Semiconductor sales have been slowing over the past few months. However, 2022 still emerged as one of the strongest years for the industry. In reality, semiconductor sales had one of their best years ever regionally owing to robust demand.

Demand is still robust, which has been assisting in boosting sales despite worries that the semiconductor market may shrink now that the supply-chain issue has significantly subsided. Also, the United States is working to increase its semiconductor manufacturing output in order to become self-sufficient, thanks to a new law that was developed last year with this aim. Given this situation, semiconductor stocks like Analog Devices (ADI Quick QuoteADI - Free Report) , Microchip Technology (MCHP Quick QuoteMCHP - Free Report) , Silicon Laboratories Inc. (SLAB Quick QuoteSLAB - Free Report) and STMicroelectronics N.V. (STM Quick QuoteSTM - Free Report) are likely to benefit in the near term.

Semiconductor Sales Growing

According to SIA, worldwide semiconductor sales increased 3.2% to $573.5 billion in 2022 from $555.9 billion in 2021, according to data released on Feb 3. Although global semiconductor sales declined both in the fourth quarter and December, demand for semiconductors has remained high almost throughout the year.

Year over year, sales dropped $130.2 billion or 14.7% in the fourth quarter of 2022. According to SIA, the semiconductor market in 2022 experienced major ups and downs, with sales falling off in the second half of the year.

“Despite short-term fluctuations in sales due to market cyclicality and macroeconomic conditions, the long-term outlook for the semiconductor market remains incredibly strong, due to the ever-increasing role of chips in making the world smarter, more efficient, and better connected,” said John Neuffer, SIA president and CEO.

Semiconductor sales skyrocketed soon after the COVID-19 outbreak in March 2020. There was a rise in the demand for communication tools and accessories as more people studied and worked from home. A large part of demand was also driven by the auto industry.

High demand coupled with lockdowns in several countries resulted in a shortage of semiconductors. This resulted in a supply-chain crisis and manufacturers struggled to meet the demand from several industries.

However, over the past year, the issue has largely been resolved, which brought down the pressure of high demand from different industries.

Besides, a number of interrelated issues, such as rising prices, geopolitical tensions, and pandemic aftereffects, have combined to cause the current short-term decline. These elements have influenced consumer spending, macroeconomic uncertainty and swings in semiconductor demand.

For instance, the demand for semiconductors that power consumer gadgets like PCs, cellphones, and tablets have declined along with household expenditure on those items.

Even then, demand for semiconductors is quite high, which is driving sales.

Additionally, the need for semiconductors is being fueled by the development of technologies like artificial intelligence, machine learning and the Internet of Things.

Our Choices

Given the continued demand, it would be wise to invest in semiconductor stocks. Below are four chip stocks that investors can gain from in the current scenario.

Analog Devices is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed-signal and digital signal processing (“DSP”) integrated circuits. ADI’s product line comprises 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 also offers analog, digital and RF switches and multiplexers; analog microcontrollers; clock and timing products.

Analog Devices’ expected earnings growth rate for the current year is 8.5%. The Zacks Consensus Estimate for current-year earnings has improved 6.4% over the past 60 days. ADI carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Microchip Technology has been consistently benefiting from the strength in analog and microcontroller businesses. MCHP’s dominance in 8, 16, and 32-bit PIC microcontrollers remains a major driver of top-line and bookings growth. Microchip Technology has acquired notable companies like Tekron International, Microsemi and Atmel to add strength to its product offerings.

Microchip Technology’s expected earnings growth rate for the current year is 29.9%. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the past 60 days. MCHP currently sports a Zacks Rank #1.

Silicon Laboratories Inc. is a leading provider of silicon, software and solutions for the Internet of Things, Internet infrastructure, industrial automation, consumer and automotive markets. SLAB solves the electronics industry's toughest problems, providing customers with significant advantages in performance, energy savings, connectivity and design simplicity.

Silicon Laboratories’ expected earnings growth rate for the current year is 4.4%. The Zacks Consensus Estimate for current-year earnings has improved 25.3% over the past 60 days. MCHP currently has a Zacks Rank #2.

STMicroelectronics N.V. is a global independent semiconductor company which designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices. STM’s products are used in a wide variety of microelectronic applications, including telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems

STMicroelectronics’ expected earnings growth rate for next year is 4.2%. The Zacks Consensus Estimate for current-year earnings has improved 6.6% over the past 60 days. STM currently has a Zacks Rank #2.