The first eight months of 2023 have been highly profitable for semiconductor stock investors, with the benchmark iShares Semiconductor ETF (ticker: SOXX) up 42.5% through Sept. 8. Meanwhile, VanEck Semiconductor ETF (SMH) has fared even better, returning 48.2% over the same period.
Sector performance has slowed in the past three months as investors have cashed in on big gains, led by big brand names such as Nvidia Corp. (NVDA) and NXP Semiconductors NV (NXPI). Multiple growth drivers for the semiconductor industry include artificial intelligence, virtual reality, 5G, cryptocurrencies, gaming and cloud computing, all of which are increasingly reliant on computer microchips.
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Yet there’s one significant barrier to growth: China-U.S. trade friction has curbed sector performance. (U.S. goods imports from China were down 25% for the first six months of 2023.) Even so, industry gurus see the semiconductor sector rebounding from a softer-than-expected second half of 2023, with 2024 looking significantly brighter.
“The slower-than-expected demand recovery will delay the normalization of inventory until the end of 2023, later than we previously anticipated, leading to additional reductions in fab utilization rates in the short term,” said Clark Tseng, senior director of market intelligence at industry association SEMI. “However, recent trends suggest that the worst is over for ICs (integrated circuits). We anticipate semiconductor manufacturing will bottom in Q1 2024.”
| Semiconductor stock | YTD return as of Sept. 8 |
| NXP Semiconductors NV (NXPI) | 29.9% |
| Qualcomm Inc. (QCOM) | -1.5% |
| Monolithic Power Systems Inc. (MPWR) | 42.2% |
| Intel Corp. (INTC) | 46.7% |
| Nvidia Corp. (NVDA) | 211.9% |
| Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) | 21.5% |
| Advanced Micro Devices Inc. (AMD) | 63.8% |
NXP Semiconductors NV (NXPI)
This semiconductor giant is up 29.9% so far in 2023, although performance has slowed in the last month, with shares down 6.4% through the first week of September. The stock is held in robust regard in high places — it’s a mainstay in Warren Buffett’s Berkshire Hathaway portfolio — and Citi analyst Christopher Danely remains bullish on the stock with a price target of $216. NXP closed at $203.05 on Sept. 8, leaving plenty of upside potential.
NXP is also solidly positioned for long-term growth with huge demand for its main revenue generators, most notably in the internet-connected device and automotive sectors. The company has guided for up to 6% monthly GAAP revenue growth in Q3 2023, and its earnings growth potential in 2024 could set up a potentially profitable run for the stock in the next several years. Shareholders are going along for the ride, and understandably so: $1,000 invested in NXPI stock 10 years ago would be worth roughly $5,425 today.
Qualcomm Inc. (QCOM)
Qualcomm hasn’t exactly had a year to celebrate, with shares down 1.5% on a year-to-date basis and down 9.2% in the last month as of Sept. 8, after China’s recent ban on Apple Inc.’s (AAPL) iPhones for use by government officials at work. (Qualcomm has had a chip supply deal with Apple since 2019.)
Qualcomm announced on Sept. 11 that it has signed a new agreement to supply 5G chips for iPhones until 2026, which gave its stock a bump up above breakeven year to date.
Company executives point to a softer market for smartphones in 2023, thanks to a sluggish global economy and lower consumer demand in larger markets like China. But there’s reason for optimism, as Qualcomm rates highly in key areas like financial strength, profitability, growth, value and momentum, according to investment analytics tracker GuruFocus.
The company also benefits from its perch as one of the largest wireless device makers in the world, and its processors are used by just about every big handset manufacturer in the sector. Toss its 3% forward dividend yield into the mix and there is good reason to hope for a QCOM resurgence next year.
Monolithic Power Systems Inc. (MPWR)
Closing at $500.87 per share on Sept. 8, this semiconductor solutions manufacturer excels in the integrated circuits marketplace, with its direct current and IC products used to power a broad array of electronic systems, including portable electronic devices, wireless LAN access points, computers and notebooks, monitors, infotainment applications, and medical equipment. Analysts are bullish on the stock, with Truist Securities boosting its target price to $600 from $527 on Aug. 1.
Like other semiconductor companies, share growth has been curbed by China’s iPhone ban, while Huawei’s 5G Kirin 9000S chip-powered smartphones have cut into Monolithic Power’s revenues. Further muddying the waters for Monolithic — and all semiconductor companies — is strained trade relations between the U.S. and China, which could dampen spending sentiment for consumers and companies.
Yet Monolithic is in a strong financial position, with a cash-to-debt ratio that ranks better than 99.9% of 894 semiconductor companies tracked by GuruFocus.
Intel Corp. (INTC)
Trading at $38.01 per share at its Sept. 8 close and up 47% on a year-to-date basis, Intel could well be positioned to pop even further in the China-U.S. trade wars that have semiconductor fabrication manufacturers in the crosshairs. The scenario could work out in Intel’s favor, as chip manufacturers rely on foreign fab manufacturers like Taiwan Semiconductor Manufacturing and SK hynix Inc. (000660.KS) to supply physical chips. As California-based Intel is one of the largest semiconductor fab developers in the world, any shift away from China-based fab manufacturers could mean a big boost for INTC shares. Additionally, Intel CEO Pat Gelsinger is engineering a massive program to shore up the company’s core PC central processing unit and computer server offerings, with the company ready to roll out its Meteor Lake PC chips later in 2023. In 2024, Intel will introduce its next-generation Granite Rapids and Sierra Forest server CPU units, which should help solidify Intel’s bottom line.
On June 19 the company reached an agreement to spend $32.8 billion to build two new manufacturing facilities in Magdeburg, Germany, already dubbed the country’s “Silicon Junction.” Public-private chip-manufacturing deals lately point to a geographical shift as relations between China and the West turn contentious.
[Read: Should You Invest in Nvidia Stock? 3 Pros, 3 Cons]
Nvidia Corp. (NVDA)
With its stock surging 212% in 2023, Nvidia just keeps on rolling, buoyed by a huge demand for its artificial intelligence chip solutions that a wide spectrum of companies use to process AI-related tasks. Nvidia’s growth has truly been monumental. Since 2009, the company’s market capitalization has grown by 17,000% to $1.1 trillion in 2023.
Nvidia is dominant in two big categories: gaming devices and data centers. The company derives 76% of its revenues from data center chips and 18% from gaming. Fiscal second-quarter revenue from data center chips surged 171% year over year and 141% from the previous quarter. Total revenues hit $13.5 billion — that’s up 101% from the same period in 2022. Nvidia forecasts a 170% jump in sales in the third quarter from the prior-year period.
With the generative AI market pegged to grow at an annual rate of 34% from 2023 to 2032, Nvidia is primed to grow alongside this trend. Its own annual revenue is estimated to rise from $27 billion in 2023 to more than $380 billion by 2032.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Despite all the hoopla over Nvidia’s share price run-up in 2023, it’s worth noting that Taiwan Semiconductor remains the largest semiconductor manufacturer in the world, making about 60% of the world’s chip supply but more than 90% of the most advanced chips. Most chip producers — even Nvidia — outsource their chip manufacturing to companies like Taiwan Semiconductor.
Earlier in the year the manufacturing giant’s share price reflected that dominance, with its share price up 43% through mid-June. The last three months have been another story, as China’s economic woes and government intervention in free markets have triggered a 9.9% decline in share price in the past three months through Sept. 8.
Still, Taiwan Semi’s revenues were up 6.2% on a monthly basis in August. Wedbush analyst Matt Bryson called that performance “a good start” to the new quarter, even as China banned iPhones for government workers. Any expansion to the ban could hurt TSM stock, though, as the company is a big supplier of chips to Apple hardware.
Advanced Micro Devices Inc. (AMD)
Advanced Micro Devices has seen its share growth tamped down somewhat in the past three months, as demand for personal computers and data center components wane — those are two key areas for AMD. Company shares have dropped by 12.4% in that time period. While the company has seen significant growth in the CPU market, it’s falling further behind Nvidia in the burgeoning graphics processing unit, or GPU, market, where NVDA controls 87% of the marketplace.
Investors are hoping the new Instinct MI300 series chips will accelerate AMD’s generative AI chip processing revenues. Scheduled for release in the fourth quarter of 2024, AMD’s new chips should make a big dent in Nvidia’s AI chip dominance in the next two years.
As of Sept. 8, AMD stock is up 63.8% in 2023 and is looking to withstand economic headwinds until its new AI chip comes to the rescue.
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7 Best Semiconductor Stocks to Buy in 2023 originally appeared on usnews.com
Update 09/11/23: This story was previously published at an earlier date and has been updated with new information.
