The semiconductor industry has been on a high, with sales soaring on surging demand. However, a supply crunch has kept several other industries worried, with carmakers suffering the most. The pandemic saw massive sales of electronic goods, leading to higher demand for microchips.
According to a new report form Deloitte, the crisis may continue for months. Thus, microchip demand is only going to soar, helping chipmakers like NVIDIA Corporation NVDA, Microchip Technology MCHP, ON Semiconductor ON and STMicroelectronics STM.
Microchip Shortage to Continue
According to Deloitte’s new Technology, Media & Telecommunications (TMT) 2022 Predictions report, the global semiconductor shortage could last till early 2023.
Things will start stabilizing only around late 2022 when customers will have to wait around 10 to 20 weeks after placing orders to get the supply in hand. However, the crisis doesn’t mean that customers will continue to suffer.
Given the growing demand and resultant supply crisis, massive investment will be made to boost production in the coming days. The report predicts that venture capital firms will invest over $6 billion in microchip companies next year to boost production. This is thrice more than the total investment made by venture capital firms between 2000 and 2016.
The report further says that the shortage is expected to last about 24 months from when it began, much like the 2008-09 microchip crisis.
The ongoing shortage is severely affecting the production of automobiles and is now biting into their profits. A number of carmakers have already cut down on their production and expect sales to be down in the fourth quarter too. This is also somewhat delaying the automobile industry’s recovery after the battering it suffered due to the pandemic.
Semiconductor Industry on a High
Not only automobile manufacturers, but also production of electronic goods, including laptops and smartphones,is being hampered now due to the supply crunch. That said, surging demand has been working miracles for the chipmakers, as sales are skyrocketing.
According to the Semiconductor Industry Association, global semiconductors sales totaled $144.8 billion in the third quarter of 2021, jumping 27.6% year over year and 7.4% from the second quarter. Also, the semiconductor industry achieved a milestone of shipping the highest number of semiconductor units in the market’s history during this period.
The chip industry had somewhat slowed down, but the pandemic worked miracles. As more people worked and learned from home, they invested in electronic goods, computers and accessories, giving a boost to the demand for microchips anddriving sales.
The trend continueswithchip sales growing every month and hitting new record highs. Semiconductor sales totaled $48.3 billion in September, jumping 27.6% year over year and 2.2% month over month.This growth is expected to continue in the coming months too.
Given the rising demand for semiconductors and continuing supply crunch, the semiconductor industry is only likely to benefit in the near term. Below are five chip stocks that investors can gain from in the current scenario.
NVIDIA Corporation is the worldwide leader in visual computing technologies and 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, which are necessary to run deep learning algorithms.
NVIDIA’s expected earnings growth rate for the current year is 73.1%. The Zacks Consensus Estimate for current-year earnings has improved 4.8% over the past 60 days. Shares of NVDA have gained 21.7% in the past 30 days. NVIDIA’s carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ON Semiconductor Corporation is an original equipment manufacturer of a broad range of discrete and embedded semiconductor components.ON continues to gain traction among electric vehicle manufacturers for both silicon carbide and insulated-gate bipolar transistor-based products. ON Semiconductor has a well-diversified business generating a significant percentage of revenues from each of the computing, consumer, industrial, communications and automotive end markets.
ON Semiconductor’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 12.4% over the past 60 days. Shares of ON have gained 9.5% in the past month. ON Semiconductors holds a Zacks Rank #2.
STMicroelectronics N.V. designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices used in a wide variety of microelectronic applications, including telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems. STM is currently witnessing very strong demand across most product lines and end markets. This is leading to strong pricing and allowing STMicroelectronicsto operate at full capacity.
STMicroelectronics’expected earnings growth rate for the current year is 65.3%. The Zacks Consensus Estimate for current-year earnings has improved 4.7% over the past 60 days. Shares of STM have advanced 6.8% in the past 3 months. STMicroelectronics carries a Zacks Rank #2.
Microchip Technology Incorporated develops and manufactures microcontrollers, memory, and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks. MCHP reported second-quarter fiscal 2022 earnings of $1.07 per share, beating the Zacks Consensus Estimate of $1.06 per share. Microchip Technology Incorporated reported revenues of $1.65 billion for the quarter ended September 2021, surpassing the Zacks Consensus Estimate by 0.10%.
Microchip Technology Incorporated’s expected earnings growth rate for the current year is more than 33.9%. The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the past 60 days. Shares of MCHP have gained 6.9% in the past 30 days. Microchip Technology has a Zacks Rank #2.
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