4 Top-Ranked Semiconductor Stocks to Buy Amid Industry Growth
The semiconductor industry is booming despite the coronavirus pandemic-induced global chip shortage. This is evident from the robust performance of the industry in 2021.
Per the latest report from the Semiconductor Industry Association, global semiconductor industry sales were $555.9 billion for 2021, up 26.2% year over year. The industry shipped 1.15 trillion semiconductor units in 2021. Apart from yearly sales growth, global sales for fourth-quarter 2021 increased 28.3% from the year-ago period to $152.6 billion. Further, global sales were $50.9 billion for the month of December 2021, with a year-over-year increase of 28.3% and 1.5% growth from November 2021.
Annual revenue growth was driven by strength in logic, memory and analog. For 2021, sales of logic, memory and analog categories were $154.8 billion, $153.8 billion and $74 billion, respectively. Also, the respective segments grew 30.8%, 30.9% and 33.1% year over year. Further, annual sales of micro-ICs and automotive ICs increased 15.1% and 34.3% year over year to $80.2 billion and $26.4 billion, respectively.
The broader iShares PHLX Semiconductor ETF (SOXX), which measures the performance of the semiconductor industry of the U.S. equity market, has increased 6.2% over a year. Further, ProShares Ultra Semiconductors ETF (USD) has gained 12.3% in the same time frame.
Driving Factors
It is to be noted that chip companies have been gaining significantly from this pandemic-led work-from-home wave and online learning trends, which are persistently boosting the demand for processors utilized in enterprise laptops, and data center servers.
Further, strength in data center market courtesy of rapid adoption of the cloud computing technology is acting as a tailwind. Additionally, the growing demand for consumer electronics, automotive, industrial tools & equipment, and networking & communication products has been driving growth of the semiconductor industry.
Furthermore, growing proliferation of autonomous and electric vehicles, and rapid adoption of advanced technologies like the Internet of Things, artificial intelligence, and virtual reality remain tailwinds.
Additionally, increasing reliance of various industries including healthcare, defense, retail and agriculture on advanced technologies for digital transformation amid the pandemic is strengthening the demand environment for semiconductors further.
These factors are likely to drive growth in the underlined industry in the near term as well as in the long haul.
The Precedence Research report indicates that the semiconductor market is likely to reach $808.5 billion by 2030 from $430 billion in 2021, witnessing a CAGR of 6.6% between 2021 and 2030.
Stocks to Buy
Given the upbeat scenario, here are four semiconductor stocks that are well poised to capitalize on the abovementioned trend. Apart from having strong fundamentals, these stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
One-Year Price Performance
Image Source: Zacks Investment Research
MaxLinear MXL is continuously gaining from solid momentum in broadband access, connectivity, infrastructure and industrial multi-markets. Also, growing platform design wins across multiple geographies in new end markets remain beneficial for the company.
Further, MXL is consistently working toward bringing advanced solutions to gain momentum among customers. It recently collaborated with Sivers Wireless to develop an unlicensed point-to-point radio solution that enables long reach. The move is an effort to cater to the needs of increased demand for 5G and broadband connectivity. The initiative is expected to expand MXL’s reach to wireless internet service providers. This remains a tailwind for the company.
MaxLinear, carrying a Zacks Rank #1 at present, has a Growth Score of A. Further, it has gained 53.7% over a year.
ON Semiconductor ON has been riding on the strength of the automotive segment. Growing investments in advanced driver-assistance systems and wireless charging in the automotive business remain a positive. Further, it is continuously gaining traction among electric vehicle manufacturers for silicon carbide and insulated-gate bipolar transistor-based products.
Apart from this, ON recently made an agreement to acquire GT Advanced Technologies in exchange for $415-million cash. With this acquisition, ON Semiconductor aims to increase the supply of silicon carbide (SiC) to meet the growing customer demand for SiC-based solutions. Further, the acquisition will bode well for the company’s growing efforts to create intelligent power and sensing technologies.
ON Semiconductor, currently sporting a Zacks Rank #1, has a Growth Score of B. Further, it has returned 40.2% over a year.
Advanced Micro Devices AMD is riding on the robust performance of Computing and Graphics and Enterprise Embedded and Semi-Custom segments. It is benefiting from strong sales of Ryzen and EPYC server processors owing to the increasing proliferation of artificial intelligence and machine learning in industries like cloud, gaming, and supercomputing domain. Recently, its third-generation EPYC processors have been selected by Google Cloud to power new C2D instances for high-performance memory-bound workloads. This remains a positive factor for AMD.
Apart from this, the growing clout of seven nanometer products in the data center vertical driven by work-from-home and online learning trends remains a key catalyst for AMD. Further, the company’s recent acquisition of Xilinx to strengthen its data center business remains a notable step.
Advanced Micro Devices, also carrying a Zacks Rank #1, has a Growth Score of B. Further, it has returned 25% in the past year.
Monolithic Power Systems MPWR has been consistently benefiting from the increasing demand in the Computing and Storage, and Communications domains with recovering automotive end markets. The pandemic-triggered robust demand for cloud servers and storage along with a solid uptake of home applications, gaming consoles and Internet of Things devices remain key catalysts.
Further, the growing adoption of point of sales systems, security applications and smart meters remains a tailwind. The company also remains well positioned to gain from the rapid deployment of 5G on the back of a robust portfolio of legacy routers, wireless applications, and 5G networking infrastructure-related products.
Monolithic Power Systems, carrying a Zacks Rank #2 at present, has a Growth Score of A. Further, it has gained 11.7% over a year.
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Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
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