Microchip Sales Continue to Soar on Higher Demand: 5 Winners

The global semiconductor shortage is now biting into the profits of carmakers and at the same time pushing up vehicle prices. So much so that several carmakers are now temporarily halting production at many of their plants.

The semiconductor industry is struggling to supply enough microchips to carmakers but isat the same time benefiting from the surging demand. Experts predict that the shortage will continue next year too. Given this scenario, semiconductors are likely to remain in high demand in the coming days.

Microchip (NASDAQ:MCHP) Shortage Hurting Carmakers

Demand for vehicles has been high but carmakers have been struggling to produce enough units over the past several months owing to a massive shortage in semiconductors. General Motors Company (NYSE:GM) GM recently announced that it will temporarily halt production at eight of its 15 North American assembly plants over the next two weeks as they don’t have enough microchips.

Ford Motor Company (NYSE:F) F too has said that it will stop production of its pickups at two of its plants for the next two weeks. The announcement follows similar decisions made by Nissan (OTC:NSANY) Motor Co. NSANY, Toyota Motor (NYSE:TM) Corporation TM and several other foreign carmakers.

Microchips are crucial components in a vehicle as they make the computer-controlled system work in a car. At the same time, microchips account for almost 40% of a vehicle’s value. Thus, shortage of demand is pushing up the prices of vehicles.

Automakers were struggling since the coronavirus outbreak that saw plants remaining closed for weeks and just when they started trying to bounce back on a surge in demand, the chip shortage played spoilsport.

Semiconductor Industry on a High

The semiconductor shortage will not get solved anytime soon. According to IHS Markit, this shortage will result in 700,000 fewer vehicles produced in the third quarter, as carmakers continue to temporarily halt production. According to Bloomberg, this could result in a loss of $61 billion in revenues by the end of this year.

Industry executives now believe that this supply crunch could continue into 2022 and even 2023. However, the semiconductor industry is benefiting from the surge in demand.

Earlier this month, the Semiconductor Industry Association (SIA) painted a rosy picture of the industry. The SIA has projected worldwide semiconductor sales to touch $426 billion in 2021.Also, the global semiconductor market is projected to grow 6.2% in 2021.

The semiconductor industry has been one of the biggest beneficiaries of the pandemic, which saw a surge in sales of electronic goods, including PCs. This resulted in a shortage in supply, which is now hurting not only the automobile industry but also electronic goods manufacturers.

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 five chip stocks that investors can gain from in the current scenario.

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 more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 29.7% over the past 60 days. ON Semiconductors sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Semtech (NASDAQ:SMTC) Corporation’s SMTC (NASDAQ:SMTX) devices are used in a variety of applications including computer, communications, industrial, military-aerospace and automotive. The company also provides a limited amount of wafer foundry services to the other electronic component manufacturers.

The company’s expected earnings growth rate for the current year is 45.7%. The Zacks Consensus Estimate for current-year earnings has improved 5.8% over the past 60 days. Semtech has a Zacks Rank #1.

MaxLinear, Inc MXL is a provider of radio-frequency analog and mixed signal semiconductor SoC solutions for broadband communication applications offering small silicon die-size, and low power consumption.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 13.9% over the past 60 days. MaxLinear has a Zacks Rank #1.

NVIDIA Corporation (NASDAQ:NVDA) NVDA is the worldwide leader in visual computing technologies and inventor of the graphic processing unit, GPU. 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 68%. The Zacks Consensus Estimate for current-year earnings has improved 12.6% over the past 60 days. Nvidia has a Zacks Rank #2 (Buy).

Vishay Intertechnology (NYSE:VSH), Inc. VSH is a global manufacturer and supplier of semiconductors and passive components. Its products include metal oxide semiconductor field-effect transistors, Diodes (NASDAQ:DIOD) and Optoelectronic Components.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 8.3% over the past 60 days. Vishay Intertechnology has a Zacks Rank #2.

Tech IPOs With Massive Profit Potential

In the past few years, many popular platforms and like Uber (NYSE:UBER) and Airbnb finally made their way to the public markets. But the biggest paydays came from lesser-known names.

For example, electric carmaker X Peng shot up +299.4% in just 2 months. Think of it this way…

If you had put $5,000 into XPEV at its IPO in September 2020, you could have cashed out with $19,970 in November.

With record amounts of cash flooding into IPOs and a record-setting stock market, this year’s lineup could be even more lucrative.