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5 Semiconductor Stocks with Improving Prospects

Sejuti Banerjea
·7 min read

The increasing level of electronics in everyday devices and things basically means that we are consuming more semiconductors today than ever before. So semiconductors make up an industry segment that should continue growing in the foreseeable future.

Because of their application across varied industries, the semiconductor market has coped with COVID much better than others.

In the case of the computing market, which is one of the largest consumers of semiconductors, the work/play/study/entertain at home trend has kept demand extremely robust. Without a shortage in key components like processors, panels, etc., demand would have been even stronger. As it is, producers are seeing growing backlogs, which is likely to push this demand into 2021.

While we don’t know when we’ll be able to put COVID behind us, tech investments in at-home operations are likely to prolong the trend. By that I mean that when companies and consumers put money into tech, they wouldn’t want that money to go to waste. So this would lead to more people working etc from home on a more permanent basis. It could even be that most jobs of the future are done at home as we all imbibe more tech into our lives.

So COVID has been extremely positive for the PC market, creating new opportunities just as demand was dwindling. As a corollary, semiconductors driving this market are seeing stronger demand.

Similarly, as more people work from home, they are working with more distance between them. This is pushing demand for communications devices. 5G is of course a big piece of the current strength in communications, both on the infrastructure side as well as on the device side. But the overall volume of communication through digital devices is also likely to remain strong as more people work remotely.

Another growing trend that could have legs is telehealth because online consultations are safer and digital payment systems ensure that the transaction is easy. So these two markets are kind of feeding each other and in the process, feeding the demand for semiconductors.

Another market that should consume more and more chips in the foreseeable future is automotive. A considerable part of the current innovation in auto is tech-related. Whether it’s the infotainment or navigation in traditional vehicles or the move toward electric vehicles (EVs) and automated vehicles (AVs), the scope for using semiconductors is growing in leaps and bounds.

So even if the challenges thrown up by COVID push out AV investment for some automakers, the surging demand for vehicles as people move away from public transport remains a positive development for semiconductor demand.

Another segment that’s basically about computing but much more than that is the server market. Most digital operations, interactions and transactions would be impossible without servers. And the analysis and use of all the data thus created (artificial intelligence) would also be impossible without them. The server market is that huge consumer of chips that can only grow over time.

Then we have industrials, medical, and many other areas that also use chips. But these four markets are likely to remain the most significant over the next few quarters.  

As different industries adapt to their specific circumstances, semiconductor demand could get pushed out of some areas and into some others. So companies producing general purpose devices could be better off than those producing application specific devices, unless of course they’re focused on the strongest segments.

Whatever be the case, and if you’re relatively new to semiconductors, it’s a good idea to note where significant estimate revisions are taking place. Because without a doubt, it’s the companies that are reporting strong results, easily beating estimates and offering encouraging outlooks that are seeing rising earnings estimates. So in all probability they have exposure to the most happening end markets.

When looking at estimate revisions, be sure to also note the general growth trend. Some players could for example see a slight decline next year because the extreme strength they saw in 2020 makes for difficult comparisons. This isn’t necessarily a negative for investors with a longer investment horizon because it signifies normalization in the market. Besides, positive results will continue to raise estimates for the out quarters, so you could actually end up with much stronger demand than initially forecasted.

Here are a few examples that look good at the moment-

Amkor Technology, Inc. AMKR

Amkor is one of the largest providers of semiconductor packaging and test services for chip manufacturers, fabless semiconductor companies and contract foundries.

Zacks Rank #1

In the September quarter, the company beat the Zacks Consensus Estimate by 46.2%

Revenue and earnings expected to grow 22.9% and 121.4%, respectively this year and 6.7% and 8.9%, respectively in 2021

The Zacks Consensus Estimate for 2020 increased 24 cents (24%) in the last 30 days.

The estimate for 2021 increased 30 cents (28.6%) in the last 30 days.

Cirrus Logic, Inc. CRUS

Cirrus Logic is a fabless semiconductor supplier, which develops, manufactures and markets analog, mixed-signal, and audio DSP integrated circuits (ICs).

Zacks Rank #1

In the September quarter, the company beat the Zacks Consensus Estimate by 41.6%

Revenue and earnings expected to grow 5.9% and 33.9%, respectively this year and 4.9% and 1.9%, respectively in 2021

The Zacks Consensus Estimate for 2020 increased $1.12 (34.4%) in the last 30 days.

The estimate for 2021 increased 64 cents (16.8%) in the last 30 days.

Diodes Inc. DIOD

Diodes Incorporated is a leading manufacturer and supplier of high-quality discrete and analog semiconductor products, primarily to the communications, computing, industrial, consumer electronics and automotive markets.

Zacks Rank #2

In the September quarter, the company beat the Zacks Consensus Estimate by 6.9%

Revenue and earnings expected to grow -3.7% and -20.6%, respectively this year and 14.3% and 35.5%, respectively in 2021. The 2021 numbers are well above the 2019 level.

The Zacks Consensus Estimate for 2020 increased 21 cents (10.0%) in the last 30 days.

The estimate for 2021 increased 33 cents (11.8%) in the last 30 days.

Alpha and Omega Semiconductor Limited AOSL

Alpha and Omega Semiconductor Limited has global operations for designing, developing and supplying a broad range of power semiconductors.

Zacks Rank #2

In the September quarter, the company beat the Zacks Consensus Estimate by 7.8%

Revenue and earnings expected to grow 26.5% and 102.3%, respectively this year and 4.1% and 8.2%, respectively in 2021.

The Zacks Consensus Estimate for 2020 increased 41 cents (29.9%) in the last 30 days.

The estimate for 2021 increased 26 cents (15.6%) in the last 30 days.

Ichor Holdings, Ltd. ICHR

Ichor designs, engineers and manufactures critical fluid delivery subsystems for semiconductor capital equipment.

Zacks Rank #2

In the September quarter, the company beat the Zacks Consensus Estimate by 3.3%

Revenue and earnings expected to grow 45.3% and 89.6%, respectively this year and 9.8% and 30.2%, respectively in 2021.

The Zacks Consensus Estimate for 2020 increased 6 cents (2.6%) in the last 30 days.

The estimate for 2021 increased 18 cents (6.2%) in the last 30 days.

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See Zacks' 3 Best Stocks to Play This Trend >>


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Amkor Technology, Inc. (AMKR) : Free Stock Analysis Report
 
Diodes Incorporated (DIOD) : Free Stock Analysis Report
 
Cirrus Logic, Inc. (CRUS) : Free Stock Analysis Report
 
Alpha and Omega Semiconductor Limited (AOSL) : Free Stock Analysis Report
 
Ichor Holdings, Ltd. (ICHR) : Free Stock Analysis Report
 
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