The glass is half full for these seven semiconductor stocks despite economic concerns.
Semiconductor stocks have had an uninspiring 2022. After a global chip shortage in 2021, demand has receded significantly. Sales for many big-ticket electronics, such as laptops and televisions, have decreased considerably from last year’s record levels. As the stay- and work-at-home trends have diminished, consumers are focusing their spending elsewhere, such as on travel and recreational goods. In addition, the inflationary wave has further hit consumer spending power for electronics. That said, semiconductors aren’t as doomed as investors might think. The $280 billion CHIPS and Science Act included $52 billion in aid to domestic semiconductor fabrication plants. And, as it turns out, some semiconductor companies’ earnings haven’t been as bad as expected either. Here are seven semiconductor stocks that can hold up despite the mixed conditions for the industry.
Monolithic Power System Inc. (ticker: MPWR)
Monolithic Power System is a diversified semiconductor company. It is known for its in-house research and development and it has created a vast array of different products over the years. Monolithic currently serves the computing, automotive, industrial, infrastructure and consumer markets. Its chips help power everything from digital cockpits to data centers, as well as building automation systems and 5G wireless units. Power admittedly isn’t the most glamorous part of the chip business, but getting proper fuses, lighting, power modules and battery management is vital for making modern electronics and appliances function properly and have long lifespans. Monolithic has a strict approach to its budgeting and capital deployment. Shares have soared 2,050% over the past decade. However, they’re down 27% in the past 12 months due to the current industry jitters. That gives investors the chance to buy this growth machine at a reasonable forward price-earnings ratio of 24.
Intel Corp. (INTC)
While some semiconductor companies have managed to post solid earnings this year, Intel hasn’t been spared from the industry downturn. The company’s last two quarterly earnings reports have been depressing, to put it mildly. Investors have, not surprisingly, dumped the stock, pushing it to new multiyear lows. For traders looking for short-term strength, Intel is a pass today. However, longer-term investors are getting a bargain. For one, Intel is a direct beneficiary of the CHIPS Act, which should help fund its new manufacturing facilities in Columbus, Ohio. Intel also has one of the largest research and development teams in technology. The company currently spends more than $15 billion annually on R&D. Intel is going through hard times right now, but don’t count out the chip giant. In the meantime, investors can enjoy the company’s generous 4.9% dividend yield.
Texas Instruments Inc. (TXN)
Like Intel, Texas Instruments should be another of the primary recipients of CHIPS Act assistance. The company is building four new fabrication facilities, or fabs, which produce state-of-the-art analog and embedded processing chips. These facilities will be in Richardson, Texas, and help provide more momentum for the growth of the domestic electronics supply chain. Analog chips in particular have a vast array of uses and go into countless sorts of industrial products. Think of things such as remote monitoring, security, connected cars, Internet of Things applications and so on. Analog chips are far more than just the computer for a smartphone or TV. They power modern industrial processes across the board. This should make Texas Instruments a secular growth story throughout the 2020s. For now, with this year’s sell-off, shares go for 21 times forward earnings while offering a 2.8% dividend yield.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
There’s a popular media narrative that the semiconductor industry is in a steep tailspin right now. And there are definitely pockets of it that are struggling. However, things might not be as bad as feared. Just look at the latest data from Taiwan Semiconductor, which reported a jaw-dropping 56% increase in revenues for October 2022 versus the same month in 2021. While demand is down for some specific products, overall the semiconductor industry is still spending heavily as producers restock their inventories to offset last year’s shortfalls. Admittedly, Taiwan Semiconductor faces geopolitical risks. However, the company has been building new manufacturing capacity in Arizona to help lower its China-related risk. The troubling economic and political headlines have driven TSM stock down 40.2% year to date through Nov. 10. However, earnings have actually been rising, and shares now sell for just 11 times forward earnings.
Samsung Electronics Co. Ltd. (SSNLF)
Samsung is a diversified technology company known for smartphones and televisions among other high-end consumer goods. However, the Korean tech titan is also a major player in semiconductors as it produces a great deal of chips for 5G, mobile and artificial intelligence applications. These don’t just go into Samsung’s own electronics. It also sells to reputable customers such as Nvidia Corp. (NVDA) and International Business Machines Corp. (IBM). Samsung’s semiconductor angle is particularly interesting now since it should be a CHIPS Act beneficiary. Samsung is building a new $17 billion 5-million-square-meter location near Austin, Texas. This is strategic. In addition to the CHIPS Act support, the Samsung facility will be located near other semiconductor firms such as Texas Instruments, creating regional economies of scale. Finally, Samsung’s American presence should help it win more clients with national security concerns, such as contracts for the U.S. government or military.
Axcelis Technologies Inc. (ACLS)
A great way to take advantage of all the new semiconductor manufacturing facilities is to invest in companies that make industry-specific tools. Axcelis, for example, is a Massachusetts-based firm that has been providing ion implant systems to semiconductor factories for more than 40 years. Ion implants are a niche opportunity. But with an estimated market value of $2.2 billion, it is one that can support Axcelis’ business. The firm currently has roughly 3,000 installed tools for customers in 32 countries. This gives it plenty of room to make money, both in selling to new semiconductor fab facilities, and by earning recurring revenue taking care of the existing unit base. Most major semiconductor categories — memory, logic, foundry, power and image sensing — all use Axcelis products. Shares are at an attractive valuation, going for just 15 times forward earnings even as the company is set to grow revenues at least 30% this year.
Ambarella Inc. (AMBA)
Ambarella designs system-on-chip circuits for a variety of video and assisted-vision products. These power functions such as advanced driver-assistance systems (ADAS), autonomous driving, video security, and robotics applications, among others. The company’s technology enables the collection of large amounts of data, particularly high-resolution video, and then compressing and processing the data with low power usage. As the world continues to embrace more advanced automobiles and other autonomous technology, this ability to capture large quantities of high-quality video data should prove invaluable. Ambarella arguably came to market too early. Shares initially soared and then flopped years ago based on a short-lived burst of sales to power GoPro Inc. (GPRO) cameras. While action cameras didn’t ultimately make a huge impact, the next generation of high-resolution video products should gain far broader adoption. Ambarella is already profitable and analysts see double-digit revenue growth in 2023 and 2024.
7 best semiconductor stocks to buy for 2022:
Monolithic Power System Inc. (MPWR)
Intel Corp. (INTC)
Texas Instruments Inc. (TXN)
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Samsung Electronics Co. Ltd. (SSNLF)
Axcelis Technologies Inc. (ACLS)
Ambarella Inc. (AMBA)
More from U.S. News
7 Best Retail Stocks to Buy for 2022
8 of the Best Cheap Stocks to Buy Under $10
4 Growth Stocks, 4 Value Stocks to Buy Now
7 Best Semiconductor Stocks to Buy for 2022 originally appeared on usnews.com
Update 11/11/22: This story was published at an earlier date and has been updated with new information.
