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Cloud Services Driving Semiconductor Demand: 4 Solid Picks

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The coronavirus pandemic is keeping everyone indoors, helping the remote working and learning culture gain prominence. Naturally, the only two things that the world needs now are a vaccine and wi-fi!

Given the growing cloud dependency, companies that have successfully managed to shift data and information to the technological and digital platforms are emerging as winners. The growing demand for cloud services has encouraged most tech companies with data centers to enhance their capacities, which is also helping chipmakers.

Pandemic Pushing Semiconductor Demand

The pandemic has kept almost everyone indoors, with technology dominating people’s daily lives. Online services have got a boost, leading to increased use and huge demand for high-performance computer applications (HPC), gaming devices and peripherals, wearables, drones, and VR/AR devices. This has resulted in escalated demand for semiconductors.

Also, the evolution of semiconductor manufacturing processes from 10 nanometer (nm) to 7 nm and even 5 nm technology is opening new business avenues. Increasing demand for electronic gadgets ranging from television sets, smartphones to videogames during the pandemic is further helping chipmakers.

Semiconductor Sales on the Rise

With the economy reopening, sales of smartphones rebounding in markets like China and more people spending time on their mobile phones, the semiconductor industry might stand to benefit in the near term. Worldwide sales of semiconductors increased 5.1% in June to $34.5 billion from $32.9 billion a year earlier.

Per the IDC Semiconductor Applications Forecaster, the coronavirus outbreak is going to impact the industry. Slowing smartphone sales during the coronavirus pandemic was a cause of concern for not only mobile manufacturers but also chipmakers. However, this is slowly changing with economies finally opening up.

China — one of the biggest markets for chipmakers — is also rebounding. Moreover, microchip demand is likely to get a boost with the 5G boom in Europe and parts of Asia, including China and Singapore. IDC expects 5G volumes to grow this year which should act as a tailwind to the semiconductor market.

Our Choices

Considering the growth prospects of chip makers on a data center boom and HPC push, it makes sense to invest here for long-term gains. Here, we have shortlisted four stocks that are incredible for investing at the moment.

Maxim Integrated Products, Inc. (MXIM - Free Report) has a broad product portfolio that includes analog-to-digital converters, amplifiers and comparators, communications devices, data converters and management components, sensors and wireless products.

The company’s expected earnings growth rate for next year is 9.7%. The Zacks Consensus Estimate for current-year earnings has improved 12.2% over the past 60 days. Maxim Integrated Products has a Zacks Rank #2 (Buy).

Analog Devices, Inc. (ADI - Free Report) is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed signal and DSP integrated circuits.

The company’s expected earnings growth rate for next year is 18%. The Zacks Consensus Estimate for current-year earnings has improved 9.6% over the past 60 days. Analog Devices carries a Zacks Rank #2.

Texas Instruments Incorporated (TXN - Free Report) is an original equipment manufacturer of analog, mixed signal and digital signal processing integrated circuits.

The company’s expected earnings growth rate for next year is 5.5%. The Zacks Consensus Estimate for current-year earnings has improved 26.6% over the past 60 days. Texas Instrumentssports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation (NVDA - Free Report) is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that now support HPC, gaming and virtual reality platforms.

The company’s expected earnings growth rate for the current year is 36.4%. The company’s shares have gained 20.3% over the past 30 days. NVIDIA has a Zacks Rank #2.

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