Soaring demand for semiconductors has resulted in a supply crisis for over a year now. However, it has proved beneficial for chipmakers as sales have been soaring like never before.

Semiconductor sales are growing at a fast pace this year too, after an impressive 2020 and 2021, when surging demand saw global microchip sales hit record highs. Thus, stocks like Texas Instruments (TXN Quick QuoteTXN - Free Report) , Analog Devices (ADI Quick QuoteADI - Free Report) , NVIDIA Corporation (NVDA Quick QuoteNVDA - Free Report) andNXP Semiconductors (NXPI Quick QuoteNXPI - Free Report) are likely to benefit in the near term.

Semiconductor Sales Continue to Soar

The Semiconductor Industry Association (SIA) said on Mar 3 that global semiconductor sales hit $50.7 billion in January, increasing 26.8% year over year from January 2021’s total of $40 billion. John Neuffer, president and CEO of SIA, said, “Following record sales and shipments in 2021, global semiconductor sales remain strong in early 2022, reaching the second-highest monthly sales on record in January.”

Semiconductor sales had slowed down a bit prior to the pandemic but the scene changed completely after March 2020. As the pandemic struck, more people stayed indoors and worked and learned from home. This saw demand for PCs, laptops, communication devices and other electronic goods surge, resulting in higher demand for semiconductors.

January 2022 marked the 10th consecutive month of semiconductor sales rising on a year-over-year basis. Regionally, sales grew 40.2% in the Americas, 28.7% in Europe, 24.4% in China and 21% in Asia Pacific/Other on a year-over-year basis. Sales soared 18.9% in Japan.

Microchip Industry Poised to Grow

Microchip demand has been on the rise for more than a year, thanks to the pandemic-induced surge in demand for electronic goods and networking and communication equipment. Moreover, as Internet of Things (IoT), artificial intelligence, and virtual reality continue to expand in popularity, demand for microchips should soar.

Semiconductor is a key component in developing these advanced technologies. Thus, demand for semiconductors is only likely to grow in the near term. The automobile sector suffered throughout 2021 as a result of the increased demand for semiconductors, which caused carmakers to curtail production.

Although companies have been ramping up production, the supply shortage is far from over. This has seen sales jumping almost every month over the past couple of years.

According to SIA, worldwide semiconductor sales in 2021 hit a new high of $555.9 billion, growing 26.2% year over year. In 2020, semiconductor sales totaled $440.4 billion. Last year marked the first time that worldwide semiconductor sales surpassed $500 billion. A total of 1.15 trillion semiconductors were shipped in 2021.

This gives a clear picture of the underlying strength in the semiconductor industry.

Our Choices

Given the rising demand for semiconductors and continuing supply crunch, the semiconductor industry is only likely to benefit in the near term. Below are four chip stocks that investors can gain from in the current scenario.

Texas Instruments is an original equipment manufacturer of analog, mixed-signal and digital signal processing (DSP) integrated circuits. TXN has manufacturing and design facilities, including wafer fabrication and assembly/test operations in North America, Asia and Europe. Texas Instruments management’s strategy has been to build assets that would be fully utilized through their lifetimes and outsource any excess demand in peak situations to outside foundries.

Texas Instruments’ expected earnings growth rate for the current year is 10.1%. The Zacks Consensus Estimate for current-year earnings has improved 10.6% over the past 60 days. TXN holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Analog Devices is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed-signal and DSP integrated circuits. ADI’s product line is composed of amplifiers and comparators; analog to digital converters; digital to analog converters; video encoders and decoders; embedded processing products and DSPs; MEMS and temperature sensors; RF/IF components and converters; power and thermal management ICs, audio/video converters, amplifiers, CODECs, filters and processors. Analog Devices has manufacturing facilities in the United States, Ireland, and Southeast Asia.

Analog Devices’ expected earnings growth rate for the current year is 28.8%. The Zacks Consensus Estimate for current-year earnings has improved 11.5% over the past 60 days. ADI carries a Zacks Rank #2 (Buy).

NXP Semiconductors provides high-performance mixed-signal and standard product solutions that leverage its RF, analog, power management, interface, security, as well as digital processing expertise. NXPI seems well-positioned to capitalize on the level 2-5 automotive market. Additionally, NXP Semiconductors is the leader in general-purpose microcontrollers and application processors in industrial and IoT markets.

NXP Semiconductors’ expected earnings growth rate for the current year is 27.6%. The Zacks Consensus Estimate for current-year earnings has improved 8.1% over the past 60 days. NXPI carries a Zacks Rank #2.

NVIDIA Corporation is the worldwide leader in visual computing technologies and inventor of the graphic processing unit, GPU. Over the years, NVDA’s focus has evolved from PC graphics to AI-based solutions that now support high-performance computing, gaming and virtual reality platforms. NVIDIA’s GPU success can be attributed to its parallel processing capabilities supported by thousands of computing cores, which are necessary to run deep-learning algorithms.

NVIDIA’s expected earnings growth rate for the current year is 25.2%. The Zacks Consensus Estimate for current-year earnings has improved 8.6% over the past 60 days. NVDA carries a Zacks Rank #2.