The Zacks Electronics - Semiconductors industry players are benefiting from the growing proliferation of AI, Generative AI (Gen AI), IoT, Machine Learning (ML) and industrial revolution 4.0 (which focuses on interconnectivity and automation). These have turned out to be boons for industry players like Broadcom (AVGO Quick QuoteAVGO - Free Report) , Applied Materials (AMAT Quick QuoteAMAT - Free Report) and Credo Technology (CRDO Quick QuoteCRDO - Free Report) . Increasing demand for AI-supportive chips from hyperscalers is a major growth driver. Accelerating AI-related spending by hyperscalers bodes well for these stocks. The growing demand for high-volume consumer electronic devices, including digital media players, smartphones, tablets, efficient packaging, machine vision solutions and robotics, should continue to drive the industry’s growth. However, the industry is suffering from macroeconomic challenges and growing geopolitical tensions. Tariffs on trade partners, including China, are expected to hurt the industry’s prospects.

Industry Description

The Zacks Electronics – Semiconductors industry 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 that include consumer electronics, communications, computing, industrial and automotive. The companies are increasing their spending on research and development to stay afloat in an era of technological advancements and changing industry standards. The industry is experiencing solid demand for advanced electronic equipment, which is helping its participants increase their investments in cost-effective process technologies.

What's Shaping the Future of the Electronics ??? Semiconductors Industry?

AI Demand Driving Prospects: Industry participants are benefiting from growing demand for advanced manufacturing processes and energy-efficient computing power, both of which are needed to develop AI-supportive chips. AI is gaining popularity thanks to multimodal learning and growing context awareness. The emergence of Gen AI and Agentic AI has further enhanced AI’s capabilities, making it a key driver of efficiency, automation and innovation. Significant improvements in computing hardware (GPUs and TPUs) are allowing the development of more complex AI models. The growing number of high-speed data centers worldwide, which require ultra-fast Internet that 5G promises to deliver, is a tailwind. Spending on AI infrastructure is expected to accelerate in 2026 as enterprises continue to leverage AI as part of their digital transformation efforts.

Smart Devices Aiding Computing Demand: Smart devices need computing and learning capabilities to perform functions like face detection, image recognition and video analytics capabilities. These require high levels of processing power, speed and memory and low power consumption, as well as better graphics processors and solutions, which bode well for the industry. Graphic solutions help increase the speed of rendering images and improve image resolution and color definition.

Prospects Around Advanced Packaging Robust: The increasing demand for miniaturization, greater functionality, lower power consumption, and improved thermal and electrical performance are driving the demand for semiconductor packaging and test technologies. The growing requirement for advanced packaging is gaining traction in the semiconductor industry, which is a key catalyst for industry participants.

Complex Process Drives Demand: The requirement for faster, more powerful and energy-efficient semiconductors is expected to increase rapidly with the robust adoption of cloud computing, IoT and AI. Semiconductor manufacturers are primarily looking to maximize manufacturing yields at lower costs, making semiconductor manufacturing processes more complex and driving the demand for solutions offered by industry participants. The rapid adoption of IoT-supported factory automation solutions is another contributing factor. 

Zacks Industry Rank Indicates Bright Prospects

The Zacks Electronics - Semiconductors industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #95, which places the industry in the top 39% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

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 Aug. 31, 2025, the industry’s earnings estimates for the current year have moved up 25.6%.

Given the bullish prospects, there are a number of stocks that investors can consider for their portfolio. However, before we present the stocks, let us look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms S&P 500 & Sector

The Zacks Electronics - Semiconductors industry has outperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.

The industry has appreciated 115.9% over this period compared with the Zacks Computer and Technology sector’s return of 52.6% and the S&P 500’s rise of 33.2%.

One-Year Price Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing electronics semiconductor stocks, the industry is currently trading at 33X versus the S&P 500 and the sector’s 22.08X and 25.32X, respectively.

Over the past five years, the industry has traded as high as 39.95X and as low as 11.13X, with the median being 21.82X, as the charts below show.

Forward 12-Month Price-to-Earnings (P/E) Ratio

 

 

 

3 Electronics Semiconductor Stocks to Buy

Broadcom: This Zacks Rank #1 (Strong Buy) stock is experiencing strong momentum fueled by growth in AI semiconductors and continued success with its VMware integration. You can see the complete list of today’s Zacks #1 Rank stocks here.

Strong demand for its networking products and custom AI accelerators (XPUs) has been noteworthy. AVGO’s AI segment benefits from custom accelerators and advanced networking technology that support large-scale AI deployments with improved performance and efficiency.

Broadcom expects second-quarter fiscal 2026 AI revenues to surge 140% year over year to $10.7 billion, driven by strong demand for custom AI accelerators. The company’s shares have appreciated 21.4% year to date. The Zacks Consensus Estimate for AVGO’s fiscal 2026 earnings has increased 1.5% to $11.45 per share over the past 30 days.

Price & Consensus: AVGO

 

Credo Technology: Another Zacks Rank #1 stock, Credo is benefiting from strong AEC adoption, hyperscaler traction and an expanding IC portfolio, including retimers and optical DSPs. New offerings like ZeroFlap (ZF) optics, ALCs and OmniConnect further extend long-term opportunity.

Revenues are rapidly expanding, with implied visibility toward $1.3 billion in fiscal 2026 and more than 50% growth into fiscal 2027, aided by an earlier-than-expected ZF optical ramp and a deepening product roadmap. The DustPhotonics acquisitions will enhance Credo Technology’s silicon photonics capabilities.

Credo Technology has appreciated 28.9% year to date. The Zacks Consensus Estimate for CRDO’s fiscal 2026 earnings has remained unchanged at $3.30 per share over the past 30 days.

Price & Consensus: CRDO

 

Applied Materials: This Zacks Rank #2 (Buy) company is benefiting from an expanding product portfolio. In order to maintain Moore’s Law and further shrink devices, semiconductor companies have had to innovate not just on the process side but also on materials technology, thus expanding the wafer fab equipment. This is naturally a big positive for an equipment supplier like Applied Materials because it expands the total wafer fab equipment market, thus increasing opportunities.

Applied Materials is well-positioned to capitalize on the growing demand for ICAPS (IoT, Communications, Automotive, Power and Sensors) technologies, a market segment experiencing rapid expansion driven by AI, electrification and automation trends. With semiconductor content increasing in electric vehicles (EVs), industrial automation and edge computing, Applied Materials’ expertise in specialty process technologies, power semiconductor fabrication and advanced packaging solutions gives it a strong competitive edge.

Applied Materials stock has appreciated 57.1% year to date. The Zacks Consensus Estimate for AMAT’s fiscal 2026 earnings has been steady over the past 30 days at $11.10 per share.

Price & Consensus: AMAT