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4 Semiconductor Stocks to Gain From the Ongoing Chip Shortage

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The COVID-19 pandemic has brought about a rapid shift to digitization, accelerating the demand for various products and devices dependent on chips for their functioning. As people were forced to stay and work from home to curb the spread of the virus, it led to increased demand for PCs, smart phones and so on. Moreover, as places of entertainment were shut, people also had to rely on at-home entertainment options and in turn, sales of gaming hardware and consoles increased.

Meanwhile, over the years, the automotive sector has also evolved to include more electronic components in vehicles that rely on semiconductors. Markedly, following a dip in sales last year due to the pandemic, auto sales are also looking to make a comeback this year with the IHS Markit predicting global light vehicle sales to increase 9% in 2021. However, such increased demand for chips along with the pandemic constraining supply chains and manufacturing, has led to a global shortage of semiconductors in recent times.

Notably, a MarketWatch article stated that analysts expect this shortage to last at least through the end of the year. Nonetheless, this ongoing shortage of chips is sure to prove beneficial for the semiconductor market. In fact, the International Data Corporation (“IDC”) predicted that the global semiconductor market is expected to increase 7.7% in 2021 and reach $476 billion, following an increase of 5.4% in 2020. Notably, IDC stated in the report that factors like the availability of COVID-19 vaccines along with the reopening and gradual recovery of economies will also provide the necessary boost to the semiconductor market this year.

Markedly, IDC estimated mobile phone semiconductor revenues to grow 11.4% in 2021 to reach $128 billion while non-memory automotive semiconductor revenues are estimated to grow 12.6%. Meanwhile, adding further fuel to the demand for semiconductors, the global gaming market is set to increase at a CAGR of 10.5% from 2021 to 2026, per a report by Mordor Intelligence.

Reflective of the positive estimates, semiconductors have already started 2021 on a positive note. Per a report by the Semiconductor Industry Association, global semiconductor industry sales for January 2021 were $40 billion, witnessing an increase of 13.2% year-over-year. Moreover, the PHLX Semiconductor Index (SOX) has already gained 8.9% year to date, highlighting this rising demand for semiconductors.

4 Semiconductor Stocks to Buy Now

The global semiconductor market looks ready to witness growth going ahead due to heightened demand amid the ongoing shortage of chips that is affecting various industries. This makes it a good time to invest in semiconductor names that can make the most of this increased demand. Notably, we have handpicked four such stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Micron Technology, Inc. MU provides memory products for the cloud server, enterprise, client, graphics, and networking markets, as well as for smartphone and other mobile-device markets. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 17.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 59.7%.

NXP Semiconductors N.V. NXPI offers microcontrollers, application processors, communication processors, wireless connectivity solutions and so on, for use in a range of applications including automotive, industrial and Internet of Things, mobile, and communication infrastructure. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 13% over the past 60 days. The company’s expected earnings growth rate for the current year is 18.6%.

Skyworks Solutions, Inc. SWKS, together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products, for use in the aerospace, automotive, broadband, cellular infrastructure, connected home, entertainment and gaming, industrial, medical, military, smartphone, tablet, and wearable markets. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 12.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 67.5%.

NVIDIA Corporation NVDA offers GeForce GPUs for gaming and PCs, Quadro/NVIDIA RTX GPUs for enterprise design, and so on. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 15.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 33.7%.

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