[Editor’s note: An earlier version of this article featured Cypress Semiconductor, which has been removed.]
Last year saw chip stocks swoon. There was the beginning of the trade war with China and all the unknowns it brought about.
Remember, the one thing the market hates more than anything is uncertainty. And living with the uncertainty of how this powerful industry was going to navigate an all-out – or even partial – trade war was on everyone’s mind.
Add to that the fact the tax cut in December 2017 was starting to wear off and global economies weren’t expanding as quickly as hoped. This meant spending was going to slow. And that meant semiconductor stocks may well be starting their downward cycle.
Smaller firms were spared initially, as the big semi firms took the brunt of it. But then the sector suffered.
This year is entirely different. The S&P Semiconductor Select Industry Index has returned a whopping 43.8% year to date, more than doubling the S&P 500’s 21%.
Even the slowing U.S. economy won’t slow them down now. Below are seven semiconductor stocks to buy to satisfy your inner geek and your growth portfolio.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) looked like a goner a couple years ago.
It was competing in two sectors that put it up against the biggest chipmakers out there, plus it was living on scraps from Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) in both the CPU and GPU markets.
As the market began to transform with AI, cloud, and IoT gaining momentum, AMD looked like it was a bit lost. It still made quality products, but was struggling to keep up. Lisa Su took over in 2015 and started to make changes, it was just a question of whether she could make them before it was too late.
It’s safe to say now, she has.
AMD stock is making a comeback and competing again. It has also been beating earnings on a regular basis. AMD stock is up 90% year to date and is likely to beat earnings again on 30 July. All of these factors make AMD a key semiconductor stock to buy.
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) isn’t technically a semiconductor stock, but it falls into the category since its niche doesn’t really fit better anywhere else. At any rate, it’s a great stock to buy.
ENPH has become the leading builder of microinverter systems for the solar photovoltaic industry.
Basically, when you get energy from solar panels (or most renewables), the electricity is DC (direct current). But the grid, residences, and offices operate on AC (alternating current).
You have to convert that DC power to AC to make it useful. That’s what inverters do.
Prices are coming down as more solar is being deployed. ENPH is getting a lot of that new business.
The stock is up a whopping 324% year to date and this train just started running.
Inphi Corp (NASDAQ:IPHI) is a small analog-to-digital chip maker company in a very high-growth space. Unfortunately, the trade war with China has hamstrung its ability to keep its rapid growth going.
IPHI stock has bounced around the past few years but is really coming into its own over the past year. The stock is up 85% in the past year and 92% year to date. Its chips are focused in the server, communications and cloud sectors.
Like all chip stocks, IPHI took a hit last year when the trade war started because it had big clients in China. The market for its products was growing quickly there as Chinese tech spread across Asia.
But most analysts were bullish even after weak Q1 results this year. And that bullishness remains in place, especially now that the U.S. and China negotiating teams will be sitting back down in Shanghai on July 30.
Lattice Semiconductor (LSCC)
Lattice Semiconductor (NASDAQ:LSCC) is back to focusing on its core technology – field programmable gate arrays (FPGAs). These are semiconductors that have become very popular products for a variety of industries.
For a while, LSCC was trying to diversify its product lines into various sectors of the tech space, which wasn’t getting much traction. LSCC is now back to focusing on its core business.
That’s why over the past two years the stock flat-lined for the most part, until 2019 began.
Another big part of it was the fact that LSCC has had historically close ties to the Chinese market, so the trade war was a big factor in its performance. But again, uncertainty was more the issue.
By January, the trade war fallout was clear and resetting expectations boosted LSCC. The stock is up 145% year to date and looks well positioned to get moving again as the U.S. relents on tech tariffs and China swoops in while the window is open. It’s a stock to buy.
Xilinx (NASDAQ:XLNX) is one of the few stocks to buy on this list that isn’t rallying like crazy.
The reason? One of its top customers happens to be Huawei, the massive Chinese telecom company. It announced earlier this week that Q2 revenue was going to come in under analysts’ expectation due to the trade embargo on sales to Huawei.
But there’s no real reason to be alarmed. This company has a $30 billion market cap, is up 44% year to date, and sells at a trailing PE of 35.
XLNX is a leading chipmaker in two of the hottest sectors right now: 5G telecom and data centers.
There’s little doubt that XLNX will continue to grow and maintain its position in lead-edge technologies. It might not be growing as quickly as smaller firms in the sector, but it’s a solid, world-class player with a very bright future.
Cirrus Logic (CRUS)
Source: Hamish Irvine via Flickr
Cirrus Logic (NASDAQ:CRUS) is what’s known as a “fabless” chipmaker, which essentially means it outsources production of its silicon wafers. From here, things get pretty technical (read: “geeky”), as its production slate includes codecs for analog-to-digital or digital-to-analog converters, smart codecs, boosted amplifiers and haptic drivers, among other integrated circuits (IC). Chances are these ICs are used in your laptop, smartwatch or even your virtual reality (VR) headset, especially if your device is an iPhone.
Cirrus Logic’s stock has outperformed in 2019, rising 41% year-to-date. The performance of CRUS is closely tied to sentiment around Apple Inc. (NASDAQ:AAPL), up 30%-plus. As demand for iPhones increase, as does Cirrus shares. Some see weakness in Cirrus Logic’s lack of diversification, but if you’re going to be tied down, there’s not many companies that are better to be tied to than Apple.
Analysts tend to agree. With three buy ratings, two holds and one sell, the consensus is for CRUS stock to hit $51 over the next 12-months. Compared to its 40% rise this year, 5% is a drop in the bucket. But it’s worth holding onto CRUS stock and buying on any dips as we head into a new iPhone cycle.
Mellanox Technologies (MLNX)
Mellanox Technologies (NASDAQ:MLNX) is an Israel-based chip firm that also produces a number of interconnect and switch systems.
Its fundamental purpose is to build support systems that facilitate data transmission between servers, storage systems, telecom and other embedded equipment. This is a very important bridge technology that allows all the tech on one side to get its information to the other side.
In March, NVDA announced it was buying MLNX for $6.9 billion. INTC had tried to buy it in January but was rebuffed. Other suitors included Microsoft (NASDAQ:MSFT) and XLNX. It’s a very sought-after company.
While the company sells for around $113 a share, that doesn’t exactly equate to where the stock will eventually land.
At this point, MLNX is a stock to buy and an interesting way to buy into NVDA. This is a key player in a very important sector of tech moving forward.
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