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Beyond NVIDIA: 4 Other Great Semiconductor Stocks for 2017

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The semiconductor industry, which is among the 11-sub industries in the broader technology sector, has been one of the outperformers so far this year. After an abysmal 2015 that saw iShares PHLX Semiconductor ETF (SOXX - Free Report) lose over 3.3%, stocks across the semiconductor landscape have rebounded well this year.

Notably, the ETF, which represents semiconductor stocks, has witnessed a year-to-date (YTD) gain of approximately 38.7%, while the Technology Select Sector SPDR ETF (XLK - Free Report) , which represents the overall technology sector, returned 14.5% YTD.

NVIDIA Corporation (NVDA - Free Report) remains one of the best performers in the semiconductor space. The stock has been clocking solid returns since the beginning of 2016 and has gained over 219.1% YTD, outperforming the Zacks Semiconductor-General industry’s return of just about 30.2%.

The robust performance is mainly because of the company’s phenomenal results in back-to-back quarters. This has boosted investor confidence in the stock significantly as many realized that the company is much larger than simply GPUs.

In the third quarter of fiscal 2017, the company posted earnings of 83 cents, much better than the Zacks Consensus Estimate of 57 cents. This was preceded by another significant beat of 18.9% in the second quarter, indicating that the stock is on fire.

NVIDIA’s overall revenues for the quarter surged over 53% year over year, mainly driven by strong growth registered at three of its four major segments – gaming, datacenter and automotive. Though the company has always performed well in the gaming business, which registered year-over-year growth of over 63% in the last quarter, we are mainly encouraged by overwhelming growth registered in datacenter and automotive businesses.

NVIDIA’s datacenter business revenues reached approximately $240 million in the last quarter from $82 million in the year-ago quarter, marking a massive year-over-year growth of 193%. The business is now said to be the company’s fastest-growing segment.

NVIDIA’s foray into the autonomous vehicles and other automotive electronics space has also been driving the stock higher since mid-2015. It should be noted that during the last reported quarter, the company witnessed a 61% year-over-year jump in automotive segment revenues, mainly driven by premium infotainment and digital cockpit features in mainstream cars.

Given the accelerated momentum in gaming, datacenter and automotive technology, we believe that this Zacks Rank #1 (Strong Buy) stock with a long-term EPS growth estimate of 10.3% will continue to rally.

Many would argue that NVIDIA with its hefty forward P/E valuation of 43.2x compared with the sub-industry average of 18.5x is a risky bet. We beg to differ as hefty valuations and increasing share prices do not necessarily imply that the stock does not have much upside potential left.

The stock has grabbed the spotlight with striking performances on the back of solid earnings results and strong growth projections. Keeping this in mind, we believe investing in this stock will yield strong returns for your portfolio in the short term.

Furthermore, with its sustained efforts toward attaining robust position in several emerging industries such as Artificial Intelligence (AI), deep learning and driverless cars industry, NVIDIA has outpaced other competitors in the Semiconductor-General space such as Intel Corp. (INTC - Free Report) and STMicroelectronics (STM - Free Report) in terms of growth.

Other Picks in the Industry

The U.S. economy seems to be rebounding as reflected in the recently released improved economic data for GDP; Consumer Confidence Index, unemployment rate and factory activity data. We believe that there remain tremendous growth opportunities for semiconductor stocks in 2017.

Notably, as per latest predictions from World Semiconductor Trade Statistics (WSTS), semiconductor sales are likely to increase 3% in 2017 and 2% in 2018.

Right now, the semiconductor segment has several promising stocks to choose from. Here we have picked four semiconductor stocks that have performed well in this year so far and have the potential to keep the momentum going in the next year. They also have a favorable Zacks Rank #1 or #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Coherent Inc. (COHR - Free Report) designs, manufactures, and supplies electro-optical systems and medical instruments utilizing laser, precision optic and microelectronic technologies. The EPS estimate for the current year has been revised upward to $7.34 from $5.14 per share over the last 60 days. The stock carries a Zacks Rank #1 and has a VGM Style Score “B.”

·         Year-to-date Return : 109.2%

·         Last EPS Surprise: 8.0%

·         Average 4-quarter Surprise: 10.0%

Applied Materials Inc. (AMAT - Free Report) develops, manufactures, markets and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. The EPS estimate for the current year has been revised upward to $2.37 from $2.27 per share over the last 60 days. The stock carries a Zacks Rank #1 and has a VGM Style Score “B.”

·         Year-to-date Return : 74.7%

·         Last EPS Surprise: 1.5%

·         Average 4-quarter Surprise: 4.5%

·         Long term EPS Growth Estimate: 13.7%

Microsemi Corporation is a leading designer, manufacturer and marketer of analog, mixed-signal and discrete semiconductors. The EPS estimate for the current year has been revised upward to $3.18 from $3.15 per share over the last 60 days. The stock carries a Zacks Rank #2 and has a VGM Style Score “B.”

·         Year-to-date Return : 74.3%

·         Last EPS Surprise: 5.5%

·         Average 4-quarter Surprise: 10.2%

·         Long term EPS Growth Estimate: 12.5%

Texas Instruments Inc. (TXN - Free Report) is a global semiconductor company and one of the world's leading designers and suppliers of digital signal processors and analog integrated circuits, the engines driving the digitization of electronics. The EPS estimate for the current year has been revised upward to $3.05 from $3.16 per share over the last 60 days. The stock carries a Zacks Rank #2 and has a VGM Style Score “B.”

·         Year-to-date Return : 35.1%

·         Last EPS Surprise: 9.3%

·         Average 4-quarter Surprise: 5.7%

·         Long term EPS Growth Estimate: 9.6%

Looking Ahead

The abovementioned stocks have grabbed the spotlight with striking performances supported by solid earnings results and strong growth projections. With this in mind, we believe investing in these stocks would yield strong returns for your portfolio in the short term.

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