5 Semiconductor Growth Stocks to Buy Now and Hold
It’s hard to overstate the importance of the semiconductor industry right now. It produces the advanced computer chips that are essential to power the most popular consumer products, from smartphones to cars.
Global manufacturers across many industries are grappling with continued shortages of these components as the pandemic has triggered production shutdowns in Europe and Asia. But the shortages are also a symptom of a more powerful driving force: growing demand as our lives move further into the digital realm and our appetite for smart technologies increases.
Global semiconductor sales are expected to reach $600 billion in 2022 and could be worth $1 trillion a year by the end of this decade. These five actions can help you take advantage of this powerful trend.
Busy (CUHU -0.08% ) is a minnow of the semiconductor industry with a valuation of just $1.3 billion. But that doesn’t accurately reflect its importance, because although it doesn’t produce chips itself, it provides testing and handling equipment essential to the manufacturing process.
The company’s equipment is used to inspect and handle chips used in consumer products, industrial applications, mobility (think 5G networking), and even the automotive industry. Its defect detection capabilities are important to ensure that the final product meets quality standards before it reaches the end user.
The new auto industry has been one of the hardest hit by semiconductor shortages during the pandemic. Cohu focused on this segment, which became the most important, accounting for 17% of the company’s total turnover. As new vehicles come equipped with a plethora of sensors and digital features, chipmakers are increasingly demanding Cohu’s Neon Inspection System, which is designed to handle semiconductors used in such applications. .
Cohu had its biggest year ever in 2021, generating $887 million in revenue and $3.45 in earnings per share. Its stock therefore trades at a price/earnings multiple of just 8.1, a 68% discount to the iShares Semiconductor ETF. That means Cohu shares would need to more than triple to trade in line with their industry peers.
2. Advanced microdevices
When it comes to advanced hardware, Advanced micro-systems (AMD 0.10% ) has become a household name. It produces some of the most sought-after semiconductors in the industry, with a long portfolio of top-tier customers.
AMD’s chips are found in top-selling game consoles like sonyfrom PlayStation, Microsoft‘s Xbox, and even You’re herethe Model S and Model X electric vehicles from . But that’s not all: the company also produces graphics cards for virtual reality purposes, designed to work with Metaplatforms‘ Range of Oculus headsets, making them a potential player in the future of the Metaverse.
AMD is firing on all cylinders financially, achieving its highest-ever annual revenue in 2021 of $16.4 billion, representing 68% growth over 2020. It has also increased its gross profit margin from 45% to 48%, helping the company more than double its non-GAAP earnings per share to $2.79.
AMD faces incredible opportunities in the coming years in virtual reality, data center and gaming, making it the ultimate semiconductor stock with broad exposure to the industry.
3. Axcelis Technologies
The next semiconductor growth stock investors should buy now and hold is Axcelis Technologies (ACLS 0.51% ). Like Cohu, Axcelis supplies crucial equipment to semiconductor producers. Its ion implanters are essential to the manufacturing process for chipmakers, and investors are noticing the company’s value to the industry.
Since hitting its pandemic low in March 2020, Axcelis stock has climbed over 350%, making it one of the best performers in the entire industry. It backed that up with strong operating performance, nearly doubling its earnings per share to $2.88 in 2021, thanks to growing demand for equipment in its Purion Power Series line.
This line of ion implantation equipment is used to manufacture chips for a wide range of segments including automotive, mobile and even artificial intelligence. The company has released a series of announcements since September 2021 informing investors of significant shipments of its Purion Power Series products to semiconductor producers around the world.
Axcelis is so confident in its position that it has just announced a share buyback program, with the aim of returning $100 million to shareholders, adding yet another reason to buy its shares.
4. Micron Technology
Micron Technology (MU -0.81% ) is a leading producer of memory and storage chips, and while this part of the market may seem less glamorous, it’s just as important (and profitable). Micron’s products are most commonly used in personal computing and data center applications, but are rapidly advancing into high-growth segments such as mobile and electric vehicles, particularly those with autonomous (self-driving) capabilities. conduct).
Smartphones capable of operating on the 5G network require up to 50% more memory than their 4G-capable counterparts – more than double the storage capacity – and Micron produces the fastest mobile DRAM product available today. This presents the company with a huge opportunity for organic growth simply through the global transition to 5G.
But traditional end markets like data center, personal computing and graphics still drive the bulk of Micron’s revenue, which topped $27.7 billion in fiscal 2021. Analysts believe that will grow to more than $32 billion in 2022, alongside $9.04 in earnings per share, with one Wall Street firm, in particular, betting that Micron stock could more than double from its current price .
The latest semiconductor growth stock investors should buy and hold is Nvidia (NVDA -0.25% ), which is one of the hottest names in the industry. It produces arguably the best graphics chips in the world, popular among gamers and supercomputer operators. But its fastest growing segment is actually in the metaverse, which emphasizes the company’s constant innovation.
Nvidia’s Omniverse Project is a virtual world simulation platform, with real-time collaboration capabilities for creators using the company’s RTX graphics cards. Developers can create virtual environments, be it games or metaverse applications, and this leads to strong growth for the business. Omniverse is part of Nvidia’s professional visualization segment, which grew revenue by 100% in 2021 — the fastest of any company’s business.
But traditional games still generate the bulk of Nvidia’s revenue. Besides the hardware aspect, its cloud-based GeForce Now platform is used by over 14 million gamers to access their favorite titles, eliminating the need for patches or updates.
Nvidia may have the most exciting future of any semiconductor company as it continues to expand beyond just chip production. And with over $34 billion in estimated revenue for the current fiscal year 2023, it’s a financial powerhouse worthy of your wallet.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.