The semiconductor sector stacked cash for investors in 2023, with the benchmark PHLX Semiconductor Index (SOX) up 65% for the year. The index piled on 30% in the last two months of 2023.
That’s a good year’s work for the semiconductor sector. If you had plopped $10,000 down on the SOX on Jan. 1, 2023, you’d have had about $16,500 by Jan. 1 of this year.
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So why are things turning dicey for semiconductors in the first days of 2024? Yes, it’s a short time span, but the SOX is down 2.7% through Jan. 9, against an essentially flat return for the S&P 500 over the same period.
Some of the decline stems from U.S. public policy, with the Biden administration reining in U.S. exports of chips and related technology to China. Chip stocks have experienced a setback as a result, and sector heavyweights such as Intel Corp. (ticker: INTC) have shed some market share lately.
But few market watchers seem to be bothered by the recent hurdles for chip stocks. There’s still more to like than not to like, they say.
For starters, generative AI is starting to pump money into companies using the technology, and it’s the semiconductor market that’s providing the chips to jolt generative AI forward.
Additionally, the U.S. CHIPS Act cash spigot is opening, with Uncle Sam pledging to steer $280 billion into the semiconductor industry to boost research and manufacturing of the next generation of chips. That should benefit big semiconductor companies like Intel and Nvidia Corp. (NVDA), Bank of America indicated in a recent research note.
With the start of 2024 looking like an aberration and green lights ahead for the semiconductor sector, what stocks look the rosiest as the new year picks up speed? Try these seven chipmakers on for size:
| Semiconductor stock | Implied upside as of Jan. 9 closing price |
| NXP Semiconductors NV (NXPI) | 22.8% |
| Qualcomm Inc. (QCOM) | 14.4% |
| Monolithic Power Systems Inc. (MPWR) | 26.3% |
| Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) | 9.9% |
| Nvidia Corp. (NVDA) | 21.7% |
| ON Semiconductor Corp. (ON) | 42.8% |
| Advanced Micro Devices Inc. (AMD) | 8.5% |
NXP Semiconductors NV (NXPI)
This chip stock is down 7.8% on a year-to-date basis as of Jan. 9, but analysts aren’t concerned.
Exhibit A is Wells Fargo analyst Aaron Rakers’ “buy” call on NXP in the first week of January, with a price target of $260 per share. The stock is trading at $211.71 per share as of Jan. 9.
Netherlands-based NXP may also have an ace up its sleeve with its deep immersion in the electric vehicle charging market — an area of specialty for the chipmaker. Currently, NXP is looking like the most stable charging component in the green vehicle marketplace, but it has hedged its bets as well. NXPI stock also benefits from resilient demand in the smartphone market, as the company produces a chip that aids smartphones with mobile payments, among other tasks.
Still, the automotive sector feeds most of the company’s revenues. As more drivers engage with EVs and as NXP continues to be a chip leader in the plug-in market, look for the company to shift into overdrive in 2024 as it expands its dominance.
A decent dividend yield of 1.9% may sweeten the pot for income-minded investors. It’s one of the higher dividend payments in the semiconductor space.
Qualcomm Inc. (QCOM)
This San Diego, California-based semiconductor company continues to flex its muscles in the mobile phone and wireless sectors, returning 25.9% for shareholders in the last three months.
The company’s lineup of artificial intelligence-powered microchips has a “right time, right place” vibe in early 2024, with Next Move Consulting predicting that the current $100 billion AI market will grow to more than $1.8 trillion by 2030, at a compound annual growth rate of nearly 33%.
This week, Qualcomm rolled out its Snapdragon XR2+ Gen 2 advanced chip platform, which should boost its profile in the profitable mixed reality and virtual reality gaming and lifestyle marketplaces. Industry heavyweights Google, under parent company Alphabet Inc. (GOOG, GOOGL), and Samsung Electronics Co. Ltd. (005930.KS) are already on board with major orders for 2024.
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 2.3% forward dividend yield into the mix and there is good reason to bet on a QCOM heater throughout 2024.
Analysts at Bernstein are bullish on QCOM stock, calling for shares to climb to $160, upwardly revised from $145, and giving it an “outperform” rating. QCOM stock closed at $139.89 on Jan. 9.
Monolithic Power Systems Inc. (MPWR)
Kirkland, Washington-based Monolithic Power has seen its share price slide by about 6% so far in 2024, yet it has gained 55% in the past year and 25% in the past three months.
The stock received a boost from a late-December “buy” call from Rosenblatt analyst Hans Mosesmann that pegged MPWR’s price target at $750, up from $550. The stock closed at $593.75 per share on Jan. 9.
Monolithic is a well-diversified company with strong positions in the computing, industrial and automotive markets, all three of which are looking to build on relatively strong 2023 performance. Customers in all three segments reliably count on MPWR’s fabless manufacturing model and its tight relationship with third-party chip foundries to get the job done.
The company has an equally tight bond with Nvidia to develop advanced power-analog chips and semiconductor-building systems. Sticking close to Nvidia is simply good business, given its stature in the semiconductor market. Monolithic’s power management devices are routinely used in Nvidia’s graphics processing units, or GPUs.
Monolithic also works with Nvidia rivals like Advanced Micro Devices, which provides some balance against any downbeat performance from Nvidia in 2024.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Taiwan Semiconductor was one of those chip stocks with a post-New Year’s hangover, gaining only about 2% in the past month. The stock has picked up in the past few days, though, and it’s up 3% since Jan. 4.
The Biden administration’s decision to curb American-made semiconductors in China, but allow cheaper Chinese-made chips into the U.S., may be a game changer for TSM. For now, it’s coming out ahead in the U.S. government’s emerging microchip manufacturing policy.
Meanwhile, TSM’s financials look good, which should also attract investor interest. “Taiwan Semiconductor stands out in the AI chip manufacturing sector with a robust market cap,” says Sankar Sharma, founder and CEO at RiskRewardReturn.com. Right now, that’s $523 billion.
“Notably, its financial health is reinforced by high cash reserves and minimal debt. It boasts a profit margin of 41.4% and offers solid dividends (currently a 1.9% yield), underlining its strong financial status,” Sharma says.
TSM is holding a healthy level of cash compared to its debt, and although it reported flat fourth-quarter revenue on Jan. 10, its results beat analysts’ expectations.
The average price target for TSM tracked by Zacks Research is $112, compared with its Jan. 9 closing price of $101.89.
Nvidia Corp. (NVDA)
Unlike its industry peers, Nvidia has come out of the first two weeks of 2024 smoking hot, with its stock price up 7.3% as of Jan. 9, after returning 239% to happy investors in 2023.
Some market mavens are chirping away on Nvidia, creating a buzz over a “peak” situation with NVDA shares. Not so fast, analysts say, as Nvidia’s solid head start on developing AI-powering chips gives the company a clear path to profit in 2024.
A consensus analyst outlook provided by Zacks Research has NVDA stock gaining an additional 21.7%, from a closing price of $531.40 on Jan. 9 to a target price of $646.54. Pierre Ferragu of New Street Research says the company’s hard work on AI chip designs — current and future — makes it hard for competitors to gain ground.
“Nvidia’s financial strength is evident in its $5.5 billion cash reserves, minimal debt and a notable 42.09% profit margin,” Sharma says. “Looking ahead to 2024, Nvidia is expected to continue its significant growth, backed by a robust 67.59% institutional ownership.”
ON Semiconductor Corp. (ON)
Scottsdale, Arizona-based ON Semiconductor is a new name on this list, and for good reason. Of 26 Wall Street analysts listed by TipRanks.com, 16 rate the semiconductor firm a “buy” and the remainder rate it a “hold.”
Why? Like NXP, ON Semiconductor has a firm grip on the electric vehicle market, even though investors may consider ON a long-term play as the EV industry needs to wait for interest rates to subside and for charging infrastructure to improve, both of which are highly likely in the next few years.
As Sharma points out, the company is poised for steady growth, with an expected increase in earnings per share of 4.6% over the next five years. “This growth projection, combined with its current valuation, suggests that ON Semiconductor is currently undervalued compared to its industry peers,” he says.
Raker agrees, maintaining a “buy” rating for ON with a $110 price target. The stock closed at $77.03 on Jan. 9.
Advanced Micro Devices Inc. (AMD)
After a rough ride in mid-2023, Santa Clara, California-based AMD has picked up steam, returning 34% over the past three months. Like many semiconductor leaders, AMD has bounced back from a global chip glut that crimped sector growth in 2023 and is benefiting as once-recession-shy consumers have begun inching back into technology-device spending in early 2024.
AMD makes a ton of chips for the global computing and graphics markets, both of which are also in rebound mode right now. Credit should be given to CEO Lisa Su, who in 10 years led the company from a $2 billion market capitalization to a whopping $238 billion market cap in 2024. AMD’s tight ties with Taiwan Semi have also paid off, as the company’s foundry has arguably surpassed one-time industry leader Intel in advanced semiconductor chipmaking.
AMD is also diving deeper into the AI market with its MI300X accelerator chip, released in June 2023. Its AI chips should add approximately $2 billion in revenues this year, some analysts say, and possibly even more as demand expands.
AMD stock closed at $149.26 on Jan. 9 and is expected to hit $162 per share, according to Vijay Rakesh of Mizuho, who hiked his price target by 25%, from $130, in early January.
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7 Best Semiconductor Stocks to Buy for 2024 originally appeared on usnews.com
Update 01/10/24: This story was previously published at an earlier date and has been updated with new information.
