Back to top

Image: Bigstock

5 Solid Stocks to Buy in a Booming Semiconductor Market

Read MoreHide Full Article

The semiconductor industry has continued to showcase its bullish run so far in 2021 amid a global supply crisis that has kept several other sectors under pressure. Globally, semiconductor industry sales in August totaled $47.2 billion, up 3.3% sequentially. On a year-over-year basis, sales surged 29.7% from the August 2020 total of $36.4 billion, according to data from the Semiconductor Industry Association (SIA).

The global semiconductor industry, which is the building block of emerging technologies including AI, ML, IoT, blockchain, and advanced quantum computing, is poised to perform well in the rest of 2021. In fact, per the latest IDC report, the global semiconductor market is now predicted to grow by 17.3% in 2021 driven by strength in end markets including mobile phones, notebooks, servers, automotive, smart home, gaming, wearables, and Wi-Fi access points, with increased memory pricing.

5G shipments continue to be the primary driver of growth in 2021 as both vendors and channels focus on 5G devices that carry a significantly higher average selling price (ASP) than 4G devices. Microchip demand is expected to get a boost with the 5G boom in Europe and parts of Asia, including China and Singapore.

New 5G smartphone devices from Apple (AAPL - Free Report) and Samsung are making the technology more accessible. Intel (INTC - Free Report) and MediaTek-supported 5G notebooks launched in 2021 are also expected to aid growth. IDC expects 5G smartphone shipments to grow to 58% in 2024 from 19% of global volume in 2020, which should act as a tailwind for the semiconductor market.

Besides, the evolution of semiconductor manufacturing processes from 10 nanometer (nm) to 7 nm and even 5 nm technology is opening new business avenues.

The accelerated rate of digital transformation, with work-from-home and web-based learning trends bolstering demand for processors utilized in enterprise laptops, data center servers, PC systems, notebooks, tablets, and smartphones, is expected to benefit chip stocks in 2021.

Notably, the broader iShares PHLX Semiconductor ETF (SOXX) is up 14.7% compared with the SPDR S&P 500 ETF's (SPY) rally of 14.6% in the year-to-date period.

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.

Year to Date Performance
 

Zacks Investment ResearchImage Source: Zacks Investment Research

Semtech Corporation (SMTC - Free Report) is a global supplier of high-performance analog and mixed-signal semiconductors, and advanced algorithms. Strength in the LoRa business, Tri-Edge platform and 10G PON products continue to drive its top-line growth. Also, this Zacks Rank #1 company’s solid traction across data center, Internet of Things and mobile markets remains a positive.

Further, product differentiation, operational flexibility, and focus on fast-growing segments as well as regions continue to drive its performance. Additionally, its expanding Pro AV offerings remain a tailwind.

The Zacks Consensus Estimate for its fiscal 2022 earnings has been revised upward by 5.8% in the past 60 days to $2.55 per share.

NVIDIA (NVDA - Free Report) is benefiting from the pandemic-induced work-from-home and learn-at-home wave. The company is poised to gain from solid demand for GeForce desktop and notebook GPUs, which is anticipated to boost gaming revenues. Moreover, a surge in Hyperscale demand is a tailwind for this Zacks Rank #2 company’s Data Center business.

Further, the solid uptake of artificial intelligence-based smart cockpit infotainment solutions is a boon. Additionally, its 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 has been revised upward by 5.8% in the past 60 days to $4.20 per share.

Applied Materials (AMAT - Free Report) is one of the world’s largest suppliers of fabrication equipment for semiconductors, flat panel liquid crystal displays (LCDs), and solar photovoltaic (PV) cells and modules.

This Zacks Rank #2 company is benefiting from strong momentum across Semiconductor Systems and Applied Global Services. Further, solid demand for silicon in several applications across various markets remains a tailwind. Additionally, the growing usage of OLED technology in smartphones, televisions and computers, remains a positive. Furthermore, increased customer spending in foundry and logic on the back of a rising need for specialty nodes in automotive, power, 5G rollout, IoT, communications and image sensor markets, is encouraging.

The Zacks Consensus Estimate for fiscal 2021 earnings has moved 4.4% north in the past 60 days to $6.84 per share.

Analog Devices’ (ADI - Free Report) communications market is anticipated to perform well in the rest of 2021, driven by strength in  consumer, industrial and automotive end-markets. Further, solid demand for high-performance analog as well as mixed-signal solutions is a tailwind.

Growing momentum in the electric vehicle space on the back of its robust Battery Management System (BMS) solutions remains a growth driver. Further, increasing power design wins are other positives. Additionally, solid momentum of the HEV platform across the cabin electronics ecosystem remains a tailwind.

The accelerated build out of TD-LTE in China, continuing 5G network densification activities in the United States and deployments in Europe are expected to aid this Zacks Rank #2 company’s communications segment.

The Zacks Consensus Estimate for fiscal 2021 earnings has been revised upward by 2.2% in the past 60 days to $2.20 per share.

Vishay Intertechnology (VSH - Free Report) is riding on the strength across its resistor, diode and opto product lines and expanding manufacturing capacities. Further, its robust magnetics offerings, which are driving growth in the specialty business, are contributing well to this Zacks Rank #2 company’s top line.

Also, expanding presence in the industrial, military and medical end-markets owing to strong resistors and capacitors is a positive. Additionally, growing opportunities for capacitors in the areas of power transmission and electro cars are tailwinds. Moreover, solid momentum of MOSFETs across the automotive market is a tailwind.

The Zacks Consensus Estimate for its 2021 earnings has been revised upward by 8.3% in 60 days’ time to $2.36 per share.