4 Solid Semiconductor Stocks to Buy on Rebounding Sales
The semiconductor industry is making a solid turnaround after a dull second half of 2022. Sales are increasing once again as demand continues to be high and price pressures are easing. Although sales are still down year over year, the steady growth over the past few months suggests that the worst is over.
Given this situation, investing in semiconductor stocks like NVIDIA Corporation NVDA,Qorvo, Inc. QRVO, ON Semiconductor Corporation ON and Lam Research Corporation LRCX would be a prudent choice.
Microchip Sales Grow
Semiconductor sales grew 1.9% month over month in August, totaling $44 billion compared to July’s total of $43.2 billion, the Semiconductor Industry Association (SIA) said on Oct 4. Although sales were down 6.8% year over year in August, the market is steadily getting back on its feet.
Regionally, semiconductor sales rose 4.6% in the Americas, 1.2% in Asia Pacific and 2% in China. John Neuffer, SIA president and CEO, said, “Global semiconductor sales ticked up on a month-to-month basis for the sixth consecutive month in August, demonstrating a slow-and-steady increase in market demand during the middle of the year.”
Needless to say, 2023 has been good for semiconductors after sales started nosediving in the second half of 2022. Semiconductor sales totaled $124.5 billion in the second quarter of 2023, up 4.7% from the prior quarter.
With sales increasing in July and August, the third quarter will likely be impressive for the industry. Also, industry experts remain optimistic about a surge in sales consistent with earlier predictions.
The demand for semiconductors started shrinking in the latter half of 2022, following strong sales in 2020 and 2021, primarily fueled by the surge in remote working prompted by the COVID-19 pandemic.
However, this slowdown intensified due to elevated prices, attributed to the Federal Reserve's aggressive monetary tightening policy aimed at fighting record-high inflation.
Alongside these economic factors, a range of geopolitical factors and the enduring impacts of the pandemic played a role in the decline of semiconductor sales during the latter half of 2022 and the initial months of 2023.
The semiconductor market is poised to grow further as inflation continues to decline and price pressures ease.
Moreover, the market is expected to benefit from growing worldwide integration and widespread use of consumer electronics. Additionally, the increasing impact and widespread application of cutting-edge technologies like artificial intelligence, the Internet of Things, and machine learning are expected to play a pivotal role in driving continued demand for semiconductors.
Our Choices
Given the promising future, it would be wise to invest in semiconductor stocks. Below are four chip stocks that investors can gain from in the near term.
NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit (GPU). Over the years, NVDA’s focus has evolved from PC graphics to AI-based solutions that now support high-performance computing, gaming and virtual reality platforms. NVIDIA’s GPU success can be attributed to its parallel processing capabilities supported by thousands of computing cores necessary to run deep-learning algorithms.
NVIDIA’s expected earnings growth rate for next year is 52%. The Zacks Consensus Estimate for current-year earnings has improved 37.3% over the past 60 days. NVDA presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Qorvo, Inc. is a leading provider of core technologies and radio frequency solutions for mobile, infrastructure and aerospace/defense applications. QRVO was formed with the merger of semiconductor manufacturing firms RF Micro Devices Inc. and TriQuint Semiconductor Inc. in an all-stock transaction.
Qorvo’s expected earnings growth rate for next year is 40.2%. The Zacks Consensus Estimate for current-year earnings has improved 1% over the past 60 days. QRVO currently has a Zacks Rank #2 (Buy).
ON Semiconductor Corporation is a supplier of broadband and power management integrated circuits and standard semiconductors used in numerous advanced devices ranging from high-speed fiber optic networking equipment to the precise power management functions found in portable electronics. ON’s products provide clock management and data flow management for precision computing and communications systems, and power management for distributing and monitoring the supply of power to different elements within virtually every electronic device.
ON Semiconductor’s expected earnings growth rate for next year is 9%. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the past 60 days. ON currently has a Zacks Rank #2.
Lam Research Corporation supplies wafer fabrication equipment and services to the semiconductor industry. LAM Research’s products are used by semiconductor manufacturers in front-end and WLP processes, creating memory, microprocessors, and other logic-integrated circuits for a broad range of electronic devices.
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