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5 Stocks to Watch Amid the Ongoing Shortage of Semiconductors

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Semiconductors are now at the heart of many electronic devices that we use regularly, be it personal computers (“PCs”), laptops, smartphones, and the like. The automotive industry is also a major user of semiconductors as chips are an important component of vehicles. According to experts, as stated in a CNBC article, depending on the vehicle and its options, it “could have hundreds of semiconductors.”

In recent times, however, there has been a shortage of semiconductors. When the coronavirus broke out last year, people were compelled to stay at home and work remotely. This led to a surge in demand for devices like laptops and PCs. Demand for gaming also skyrocketed as people turned to at-home forms of entertainment and bought gaming consoles as well as gaming hardware for their PCs. This, in turn, shifted the supply of semiconductors to consumer electronics as automotive factories were shut when COVID-19 intensified. But when the restrictions began to gradually ease, demand for vehicles made a solid comeback as people preferred to buy their vehicles and not travel via public transport to avoid coming in contact with the virus.

As semiconductor supply had already shifted, automotive manufacturers started facing a shortage of chips. Even though the shortage mostly affected the automotive segment, other industries like consumer electronics began to face the crisis too as demand for such items remained high.

Glenn O’Donnell, a vice president research director at Forrester stated that the chip shortage could last until 2023 as demand remains high while supply remains constrained, as mentioned in another CNBC article. O’Donnell further stated that factors like growth in cloud computing and cryptocurrency mining will also bolster the demand for chips, cited the article.

But this ongoing supply-related concern should bode well for chip manufacturers and also for companies that manufacture equipment for chip making. Semiconductor sales have remained robust in 2021 and per a report by the Semiconductor Industry Association (“SIA”), global semiconductor industry sales rose 26.2% in May, on a year-over-year basis, and reached $43.6 billion. The report further stated that semiconductor sales increased 4.1% in May compared to April. John Neuffer, the SIA President and CEO stated in the report that on a three-month moving basis, the semiconductor industry shipped more units in May than during any other month before, which in turn, indicates that “semiconductor production has ramped up significantly to address rising demand.”

The International Data Corporation (“IDC”) also predicted that the semiconductor market is set to continue its solid growth this year. Per a report published by the IDC on May 6, the worldwide semiconductor market is estimated to grow 12.5% this year and reach $522 billion, following a rise of 10.8% in 2020.

5 Stocks to Watch Out For

Demand for semiconductors is expected to remain strong amid the ongoing supply-related constraints, boding well for companies that manufacture chips or the required equipment for semiconductor manufacturing. We have selected five such stocks that carry a Zacks Rank #2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Applied Materials, Inc.’s (AMAT - Free Report) Semiconductor Systems segment develops, manufactures and sells various manufacturing equipment that is used to fabricate semiconductor chips or integrated circuits. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 9.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 57.1%.

Skyworks Solutions, Inc. (SWKS - Free Report) , together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property and the company provides its products for use in the automotive, entertainment and gaming, smartphone, and other markets. It currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 0.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 68.2%.

ASML Holding N.V. (ASML - Free Report) develops, produces, markets, sells and services advanced semiconductor equipment systems consisting of lithography, metrology and inspection-related systems for memory and logic chipmakers. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 1.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 58.2%.

Texas Instruments Incorporated (TXN - Free Report) designs, manufactures and sells semiconductors to electronics designers and manufacturers worldwide. The company’s Analog segment offers high volume products comprising integrated analog and standard products, which are primarily for sale into personal electronics, industrial, and automotive markets, and so on. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 0.5% over the past 60 days. The company’s expected earnings growth rate for the current year is nearly 24%.

Taiwan Semiconductor Manufacturing Company Limited (TSM - Free Report) manufactures and sells integrated circuits and semiconductors and the company manufactures semiconductors for companies like NVIDIA. The company currently has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings increased nearly 1% over the past 60 days. The company’s expected earnings growth rate for the current year is 21.2%.

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