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Microchip Sales Continue to Soar on Higher Demand: 5 Winners

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The semiconductor industry is on a roll, with sales hitting record highs on growing demand for microchips. The boom started following the coronavirus outbreak and has been continuing since then.

Global semiconductor sales jumped yet again in May, indicating that the industry is continuing to shine at time when several others are still trying to bounce back to the pre-pandemic levels. So far, sales have grown in each month this year.

Microchip Sales Soar

According to the Semiconductor Industry Association (SIA), global semiconductors sales grew 26.2% year over year in May to $43.6 billion from $34.6 billion. On a month-over-month basis, sales grew 4.1% from April’s total of $41.9 billion.

Sales grew across all the major markets last month. On a year-over-year basis, microchip sales jumped 31.2% in Europe, 30.9% in Asia Pacific/ All Other, and 26.1% in China. Sales grew 20.9% in the Americas and 20.4% in Japan.

Microchip sales have been soaring on higher demand as the pandemic saw people spending huge amounts on electronic goods including videogames. Also, China — one of the biggest markets for chipmakers — has rebounded in a big way after an initial slowdown during the early months of the pandemic.

Semiconductor Sales Poised to Grow

Smartphone sales, which had slowed down earlier last year, gathered momentum after the economies started reopening following the lockdown. This drove semiconductor sales by a huge margin. Moreover, carmakers that had taken a massive hit during the initial months of the pandemic, started speeding up production once the economies started reopening. This saw demand for semiconductors soar further.

In fact, the industry is now faced with another challenge. Soaring demand for semiconductors has resulted in a supply crunch for microchips, which is now affecting vehicle production as many automakers have been compelled to slash output.

This, however, is a positive sign for the microchip makers as higher demand means constant supply. Also, the U.S. government has addressed the issue of semiconductor shortage and pledged to pump in more money to boost production and supply of semiconductors.

However, the crisis is far from over. The pandemic saw people working and learning from home, which gave a boost to the sales of PCs and other personal gadgets, thus spurring demand even more.

The World Semiconductor Trade Statistics (WSTS) has projected semiconductor sales to grow in the coming months. According to the WSTSSpring 2021 global semiconductor sales forecast, semiconductor sales are expected to increase 19.7% to $527.2 in 2021 from $440.4 billion in 2020.

The WSTS has also said that as the gap between demand and supply narrows, growth will somewhat slow but still be high. WSTS projects global semiconductor sales to grow 8.8% in 2022.

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.

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

The company’s expected earnings growth rate for the current year is 59%. The Zacks Consensus Estimate for current-year earnings has improved 17.3% over the past 60 days. Nvidia has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank  stocks here.

Semtech Corporation’s (SMTC - Free Report) devices are used in a variety of applications including computer, communications, industrial, military-aerospace and automotive. The company also provides a limited amount of wafer foundry services to other electronic component manufacturers.

The company’s expected earnings growth rate for the current year is 37.1%. The Zacks Consensus Estimate for current-year earnings has improved 3% over the past 60 days. Semtech 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 19.4%. The Zacks Consensus Estimate for current-year earnings has improved 5.6% over the past 60 days. Microchip Technology has a Zacks Rank #2.

Vishay Intertechnology, Inc. (VSH - Free Report) is a global manufacturer and supplier of semiconductors and passive components. Its products include metal oxide semiconductor field-effect transistors, Diodes and Optoelectronic Components.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 13.6% over the past 60 days. Vishay Intertechnology has a Zacks Rank #2.

ON Semiconductor Corporation (ON - Free Report) is an original equipment manufacturer of a broad range of discrete and embedded semiconductor components.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 45.9% over the past 30 days.ON Semiconductors holds a Zacks Rank #2.

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