Semiconductor stocks are off-balance in late 2023, although the benchmark PHLX Semiconductor Index (SOX) is up about 37% in 2023 as of Nov. 7.
The past three months have been rough going for semiconductor stocks, as SOX is down about 8% after the Biden administration recently tightened curbs on China’s access to U.S. semiconductor technologies. The rules further restrict exports of the most advanced artificial intelligence chips to China, as well as Iran and Russia. Meanwhile, the White House is also encouraging non-Chinese chipmakers to establish business or expand operations in the U.S.
[Sign up for stock news with our Invested newsletter.]
“Investors should be aware that the U.S. is implementing restrictions on the sale of chips manufactured by Nvidia and others specifically tailored for the Chinese market,” says Michael Ashley Schulman, chartered financial analyst and chief investment officer of Running Point Capital Advisors, based in El Segundo, California. “These restrictions are part of new regulations to impede China’s access to cutting-edge semiconductors with potential space, AI and military applications.”
The U.S. semiconductor industry has been dealing with this abrupt change in rules, which has weighed on stocks. “A shifting regulatory environment may distress advanced semiconductor companies, especially since they have to plan chip design and production many months and sometimes years in advance,” Schulman says.
With the semiconductor sector falling back these days, it could represent an opportunity to “buy the dip” in an otherwise healthy sector. If you decide to take the plunge, these semiconductor stocks are atop the list of best prospects:
| Semiconductor stock | YTD return as of Nov. 7 |
Implied upside |
| NXP Semiconductors NV (ticker: NXPI) | 19.5% | 15.7% |
| Qualcomm Inc. (QCOM) | 12% | 20.1% |
| Monolithic Power Systems Inc. (MPWR) | 40.2% | 21.8% |
| Intel Corp. (INTC) | 50.1% | 8.3% |
| Nvidia Corp. (NVDA) | 214.6% | 58.9%* |
| Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) | 25.9% | 20% |
| Advanced Micro Devices Inc. (AMD) | 75.2% | 16.1% |
*Based on a two-year price target from Melius analysts.
NXP Semiconductors NV (NXPI)
NXP Semiconductors’ third-quarter earnings report on Nov. 6 had essentially a neutral outlook. Company earnings clocked in at $3.59 per share, down from $3.81 per share one year ago. Revenues stood at $3.4 billion, down slightly from $3.42 billion in the third quarter of 2022.
Two prominent Wall Street analysts cut their price targets on NXPI in October, which could dampen enthusiasm for the stock. Susquehanna analyst Christopher Rolland held his “neutral” rating on NXPI but lowered his price target from $200 to $190. Meanwhile, Morgan Stanley kept its “equal weight” call on the stock but cut its target price from $227 to $215. The stock closed at $185.80 on Nov. 7.
Aside from its 16% potential upside, NXPI stock may benefit from resilient demand in the automotive and smartphone markets. NXP produces a chip that aids smartphones with mobile payments, among other tasks.
[READ: 10 Best Tech Stocks to Buy for 2023]
Qualcomm Inc. (QCOM)
Qualcomm shares have battled back in 2023, recording a 12% gain year to date after being down 1.3% in early September.
Driving share growth was a promising Nov. 1 fourth-quarter earnings report with a robust outlook. QCOM recently issued a sales guidance range for Q1 2024 between $9.1 billion and $9.9 billion, with adjusted earnings per share between $2.25 and $2.45. The chipmaker is also wading into the generative AI market with the release of Android and Windows PC chips for Microsoft AI platforms. Meanwhile, Qualcomm maintains its contract with Apple to provide 5G chips for handsets all the way through 2026.
Analysts responded positively to Qualcomm’s quarterly numbers, with KeyBanc’s John Vinh issuing an “overweight” call with a target price of $145. The stock closed at $120.72 on Nov. 7. Revenue and earnings per share were above consensus, driven by stabilizing Android demand and lower inventory, Vinh said, citing ongoing stability for Android mobile phones as a big reason for the rating upgrade.
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 2.7% forward dividend yield into the mix and there is good reason to hope for a QCOM resurgence heading into 2024.
Monolithic Power Systems Inc. (MPWR)
Like NXP, Monolithic Power started out 2023 like gangbusters but lost some luster in the third quarter. While the stock price is up 40.2% this year as of Nov. 7, MPWR has lost 8.9% in the past three months.
The 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.
Monolithic should also gain a firm foothold in the burgeoning artificial intelligence chip market, likely as a major service and components provider.
“Early in any computing cycle ‘gold rush,’ the picks-and-shovels companies are compelling investments,” says Sean Sun, portfolio manager at Thornburg Investment Management. “As international investors, we analyze the complicated global supply chain of semiconductors and look for winners in niches outside the more obvious places. Some are obvious (like Nvidia) and others are critical providers of necessary products or capital equipment (like Monolithic Power) that are vital to laying the silicon foundation of AI.”
Monolithic’s fortunes are also largely tied to Nvidia, as the former’s power management devices are used in the latter’s graphics processing units, or GPUs. Still, MPWR also works with Nvidia rivals like Advanced Micro Devices, which provides some balance against any downbeat performance from Nvidia.
Analysts are generally bullish on MPWR, with Oppenheimer analyst Rick Schafer maintaining an “outperform” rating with a lower $500 target price. Meanwhile, Truist analyst William Stein, stating that the company has “AI exposure everywhere,” recently held his “buy” call on MPWR with a $600 target price. The stock traded at $492.56 per share as of Nov. 7.
Intel Corp. (INTC)
Intel seems to be lagging against industry leader Nvidia, but when the picture is expanded, the company starts looking better.
For starters, Intel is well positioned to compete globally with TSMC and Samsung Electronics Co. Ltd. (005930.KS) to manufacture the high-end next-generation semiconductors needed for technologies like artificial intelligence, robotics and machine learning. For a company that manufactures its own microchips and provides production services for other companies, that global reach should lead to billions of dollars in additional revenues in a semiconductor sector where business is booming now and will be booming for years to come.
Intel is putting its money where its mouth is, with a $120 billion investment in new chip manufacturing plants in the U.S. and Europe.
Market analysts also seem to be generally upbeat on Intel, which has seen eight straight quarters of downbeat earnings reports. Srini Pajjuri of Raymond James, citing a rising personal computer market, has upped his target price on Intel to $42 per share from $40 per share, following the lead of several Wall Street firms that have issued higher price targets on INTC lately. The stock closed at $38.77 on Nov. 7
Intel seems to finally be on the right track, with its share price up 50.1% on a year-to-date basis as of Nov. 7, after sliding roughly 50% for all of 2022. So 2024 should be an interesting ride, especially as Intel seems to capitalize on its solid position as one of the world’s largest chip providers.
[Read: Should You Invest in Nvidia Stock? 3 Pros, 3 Cons]
Nvidia Corp. (NVDA)
Nvidia’s historic share price roll has slowed in late 2023, with the stock stalled in the mid-$450-per-share range for the past three months.
The Biden administration’s curbs on China’s access to U.S. semiconductor tech is stifling NVDA share growth. “The more stringent U.S. government controls focus on Nvidia’s A800 and H800 chips,” Schulman explains. “Those chips were developed for export to China following the initial (microchip) restrictions introduced by the Biden administration last October. That’s not helping Nvidia right now.”
The good news? Nvidia’s microchip power is expanding across the industry landscape, with the chip supplier starting to distance itself from the competition.
“There’s a David vs. Goliath scenario at play, since Nvidia dominates the chip market for the large language models that power generative artificial intelligence,” Schulman notes. “It’s still possible NVDA may be dethroned by a smart and resourceful startup or established player designing silicon or exotic materials for efficient niche computing. After all, once upon a time, Intel ruled the semiconductor roost.”
But given Nvidia’s huge head start on AI, that scenario isn’t happening anytime soon. For instance, Melius analyst Ben Reitzes believes Nvidia can find plenty of buyers for its semiconductor chips outside of China until the geopolitical winds die down. Reitzes is calling for NVDA stock to reach $730 in the next two years, a premium to its price of $459.55 on Nov. 7.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
For all the buzz surrounding Nvidia, it’s worth remembering that TSM is the largest semiconductor maker in the world, manufacturing approximately 60% of the world’s microchips.
Its client list is equally impressive. TSM, for example, builds the primary processors inside Apple’s iPhones and it does the same for Qualcomm’s mobile chipsets.
The company’s financials are in good shape, too, with third-quarter revenues well ahead of expectations. TSM is also projecting that fourth-quarter revenues will rise to between $18.8 billion and $19.6 billion, compared with $17.3 billion in Q3.
“Moving into fourth quarter 2023, we expect our business to be supported by the continued strong ramp of our 3-nanometer technology, partially offset by customers’ continued inventory adjustment,” TSMC Chief Financial Officer Wendell Huang said in a recent company statement.
On the downside, TSM’s location in the Pacific Rim carries some geopolitical risk, given the dicey nature of the China-Taiwan relationship. Yet the company’s global dominance in chipmaking will give it a leg up as AI microchips ascend in the next decade.
Analysts tracked by the Wall Street Journal give TSM stock an average price target of $110.86, compared with its closing price of $92.41 on Nov. 7.
Advanced Micro Devices Inc. (AMD)
Like most semiconductor sector heavy-hitters, AMD has flatlined over the past three months, and its share price is down 2.9%. Still, the stock is up 75.2% on a year-to-date basis as of Nov. 7, at a time when a “chip glut” has crimped sector growth and as consumers pull back on technology device spending in the face of a sluggish economy.
None of that should stop AMD shares from rebounding: They’re up 15.2% in the past week alone, thanks to a robust earnings beat.
“While it’s not an international company, we like AMD,” Sun says. “We believe that as the MI300 chip starts to ramp up during 2024, AMD will have a lead over Nvidia’s H100 chip and will generate $3 billion to $4 billion in revenues, well above street expectations.”
Given Nvidia’s early lead, some investors don’t believe AMD will have a seat at the table when it comes to AI accelerators. Sun sees that scenario differently: “We’ve studied the technical attributes of their MI300 chip and believe it is a very compelling offering and that AMD indeed will have a seat at the table when it comes to AI,” Sun says. Additionally, the demand for AI chips is massively outstripping supply, and AMD is aiming to raise its profile as a supplier.
“Consequently, AMD is set to be a big winner in this AI cycle,” Sun adds. “We don’t think it will be a winner-take-all scenario, and AMD has a role to play in supplying chips to feed this immense demand for AI from various large customers such as Microsoft, Meta, Oracle and Tesla.”
Analysts tracked by the Wall Street Journal set an average price target of $131.73 for AMD stock, which closed at $113.45 on Nov. 7.
More from U.S. News
Magnificent 7 Stocks: What They Are and How They Dominate the Market
7 Best Renewable Energy Stocks to Buy
7 Best Semiconductor Stocks to Buy Now originally appeared on usnews.com
Update 11/08/23: This story was previously published at an earlier date and has been updated with new information.
