Electronics - Semiconductors industry has been benefiting from the solid adoption of laptops, notebooks, office equipment and network peripherals throughout the world. The growing proliferation of AI, Machine Learning (ML) and industrial revolution 4.0 (which focuses on interconnectivity and automation) has turned out to be a boon for industry players like Broadcom ( AVGO Quick Quote AVGO - Free Report) , Advanced Micro Devices ( AMD Quick Quote AMD - Free Report) , Lattice Semiconductor ( LSCC Quick Quote LSCC - Free Report) and Diodes ( DIOD Quick Quote DIOD - Free Report) . The growing demand for high-volume consumer electronic devices such as digital media players, smartphones, tablets, efficient packaging, machine vision solutions, and robotics should continue to drive the industry’s growth. Industry Description
The Zacks Electronics – Semiconductors industry primarily comprises companies that provide a wide range of semiconductor technologies. Their offerings include packaging and test services, wafer cleaning, factory automation, face detection, and image-recognition capabilities to develop smart and connected products.The industry participants primarily cater to end-markets constituting consumer electronics, communications, computing, industrial and automotive. Notably, the companies are increasing their spending on research and development in order to stay afloat in an era of technological advancements and changing industry standards. The underlined industry is experiencingsolid demand for advanced electronic equipment, which is helping its participants to increase their investments in cost-effective process technologies.
What's Shaping the Future of the Electronics - Semiconductors Industry?
Smart devices need computing and learning capabilities to perform smart functions like face detection, image recognition and video analytics capabilities. These require a high level of processing power, speed, memory and low power consumption. In addition, these require better graphic processors and solutions, which bode well for the industry. Graphic solutions help in increasing the speed of rendering images, and improving image resolution as well as color definition. Smart Devices Aiding Computing Demand: The increasing demand for miniaturization, greater functionality, lower power consumption, and improved thermal as well as electrical performance are driving the demand for semiconductor packaging as well as test technologies. The growing requirement of advanced packaging is gaining traction in the semiconductor industry, which is a key catalyst for the industry participants. Prospects Around Advanced Packaging Solid: Electronics aid the efficiency and automation of almost any work, rendering it virtually ubiquitous these days. The current scenario seems to have favored the industry, which has been gaining from an increased demand for electronic goods and appliances, fueled by the coronavirus-induced safety rules, and precautions. The ongoing global digital wave has been driving growth of electronic components and cloud services, thereby, benefiting the industry. Solid Adoption of Electronic Goods a Tailwind: Zacks Industry Rank Indicates Impressive Prospects
The Zacks Electronics - Semiconductors industry is housed within the broader Zacks
Computer and Technology sector. It currently carries a Zacks Industry Rank #106, which places it in the top 42% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Apr 30, 2021, the industry’s earnings estimates for the current year have moved up 0.9%. Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture. Industry Outperforms S&P 500 & Sector
The Zacks Electronics - Semiconductors industry has surpassed the Zacks S&P 500 composite as well as the broader Zacks Computer and Technology sector over the past year.
The industry has gained 48.5% over this period compared with the S&P 500’s rise of 38.3%. The broader sector has advanced 48.2% in the said period. One-Year Price Performance Image Source: Zacks Investment Research
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing electronics semiconductors stocks, the industry is currently trading at 21.52X versus the S&P 500 and the sector’s 22.1X and 28.41X, respectively.
Over the past five years, the industry has traded as high as 29.47X, as low as 5.59X and recorded a median of 12.06X, as the charts below show. Forward 12-Month Price-to-Earnings (P/E) Ratio
Image Source: Zacks Investment Research 4 Electronics Semiconductor Stocks to Keep a Close Eye on
Broadcom: The San Jose, CA-headquartered designer, developer and global supplier of a broad range of semiconductor devices is riding on the continued strength across both Semiconductor solutions and Infrastructure software verticals. The robust adoption of Wi-Fi 6 in access gateway and cable DOCSIS 3.1 products is a major positive. Acceleration in 5G deployment, production ramp-up and an increase in radio frequency content favor prospects. This Zacks Rank #2 (Buy) company is well-positioned to capitalize on the increased spending by telecommunication companies in modernizing infrastructure and enhancing Edge and core networks as well as higher cloud spending by data centers. Broadcom has returned 54.4% in the past year. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings moved north by 0.4% to $27.58 per share over the last 30 days. Price and Consensus: AVGO Image Source: Zacks Investment Research
Advanced Micro Devices: The Santa Clara, CA-based company is gaining from solid momentum across its Ryzen and EPYC server processors. The company remains well-poised to capitalize on the increasing adoption of AI and ML in industries like cloud gaming and supercomputing domain on the back of these processors. This Zacks Rank #2 company is positioned well to gain significantly from the growing clout of 7-nanometer products in the data center vertical, driven by work-from-home and online learning trends. Advanced Micro Devices has returned 33.6% in the past year. The Zacks Consensus Estimate for the company’s 2021 earnings moved north by 0.5% to $2.17 per share over the last 30 days. Price and Consensus: AMD Image Source: Zacks Investment Research
Lattice Semiconductor: The Hillsboro, OR-based company is gaining from strong momentum across a number of different OEM server platforms. Advancement in its products, which are highly utilized in server and client-computing platforms, remains a major positive. This Zacks Rank #2 company is well-poised to gain solid traction among client computing platforms on the back of support provided for functions like security, video bridging and IO aggregation in different form factors. Lattice Semiconductor has returned 70.8% in the past year. The Zacks Consensus Estimate for the company’s 2021 earnings moved north by 1.2% to 87 cents per share over the last 30 days. Price and Consensus: LSCC Image Source: Zacks Investment Research
Diodes: The Plano, TX-based company is benefiting from its well-performing Pericom product line, which is driving its prospects in the computing end-market. The robust adoption of high-speed interfaces in the IoT industry, which is bolstering the demand for ESC protection devices, remains a tailwind. This Zacks Rank #2 company, which offers diodes, rectifiers, transistors, MOSFETs, GPP bridges and GPP Rectifiers, to name a few, is gaining from the growing proliferation of connected cars, high-end servers, and storage and 5G. Diodes has returned 46.4% in the past year. The Zacks Consensus Estimate for the company’s 2021 earnings has been unchanged at $4.24 per share over the past 30 days. Price and Consensus: DIOD
Image Source: Zacks Investment Research