Semiconductor stocks could be on the cusp of a comeback.
The semiconductor sector was trapped in a holding pattern for the second half of 2022, as the global economy tamped down demand for technology-based chip products. But it appears to be making a comeback of late. A case in point: The recently enacted CHIPS Act promises to inject $280 billion in technology spending over the next 10 years. Additionally, some $52.7 billion is earmarked for semiconductor manufacturing, research and development, and workforce development. The promise of all that cash should tee up the semiconductor sector for significant growth going forward. Maybe that’s already happening, as the benchmark VanEck Semiconductor ETF (ticker: SMH) is up nearly 17% on a year-to-date basis, as of Jan. 25, and up nearly 25% over the past three months. With momentum on its side, the semiconductor industry could see a year of growth after two years in the wilderness. These stocks, in particular, are set to move as the chip sector rises from the ashes.
NXP Semiconductors (NXPI)
This semiconductor leader is up 10.2% on a year-to-date basis as of Jan. 25 and seems poised for growth. NXPI’s diversified market partners in the automotive technology, banking and mobile, and Internet of Things sectors, among others, gives the chipmaker reliable income sources. With NXPI trading down in 2022, the stock is relatively cheap in early 2023, trading at only 17 times trailing earnings in late January. “While we expect macro weakness to eventually spread to all end markets (including auto and core industrial), we believe NXPI’s continued prudent conservatism should help soften the incremental impact from the downturn,” says Ross Seymore, an analyst at Deutsche Bank Research. “With shares trading at a 15% discount to peers, we continue to see a favorable risk/reward in NXPI and maintain a ‘buy’ rating on the stock.”
Qualcomm Inc. (QCOM)
Like NXPI, QCOM is another diversity king in the chip sector, excelling in the auto and IoT sectors, and other premium chip-reliant industries. China is another area of growth for the company, Barclays reports. “China’s reopening is a big theme for 2023 and we believe the headwinds in China can shift to tailwinds in the second half of the year,” Barclays analysts said in a recent research report. Additionally, Barclays sees Qualcomm as the “clear leader at the high-end” of the market and is “encouraged that the market doesn’t seem to be going back to cutthroat competition with Qualcomm, signaling that they don’t want to get into a price war.” Barclays analysts recently upgraded QCOM to “overweight” from “underweight” and set a new price target at $150, up from $120, for Qualcomm stock. Qualcomm is up 19% on a year-to-date basis through Jan. 25.
Monolithic Power Systems Inc. (MPWR)
Monolithic Power, which manufactures energy-efficient power control chips, is heavily involved in the green energy-based electric vehicles, smart homes and solar panel segments. Revenues are up as sales soared 53% in the third quarter of 2022 on a year-to-year basis. Analysts call for MPWR to see a 37% revenue increase in its next quarterly report on Feb. 8. Truist just raised its share price estimate on MPWR from $432 to $533. (The stock closed at $424.69 per share on Jan. 25.) MPWR also caught a tailwind from Barclays, which raised its estimate on the semiconductor sector in early January. Consequently, Monolithic is on a roll in early 2023, with its share price up over 20% through Jan. 25 and plenty of room for more growth going forward.
Intel Corp. (INTC)
Intel has flipped the switch from 2022 to 2023, with a share price boost of 12.4% so far in 2023, against a decline of 42% over the past year. The company also recently tapped longtime board member Frank Yeary as chairman of its board of directors. With change in the air for the technology giant, Intel is another company that’s well positioned to leverage the CHIPS Act, as millions in government funds are earmarked for Intel’s new manufacturing plant in Columbus, Ohio. The company is releasing its latest quarterly earnings on Jan. 26, and analysts are lining up to back the stock. Truist, for example, hiked its price estimate on INTC from $29 to $33. Along with a robust dividend yield of 4.82%, INTC can hardly be counted out in 2023, especially as the economy smooths out and demand rises for Intel chips.
Nvidia Corp. (NVDA)
Nvidia is in fireworks mode so far in January, with the stock price up more than 32% year-to-date. The company, which sits squarely in the design and manufacturing of computer graphics processors, chipsets and related multimedia software, has been on the receiving end of two share price estimate hikes from high-level analysts. In a Jan. 23 report, Barclays analysts pegged NVDA’s stock price at $250 per share, up from $170. Barclays also held its “overweight” position on the stock. Truist weighed in on Nvidia, too, amping up its share price estimate from $198 to $238 in mid-January. “Nvidia is still … leading in graphics processing units and in artificial intelligence,” Barclays analysts noted. “It would have been nice if the group got as cheap as we have seen in other downturns, but we underestimated the amount of money that wanted to move into semis and we don’t see the group testing October lows.”
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Unlike most industry stocks, Taiwan Semiconductor demonstrated robust financial performance in 2022. From October 2021 to October 2022, the company reported a whopping 56% boost in revenues. TSM’s earning power has turned out well for investors, as the stock is up over $18 per share year to date as of Jan. 25, and is up 51% over the past three months. Analysts expect Taiwan Semiconductor to expand that growth in 2023, as the company continues to dominate the global chips sector, holding 56% of the semiconductor manufacturing market. Investors have been skittish about Taiwan Semiconductor, given China’s aggressive saber-rattling in Taiwan and the overall struggles of the microchip sector in 2022. Yet company revenues were up $76 billion in 2022 while net income rose 70% in the same time period, to $34 billion. A decent dividend yield of 1.88% may seal the deal for income-minded investors, as TSM looks tough to beat in 2023.
Axcelis Technologies Inc. (ACLS)
This Massachusetts-based chip specialist has been providing ion implant systems to semiconductor factories since the 1980s. The ion implant sector — currently valued at $2.2 billion — is a big contributor to the semiconductor market and Axcelis is jockeying for pole position. The company estimates fourth-quarter revenues of more than $250 million, which easily outpaces the current guidance range of $232 million to $240 million. Additionally, earnings per share should crest $1.45 for the fourth quarter, well above the previous guidance of between $1 to $1.10 per share. With Axcelis chief executive Mary Puma noting strong shipments in the fourth quarter and touting robust demand in 2023, ACLS is on the rise. Investors better get in fast, however, as the company’s stock is already up more than 39% year to date as of Jan. 25.
7 best semiconductor stocks to buy for 2023:
— NXP Semiconductors (NXPI)
— Qualcomm Inc. (QCOM)
— Monolithic Power Systems Inc. (MPWR)
— Intel Corp. (INTC)
— Nvidia Corp. (NVDA)
— Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
— Axcelis Technologies Inc. (ACLS)
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7 Best Semiconductor Stocks to Buy for 2023 originally appeared on usnews.com
Update 01/26/23: This story was published at an earlier date and has been updated with new information.
