Supply Shortage Boosting Microchip Demand: 4 Stocks to Buy

Ritujay Ghosh
·5 min read

The global microchip shortage has been now hurting a number of industries, with electronic goods, including PCs and smartphones and automobiles suffering the most. So much so that many automakers are now being forced to halt production and temporarily lay off workers.

In fact, the crisis even led the White House to hold a virtual CEO summit on Apr 12, wherein President Joe Biden addressed the issue and urged for a quick solution to the ongoing crisis. However, the supply crunch at the same time means that the semiconductor industry is doing quite well at a time when others are still trying to bounce back from the battering they took during the initial months of the pandemic.

Microchip Shortage Is a Growing Concern

On Monday, Biden during the virtual summit met with representatives from various sectors including auto, tech, biotech and consumer electronics industries to discuss the ongoing global semiconductor shortage. The meeting was also attended by executives from General Motors Company GM, Ford Motor Company F and Intel Corporation INTC.

The executives from the company thanked Biden for his concern and are looking forward to solving the ongoing crisis. Automakers have been suffering the most due to the global supply crunch of microchips.

Major carmakers have even been warning investors about slowing production due to supply shortage and have been extending production cuts. The supply shortage has posed a new threat to the automakers just at a time when they were on the road to recovery after taking a massive hit last year due to the pandemic.

Production cuts have now forced many companies to temporarily lay off workers, which has further worsened the picture. Semiconductor demand has been on the rise due to the strong demand for electronics during the pandemic, which is resulting in a shortage. But now, even electronic goods manufacturers have started suffering.

Semiconductor Industry on Growth Track

According to the Semiconductor Industry Association (SIA), the microchip industry is projected to grow this year, after rebounding in 2020. Global semiconductor revenues totaled $466.2 billion, jumping 10.4% in 2020 on a year-over-year basis, according to a new report from Gartner.

This year has started on a high and the trend is likely to continue given the high demand for microchips, with semiconductor sales growing 14.7% year over year in February, according to SIA.

Microchips are an important part of both the auto and the infotainment industries. The recovery of the automotive sector was faster than projected, due to pent-up demand during the shutdown period, which is now hampering the balance between demand and supply.

The supply shortage is a sign that demand for microchips is expected to remain high for some time.

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.

Micron Technology, Inc. MU through global brands, namely Micron, Crucial and Ballistix, manufactures and markets high-performance memory and storage technologies including Dynamic Random Access Memory, NAND flash memory, NOR Flash, 3D XPoint memory and other technologies.

The company’s expected earnings growth rate for the current year is 93.6%. The Zacks Consensus Estimate for current-year earnings has improved 40.9.9% over the past 60 days. Micron carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank 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 next year is 22.4%. The Zacks Consensus Estimate for current-year earnings has improved 5.6% over the past 60 days. Analog Devices carries a Zacks Rank #2 (Buy).

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 13.4%. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the past 30 days. Texas Instruments carries a Zacks Rank #2.

NVIDIA Corporation NVDA is the worldwide leader in visual computing technologies and 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 34%. The Zacks Consensus Estimate for current-year earnings has improved 15.3% over the past 60 days. NVIDIA has a Zacks Rank #2.

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