a bad play, but Nvidia may still have a slight edge.
About NVIDIA
NVIDIA Corporation provides graphics and compute and networking solutions in the United States, Taiwan, China, Hong Kong, and internationally. The Graphics segment offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; virtual GPU or vGPU software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building and operating metaverse and 3D internet applications.
Read More - Current Price
- $147.80
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 40 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $152.40 (3.1% Upside)
#4 - Broadcom (NASDAQ:AVGO)
In June, Broadcom (NASDAQ:AVGO) had a beat on both the top and bottom lines. But what is getting investors excited is that the company is more than a semiconductor company. The company generated over 75% of its business from semiconductors, but that part of the business actually declined by 4%.
But let’s not discount that part of the business. That’s because the company has a three-year partnership with Apple (NASDAQ:AAPL). And that agreement to provide $15 billion in wireless components paid off to the tune of 14% of the company’s revenue.
On the other hand, the company’s infrastructure software business rose 19%. Broadcom is growing this area through acquisition. But it looks like that strategy is paying off. The company’s margins expanded over 10% in the quarter. And a reduction in operating expenses is helping the company’s operating expenses which helped increase its operating margin by 3%.
Although Broadcom isn’t forecasting the novel coronavirus pandemic to have a significant negative affect on its business, CEO Hock Tan has said the company’s revenue forecast could be 5%-10% lower than its prior forecast.
About Broadcom
Broadcom Inc designs, develops, and supplies various semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products worldwide. The company operates in two segments, Semiconductor Solutions and Infrastructure Software.
Read More - Current Price
- $171.43
- Consensus Rating
- Buy
- Ratings Breakdown
- 25 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $192.79 (12.5% Upside)
#5 - Skyworks Solutions (NASDAQ:SWKS)
Skyworks Solutions (NASDAQ:SWKS) is not a high flier among semiconductor stocks. The stock is up just about 20% for the year. The question for investors comes down to how you feel about the company’s 5G opportunity.
Skyworks posted solid third-quarter numbers (ending in June). But in the smartphone sector the numbers were not good on a year-over-year basis. But that’s not too worrisome as that quarter tends to be the company’s worst quarter anyway.
And the company has also largely resolved any revenue it was losing from Huawei restricting which manufacturers could supply the Chinese company with parts. The company says they now only generate a small portion of its revenue from China and “the worst is behind us.”
The jury is out on whether the company can do that again. But with Apple and other companies scheduled to release new 5G phones later this year, this stock may have some room to run.
About Skyworks Solutions
Skyworks Solutions, Inc, together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products in the United States, China, South Korea, Taiwan, Europe, the Middle East, Africa, and the rest of Asia-Pacific. Its product portfolio includes amplifiers, antenna tuners, attenuators, automotive tuners and digital radios, DC/DC converters, demodulators, detectors, diodes, wireless analog system on chip products, directional couplers, diversity receive modules, filters, front-end modules, hybrids, light emitting diode drivers, low noise amplifiers, mixers, modulators, optocouplers/optoisolators, phase locked loops, phase shifters, power dividers/combiners, power over ethernet, power isolators, receivers, switches, synthesizers, timing devices, voltage controlled oscillators/synthesizers, and voltage regulators.
Read More - Current Price
- $83.29
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 14 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $101.00 (21.3% Upside)
#6 - Qorvo (NASDAQ:QRVO)
Qorvo (NASDAQ:QRVO) is another of the smaller players in the semiconductor industry. However, the company’s growth has paralleled the SOXX ETF with 16% year-to-date growth. In what will sound like a broken record, Qorvo had a solid beat when it released its third-quarter earnings report. Like Skyworks Solutions, Qorvo is more of a pure play on 5G.
Like Skyworks, Qorvo is a radio frequency (RF) chipmaker that provides RF filters, switches, and power amplifiers that are used in mobile phones. The company looks to benefit from new 5G specifications that will create an increased need for the company’s products.
The company has contracts with the world’s largest smartphone manufacturers. The demand for RF content is exploding due to 5G and QRVO stock is benefiting as a result. The company relied on Apple for 32% of its revenue in 2019.
However, Qorvo also supplies its products in applications including infrastructure, aerospace, and the Internet of Things (IoT) ecosystem.
About Qorvo
Qorvo, Inc engages in development and commercialization of technologies and products for wireless, wired, and power markets. It operates through three segments: High Performance Analog (HPA), Connectivity and Sensors Group (CSG), and Advanced Cellular Group (ACG). The HPA segment supplies radio frequency and power management solutions for automotive, defense and aerospace, cellular infrastructure, broadband, and other markets.
Read More - Current Price
- $66.39
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 13 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $102.88 (55.0% Upside)
#7 - Qualcomm (NASDAQ:QCOM)
There were many reasons to buy Qualcomm (NASDAQ:QCOM) stock before its most recent earnings report. After the company had a beat in both earnings and revenue on July 29, the stock is starting to show the promise that investors have been waiting on for the last five years.
The bullish case for Qualcomm is found in the promise of China and 5G technology. That alone should mean the stock should move higher.
It’s no secret to those in the industry that Qualcomm has been eager to sign a contract with Huawei. That has gotten done which is going to be a revenue source that the company needed. However, with the U.S.-China relationship looking to take center stage again, and in an election year no less, the stock may still face some headwinds.
The company is already trying to extend its relationship with Apple for as long as it can. After years of litigation about licensing fees, Apple is committed to using Qualcomm as its sole provider of modems for Apple’s signature iPhones.
But Apple is rapidly developing cellular connectivity technology. Qualcomm probably has a few years left, but the Huawei deal will be a useful catalyst.
About QUALCOMM
QUALCOMM Incorporated engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on 3G/4G/5G and other technologies for use in wireless voice and data communications, networking, computing, multimedia, and position location products.
Read More - Current Price
- $164.08
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 12 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $210.92 (28.5% Upside)
The companies shown in this presentation should relieve any concerns you have of a sector that is played out. Semiconductors have many catalysts for the rest of 2020. And, the demand for semiconductor products is likely to increase for many reasons.
First, it’s becoming apparent that more people will be working from home at least on a part-time basis. And major companies are migrating to cloud computing. All of this in addition to the 5G revolution will provide a catalyst for semiconductor stocks.
The remainder of 2020 will remain volatile as America gears up for a presidential election. Many of the catalysts that exist for semiconductor stocks will still exist regardless of who wins the election. However, corporations and investors hate uncertainty and so expect some choppy performance until we get a resolution. And that may not be until late November due to the expectation for a heavy load of mail-in voting.
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