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5 Semiconductor Stocks Poised to Grow Despite Macro Woes

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The global semiconductor market has faced major ups and downs in 2019. Macro environment uncertainties, including the U.S.-China trade war, Brexit-related headwinds, weak smartphone and server demand, have affected the industry significantly.

Memory prices continue to weaken despite measures taken by chipmakers to contain the impact, including production cut and delayed capital spending. Memory sales, which contribute about 30% of the semiconductor revenues, are expected to plunge 30.6% to $109.5 billion in 2019.

Moreover, the U.S. government’s decision to blacklist Huawei in May this year hurt a number of semiconductor companies like Micron (MU - Free Report) , Intel and Broadcom. Notably, the U.S.-based semiconductor companies constitute 36% of Huawei suppliers. Thus, banning such a sizeable customer negatively impacted top-line growth.

Silver Lining

Per a report by Asian Review, the global market for semiconductors is likely to contract 12.1% to $412 billion in 2019 due to growing economic uncertainties, especially from the U.S.-China trade war.

However, the industry is expected to return to growth as IoT, 5G wireless technology and autonomous automobiles take root.

A key factor driving the expected growth of the global semiconductor market is the rising adoption of semiconductor integrated circuits (ICs) in automobiles. Per an Allied Market Research report, the global autonomous vehicle market is expected to reach $556.67 billion by 2026 at a CAGR of 39.47% from 2019 to 2026.

Integration of advanced systems such as collision warning system, smart cameras and autonomous braking system, which are on the rise, should boost the demand for semiconductor ICs. This is likely to result in a CAGR of 9% for the industry between 2019 and 2023, per Technavio.

Moreover, the 5G chipset market and 5G networks go hand in hand. Therefore, technological advancement and growth in commercialization of 5G networks will allow the 5G chipset space to gain immensely.

Per Markets and Markets report, the 5G chipset market is estimated to be worth $22.41 billion by 2026 and is valued at $2.03 billion for 2020. Thus, the 5G chipset market is expected to witness a CAGR of 49.2% between 2020 and 2026.

Further, 5G adoption beyond mobile is likely to foster demand for memory and storage, particularly in IoT devices, wireless infrastructure and data centers. With progress in customer inventory adjustments in most of the end markets, bit demand for DRAM is expected to return to healthy year-over-year growth in second-half 2019. Moreover, demand elasticity is expected to lead to stabilization in the NAND market.

Key Picks

Here we have picked five semiconductor stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy), with strong fundamentals, which are poised to gain from the aforesaid opportunities. Moreover, these five stocks have outperformed the S&P 500 Index year to date.

Year-To-Date Performance

Fabless semiconductor supplier Cirrus Logic (CRUS - Free Report) anticipates a steady uptick in revenues generated by Android customers, backed by content gains from various OEMs, despite sluggish smartphone demand. Its growing share in the Android market and new product development activities are expected to be key catalysts. The company’s strong product portfolio comprising audio, voice and other adjacent market items, such as haptics, is a major growth driver. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Micron is likely to benefit strongly from 5G adoption, advent of the foldable phones and advanced cameras. While slowdown in global auto sales is a woe, rising demand for in-vehicle infotainment and advanced driver assistance systems (ADAS) is likely to drive content growth. This encourages us about this Zacks Rank #2 stock’s prospects.

Ambarella (AMBA - Free Report) is well known for its high-performance video processing System on Chip (SoCs). The company’s deep technical expertise in camera-based SoCs, combined with a growing demand for ADAS is resulting in design wins for automated parking systems. Ambarella expects demand for security cameras with computer vision capability to grow, giving it an opportunity to increase its value contribution per camera, and hence boost its top line. The company carries a Zacks Rank #2.

MACOM Technology (MTSI - Free Report) offers modulator drivers, lasers, silicon photonics and solutions for the data center market, which has a high demand for complete chip-set solutions. Despite the suspension of its shipments to Huawei, it is witnessing solid demand for components that enable 100GB connectivity in the data centers and service provider markets. This Zacks Rank #2 stock expects expansion in the shipment of 100GB ports in the near term.

Lattice Semiconductor (LSCC - Free Report) develops and sells semiconductor technologies in Asia, Europe and the Americas. This Zacks Rank #2 stock continues to benefit from early 5G deployments in the communications markets. Moreover, the company’s strengthening momentum across industrial automation, robotics and automotive electronics is likely to aid its performance in the industrial and auto markets.

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