The coronavirus (Covid-19) pandemic has induced unprecedented volatility in the financial markets.
Investors, particularly, are having a tough time sailing through the current market turbulence. However, the panic-driven sell-off has created solid buying opportunities.
In this regard, semiconductors, the backbone of the current-day technology-driven economy, are among the few industries expected to rebound faster with handsome returns. According to World Semiconductor Trade Statistics (WSTS), annual global semiconductor sales are expected to witness growth of 5.9% in 2020 and 6.3% in 2021.
Let’s dig deeper to understand what makes the semiconductor space so fundamentally attractive.
Data-Center, PC Demand Fueling Chip Sales
The lockdown situation has spurred chip demand from PC manufacturers and data-center operators.
Shift in consumer preference for Internet-based services attributed to social distancing will likely increase demand for smartphones, PCs, notebooks and peripheral accessories.
Furthermore, growing demand for hardware that facilitates work-from-home setting is a key catalyst. There has also been an increase in demand for cloud storage. Therefore, data-center operators are enhancing their capacities to accommodate the demand spike for cloud services.
The latest demand trend will, undoubtedly, benefit graphics chip makers. Additionally, the companies, which provide design and other components for chip making, are expected to benefit from this trend.
Semiconductor Stocks Hold Promise
Growing adoption of IoTs, smartphones, storage solutions, networking and connectivity solutions — including Wi-Fi as well as Wi-Fi/Bluetooth integrated SOCs — and the need for high-speed data in both communications networks and data centers bode well for industry participants. Strong demand for analog integrated circles (ICs) should continue to drive the industry’s growth.
The increase in demand for higher speed amid coronavirus-led lockdown will result in accelerated deployment of 5G technology, which promises far more speed than the current 4G LTE, due to low latency.
Further, 5G adoption beyond mobile is likely to boost demand for memory and storage, particularly in IoT devices, wireless infrastructure and data centers.
This apart, blockchain, IoT, autonomous vehicles, AR/VR and wearables are other growth areas.
In such a scenario, investors looking for an entry point in the markets could consider investing in high-quality semiconductor companies that have outperformed the broader S&P 500 in the past year.
Stocks in Focus
Here, we present five semiconductor stocks that are well poised to benefit from this space’s solid growth prospects.
MagnaChip Semiconductors’ MX growth prospects look promising. Demand for analog and mixed-signal semiconductor solutions for high-volume consumer applications is expected to increase post the crisis.
MagnaChip designs, manufactures and sells analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, industrial and automotive applications.
The Zacks Rank #1 (Strong Buy) company has a Growth Score of A. Its fiscal 2020 earnings are expected to be up 85.4% from the figure reported in the previous year. You can see the complete list of today’s Zacks #1 Rank stocks here.
MagnaChip Semiconductor Corporation Price and Consensus