Semiconductor Industry Continues to Thrive: 5 Stocks to Buy

Ritujay Ghosh
·4 min read

The semiconductor industry was already doing well and the pandemic has further driven revenues. According to the Semiconductor Industry Association (SIA), global semiconductor sales continued to rise in January following a solid performance in 2020.

As more people have been staying indoors since the COVID-19 outbreak, there has been a surge in electronic goods sales, which are leading to a rise in demand for microchips. So much so that there is presently a supply crunch for microchips that is affecting production of electronic and automobiles. This once again proves that the semiconductor industry is on track for further growth.

Semiconductor Sales Rise on Higher Demand

The SIA said on Mar 1 that global semiconductor sales jumped 13.2% in January to $40 billion from $35.3 billion a year ago. Also, on a month-over-month basis, sales increased 1% from December’s total of $39.6 billion.

The association said that the impressive jump in sales both month over month and year over year show the strength in the industry. Regionally, maximum year-over-year sales were witnessed in Asia-Pacific, where sales grew 16%, followed by 15.4% in Americas and 12.4% in China. On a month-over-month basis, sales grew 3.4% in China, 2% in Europe and 1.5% in Asia Pacific.

Microchips Demand Poised to Grow

Needless to say, the semiconductor industry started 2021 on a high after an impressive fourth quarter wherein sales grew 8.3% year over year to $117.5 billion. Robust 5G smartphone sales have been driving demand for microchip despite the overall slowdown in the smartphone market. Besides, demand for microchipsgot a boost from the 5G boom in Europe and some Asian countries like China and Singapore.

That said, demand for microchips surged during the peak of the pandemic when sales of electronic goods skyrocketed, thus boosting semiconductor sales. This has now resulted in a supply crunch that has been hampering production of automobiles. The automotive sector’s recovery was expected to take place faster but carmakers are now faced with another roadblock due to the supply crunch.

So much so that the government now plans to address the issue in order to boost the production and supply of microchip. However, this supply shortage is a sign that microchips are in high demand and the situation is likely to remain so.

Our Choices

The semiconductor market is likely to continue thriving in 2021.Below are five chip stocks that investors can gain from in the current scenario.

NXP Semiconductors N.V. NXPI provides high-performance, mixed-signal and standard product solutions that leverage its RF, analog, power management, interface, security, as well as digital processing expertise. 

The company’s expected earnings growth rate for the next year is 19.4%. The Zacks Consensus Estimate for current-year earnings has improved 19.1% over the past 60 days. NXP Semiconductorscarriesa Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy)stocks here.

Analog Devices, Inc. ADI is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed signal and digital signal processing integrated circuits.

The company’s expected earnings growth rate for the next year is 22.1%. The Zacks Consensus Estimate for current-year earnings has improved 6.2% over the past 60 days. Analog Devices carries a Zacks Rank #2.

Texas Instruments Incorporated TXN is an original equipment manufacturer of analog, mixed-signal and digital-signal processing integrated circuits.

The company’s expected earnings growth rate for the current year is 12.1%. The Zacks Consensus Estimate for current-year earnings has improved 14.4% over the past 30 days.Texas Instruments carries a Zacks Rank #2.

NVIDIA Corporation NVDA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that now support high-performance computing, gaming and virtual reality platforms.

The company’s expected earnings growth rate for the current year is 32.7%. The Zacks Consensus Estimate for current-year earnings has improved 15.1% over the past 60 days.NVIDIA has a Zacks Rank #2.

ON Semiconductor Corporation ON is an original equipment manufacturer of a broad range of discrete and embedded semiconductor components.

The company’s expected earnings growth rate for the current year is 92.9%. The Zacks Consensus Estimate for current-year earnings has improved 18.8% over the past 60 days.ON Semiconductors holds a Zacks Rank #2.

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