The semiconductor industry has been on a high over the past couple of years. Increasing adoption to consumer electronics, automotive, industrial tools & equipment, and networking & communication products has resulted in soaring demand for microchips.
The demand got a further push during the pandemic as more people worked and learned from home, which saw them buying more consumer electronic goods and networking & communication products. The soaring demand resulted in a supply crunch for semiconductors almost throughout 2021 and the crisis is likely to continue. However, the demand scenario has proven beneficial for microchip makers. Thus, stocks like MACOM Technology Solutions MTSI, ON Semiconductor Corporation ON, NVIDIA Corporation (NASDAQ:NVDA) NVDA and Microchip Technology MCHP are likely to benefit in the near term.
Semiconductor Sales Continue to Soar
The Semiconductor Industry Association said on Jan 3 that global semiconductor sales reached $49.7 billion in November 2021, increasing 23.5% year over year from $40.2 billion. On a month-over-month basis, sales rose 1.5% from October’s total of $49 billion.
The cumulative total of microchip sales through November reached $1.05 trillion.
Regionally, sales grew 28.7% in the Americas, 26.3% in Europe, 21.4% in China and 22.2% in Asia Pacific/Other on a year-over-year basis. Sales soared 19.5% in Japan.
On a month-over-month basis, sales rose 4.2% in the Americas, 3.1% in Europe, and 0.9% in Asia Pacific/Other. Sales increased 1.1% in Japan.
Semiconductor Industry on a High
Microchip demand has been on the rise for over a year now thanks to the pandemic-induced rise in demand for electronic goods and networking and communication products. Moreover, the growing popularity and demand of Internet of Things, artificial intelligence and virtual reality has seen demand for microchips soar.
Semiconductor is a key component in developing these advanced technologies. Thus, demand for semiconductors is only likely to increase in the near term.
The growing demand for semiconductors saw the automobile industry suffering throughout 2021 as the shortage of supply resulted in carmakers cutting production.
The supply crisis is far from over and, according to experts, should continue at least till the second quarter of 2022. According to a recently released report from Gartner (NYSE:IT), the global microchip shortage will continue for months, compelling around 50% of the top carmakers to start producing their own chips by 2025.
According to a report from Precedence Research, the semiconductor market is projected to reach $808.5 billion by 2030 from $430 billion in 2021 at a CAGR of 6.6% between 2021 and 2030.
Our Choices
Given the rising demand for semiconductors and continuing supply crunch, the semiconductor industry is only likely to benefit in the near term. Below are four chip stocks that investors can gain from in the current scenario.
ON Semiconductor Corporation is a supplier of broadband and power management integrated circuits and standard semiconductors used in numerous advanced devices ranging from high-speed fiber optic networking equipment to the precise power management functions found in portable electronics. ON’s products provide clock management and data flow management for precision computing and communications systems, and power management for distributing and monitoring the supply of power to the different elements within virtually every electronic device.
ON Semiconductor’sexpected 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 90 days. Shares of ON have gained 54.3% in the past three months. ON Semiconductors holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MACOM Technology Solutions provides analog semiconductor solutions for use in wireless and wireline applications across the RF, microwave and millimeterwave spectrum. MTSI’s primary markets are Networks, which includes CATV, cellular backhaul, cellular infrastructure and fiber optic applications, A&D and Multi-market. MACOM Technology’sproduct lines include active splitter, amplifier, attenuator, automotive module, capacitor, component, coupler, diode, down converter IC, filter, frequency multiplier, hybrid voltage controlled oscillator, integrated receiver IC, modulator/demodulator, optical modulator driver, phase shifter, power combiner, power detector, power divider, power hybrid pallet, power hybrid transistor, switch, synthesizer, transceiver, transformer, upconverter IC and voltage controlled oscillator.
MACOM Technology’s expected earnings growth rate for the current year is 20.9%. The Zacks Consensus Estimate for current-year earnings has improved 2% over the past 60 days. Shares of MTSI have gained 20.4% in the past three months. MACOM Technology holds a Zacks Rank #2.
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 73.2%. The Zacks Consensus Estimate for current-year earnings has improved 4.6% over the past 60 days. Shares of NVDA have gained 41.8% in the past 60 days. NVIDIA carries a Zacks Rank #2.
Microchip Technology has been consistently benefiting from the strength of analog and microcontroller businesses. MHCP’s dominance in 8, 16, and 32-bit PIC microcontrollers remains a major positive factor for driving the top line and bookings growth. Microchip Technology has acquired notable companies like Tekron International, Microsemi and Atmel to add strength to its product offerings.
Microchip Technology ‘s expected earnings growth rate for the current year is 33.9%. The Zacks Consensus Estimate for current-year earnings has improved 3.5% over the past 60 days. Shares of MCHP have gained 15.1% in the past 60 days. Microchip Technology carries a Zacks Rank #2.
Zacks Top 10 Stocks for 2022
In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022?
From inception in 2012 through November, the Zacks Top 10 Stocks gained an impressive +962.5% versus the S&P 500’s +329.4%. Now our Director of Research is combing through 4,000 companies covered by the Zacks Rank to handpick the best 10 tickers to buy and hold. Don’t miss your chance to get in on these stocks when they’re released on January 3.
Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Microchip Technology Incorporated (NASDAQ:MCHP): Free Stock Analysis Report
MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI): Free Stock Analysis Report
ON Semiconductor Corporation (ON): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research