The semiconductor space has witnessed strong growth so far this year driven by a rapid shift to digitization and spurring demand for various products and devices dependent on chips for their functioning.
The broader iShares PHLX Semiconductor ETF (SOXX) is up 24.2%, while SPDR S&P Semiconductor ETF (XSD), which tracks the S&P Semiconductor Select Industry Index, has gained 21% year to date. Semiconductors are the building blocks of most emerging technologies like artificial intelligence (AI) and Internet of Things (IoT). In fact, semiconductors are setting the pace for technology modernization, in turn, digitizing healthcare, transport, financial systems, defense, agriculture, and retail, among others. The robust adoption of cloud computing, autonomous vehicles, advanced driver assisted systems, gaming, wearables, drones and VR/AR devices is fueling massive growth in the semiconductor space. The accelerated deployment of 5G technology — the next-generation wireless revolution — is driving growth as well. Growth in demand for cloud services fueled by coronavirus-induced work-and-learn-from-home necessity and increased usage of online services globally have compelled data center operators to bolster their cloud-storage capacities. This has boosted demand for data-center chips from data center operators. Although global chip shortage is hurting industries like auto, the evolution of semiconductor manufacturing processes from 10 nanometer (nm) to 7 nm to 5 nm and even 3 nm technology is opening up new business avenues. Per the latest report from the Semiconductor Industry Association, global semiconductor industry sales were $45.4 billion in the month of July 2021, up 29.0% year over year. The momentum is expected to continue per the latest data from The World Semiconductor Trade Statistics (WSTS), which expects the world semiconductor market to jump 25.1% from 2020 driven by memory, analog and logic. For 2022, growth is currently projected at 10.1% based on double-digit growth of the memory solutions. Our Picks
Here we pick five semiconductor stocks that are well-positioned to benefit from the above-mentioned trends. Apart from having strong fundamentals, these stocks sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here. Silicon Motion Technology ( SIMO Quick Quote SIMO - Free Report) – This Zacks Rank #1 company is riding on solid demand for its solid-state drive controllers as well as eMMC and UFS controllers. Growing adoption of embedded memory controllers amid uptick in smartphone sales is a positive. Increased PC sales triggered by online learning and work-from-home wave augur well. New design wins for PCIe Gen4 SSD controllers from NAND makers also bode well. The Zacks Consensus Estimate for the company’s 2021 earnings is pegged at $5.90 per share, up 16.4% over the past 60 days.
NVIDIA ( NVDA Quick Quote NVDA - Free Report) – This Zacks Rank #2 company is benefiting from the coronavirus-induced work-from-home and learn-at-home wave. Moreover, a surge in Hyperscale demand remains a tailwind for the company’s Data Center business. Expansion of NVIDIA GeForce NOW is expected to expand user base. Solid uptake of AI-based smart cockpit infotainment solutions is a boon. Collaboration with Daimler-owned Mercedes-Benz is expected to further strengthen NVIDIA’s presence in the autonomous vehicles and other automotive electronics space. The Zacks Consensus Estimate for its fiscal 2022 earnings is pegged at $4.20 per share, up 5.5% over the past 60 days.
Advanced Micro Devices ( AMD Quick Quote AMD - Free Report) – Another Zacks Rank #2 the company is riding on robust performance by the Computing and Graphics, and Enterprise Embedded and Semi-Custom segments. It is benefiting from strong sales of its Ryzen and EPYC server processors owing to increasing proliferation of AI and Machine Learning in industries like cloud gaming and supercomputing domain. Moreover, a growing clout of 7 nm products in the data center vertical, driven by work-from-home and online learning trends, is a key catalyst. The Zacks Consensus Estimate for its 2021 earnings is pegged at $2.50 per share, up 15.7% over the past 60 days.
Skyworks Solutions ( SWKS Quick Quote SWKS - Free Report) – The company is benefiting from accelerated 5G deployment and increasing demand for Wi-Fi 6 solutions. Its Sky5 product portfolio is facilitating several 5G smartphone launches and its offerings have been selected by Samsung, VIVO, and Xiaomi and other Tier-1 players. Additionally, Skyworks’ diversified portfolio positions it well to capitalize on momentum witnessed across telemedicine, and remote work, online learning, and video streaming triggered by the coronavirus crisis. The consensus mark for 2021 earnings of this Zacks Rank #2 company is pegged at $10.42 per share, up 1.2% over the past 60 days.