Back to top

Image: Bigstock

5 Semiconductor Stocks to Buy as Supply Shortage Boosts Demand

Read MoreHide Full Article

Massive demand and sales of electronic goods during the pandemic have led to a supply crunch for semiconductors, one of the most integral elements of the infotainment system. So much so that now carmakers are struggling to procure semiconductors, which may hamper the production of parts and vehicles around the world.

There are multiple reasons behind this shortage. At the same time, the semiconductor market has been doing quite well and is one of the least pandemic-ravaged industries, much like the tech sector. Needless to say, semiconductors will be in high demand in the coming days but a further supply crunch may compel automakers to go for production cuts.

Semiconductor Shortage Affecting Auto Industry

The automotive industry has already suffered a lot as factories remained closed for weeks and production came to a halt following the coronavirus outbreak. Now, as things are finally starting to look up, carmakers are faced with another roadblock in the form of a shortage in the supply of semiconductors.

Microchips are an integral part of both the auto industry as well as the infotainment industry. As people remained locked up in their homes during the pandemic, demand for consumer electronic goods shot up, thus driving sales of microchips. This saw demand for microchips growing and resulting in a shortage of supply.

Also, production of semiconductors came to a halt during the initial days of the pandemic, which has deepened the crisis. The recovery of the automotive sector was faster than projected, due to pent-up demand during the shutdown period, which is now hampering the balance between demand and supply.

Auto giants like Ford Motor Company (F - Free Report) , Nissan (NSANY - Free Report) and Toyota Motors (TM - Free Report) , and several others are already facing production constraints amid a shortage of semiconductors and are thus being compelled to delay the production of some of their models.

Semiconductor Industry Thriving

While the auto sector has been struggling, the semiconductor industry has been one of the biggest beneficiaries of the pandemic, demand outpacing supply. In fact, high demand helped the microchip industry’s revenues to rebound in 2020. According to a preliminary report from Gartner, global semiconductor revenues hit $449.8 billion in 2020, marking an increase of 7.3% from 2019. This follows a 12% decline in 2019.

In fact, the lockdown, and work and learn-from-home culture gave a boost to microchip sales. Although the overall smartphone market slowed down, strong sales of 5G smartphones further helped in driving microchip sales. Also, microchip demand has been getting a boost from the 5G boom in Europe and parts of Asia, including China and Singapore.

Our Choices

The semiconductor market is likely to continue thriving in 2021. Below are five chip stocks that investors can gain from in the current scenario.

Micron Technology, Inc. (MU - Free Report) through global brands, namely Micron, Crucial and Ballistix, manufactures and markets high-performance memory and storage technologies including Dynamic Random Access Memory, NAND flash memory, NOR Flash, 3D XPoint memory and other technologies.

The company’s expected earnings growth rate for next year is 36.4%. The Zacks Consensus Estimate for current-year earnings has improved 44% over the past 60 days. Micron sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Maxim Integrated Products, Inc. (MXIM - Free Report) is an original equipment manufacturer of semiconductor analog and mixed-signal integrated circuits. The company 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 the current year is 24.8%. Its shares have gained 8.6% in the past 30 days. Maxim Integrated Products holds a Zacks Rank #2 (Buy).

Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report) is the world's largest dedicated integrated circuit foundry. It manufactures proprietary IC designs using its advanced production processes.  

The company’s expected earnings growth rate for the current year is more than 18.3%. The Zacks Consensus Estimate for current-year earnings has improved 9.3% over the past 60 days. Taiwan Semiconductor has a Zacks Rank #2.

Semtech Corporation (SMTC - Free Report) manufactures and markets a wide range of analog and mixed-signal semiconductors for commercial applications.

The company’s expected earnings growth rate for the current year is more than 27.8%. The Zacks Consensus Estimate for current-year earnings has improved 3.6% over the past 60 days. Semtech Corporation has a Zacks Rank #2.

Microchip Technology Incorporated (MCHP - Free Report) develops and manufactures microcontrollers, memory, and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks.

The company’s expected earnings growth rate for the current year is more than 12.8%. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the past 60 days. Microchip Technology has a Zacks Rank #2.

+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities

In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.

Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.

Click here to download this report FREE >>