The 3 Most Undervalued Semiconductor Stocks to Buy in February 2024
The semiconductor industry is experiencing a strong demand for chips across various sectors, such as automotive, cloud computing and artificial intelligence. A lot of this demand has led to the rise of semiconductor stocks such as Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD). However, for investors looking for bargains in the industry, the well-known names are probably not worth looking at nowadays. Below are three undervalued semiconductor stocks.
ACM Research (ACMR)
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ACM Research (NASDAQ:ACMR) is a leading supplier of wet processing equipment and technologies for the semiconductor industry. The company also has a particular focus on servicing China’s semiconductor market. While some may see this as a weakness, what investors should recognize is that China’s semiconductor space has come a long way and has even surprised U.S. policy makers in its resilience. Companies supplying manufacturing machinery to this burgeoning semiconductor sector could benefit tremendously in the long run.
ACM Research’s earnings results throughout 2023 were admittedly impressive and beat Wall Street’s estimates. As a result, ACM’s share price skyrocketed more than 153% in 2023. In the current calendar year, ACM’s stock price has begun to trend downward, but I think investors should view this as a potential buying opportunity, as ACMR’s valuation still looks cheap. In particular, the company’s enterprise value to EBITDA ratio trades around 9.5x forward EBITDA.
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Aehr Test Systems (AEHR)
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Next on our list of undervalued semiconductor stocks is Aehr Test Systems (NASDAQ:AEHR). Aehr Test Systems is a global provider of test systems for burning-in and testing logic, optical and memory integrated circuits.
Market watchers and public equities investors alike have given AEHR’s shares much attention this year due to the company providing testing equipment and services for electric vehicle (EV) microchip components. Given that demand for electric vehicles has continued throughout 2023, AEHR benefitted from strong demand for its products, even among leading EV makers and suppliers like Tesla (NASDAQ:TSLA). However, recent speculation of an EV market slowdown has led AEHR shares to tumble more than 56% over the past 12 months.
Still, it is important to take into account that testing EV components is only one of AEHR’s end-markets. The firm also designs equipment to test silicon photonics devices, which are an alternative to traditional fiber optic transceivers currently used in data center and telecommunication infrastructure. As enterprises continue to migrate to the cloud and rely upon faster 5G telecom infrastructure, AEHR’s testing products and solutions will be in higher demand.
AEHR shares trade at 17.1x forward earnings, which is much lower than some of the vaunted and well-known semiconductor companies.
ON Semiconductor (ON)
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ON Semiconductor (NASDAQ:ON), or “Onsemi,” is a leading provider of power management, analog, sensors and connectivity semiconductor devices. Due to its wide range of products, the chipmaker serves diverse end markets, including industrial and consumer electronics. However, as electric vehicle (EVs) smart connectivity devices have become more mainstream, Onsemi has recently shifted its focus to developing power-efficient semiconductor solutions for EV semiconductor devices.
The semiconductor firm’s exposure to consumer electronics and IoT end-markets has caused a slowdown in top-line growth as there has been a general pullback in consumer spending on electronics since the height of the pandemic. Onsemi’s sluggish quarterly revenue growth in 2023 reflects this recent spending dynamic. This could be set to change in 2024. While EV demand may wane a bit, consumer electronics and IoT demand could rebound. In its Q4 earnings report, TSMC (NYSE:TSM) stated it expected the contract manufacturer to return to growth in 2024.
Moreover, while an EV slump may occur, Onsemi’s electric vehicle segment could be a bright spot in the coming years as consumers increasingly consider electric vehicles over combustion engine vehicles.
ON shares are trading at only 15.3 times forward earnings, below many semiconductor giants.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.
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