Semiconductor manufacturers are thriving, thanks to soaring demand over the past year. The ongoing supply crunch of microchips has hurt several industries but has worked miracles for the semiconductor space.
After a solid 2021 that saw sales skyrocket, this year too is likely to be great for microchip manufacturers, as sales are projected to grow in double digits. Given this scenario, investing in semiconductor stocks like Microchip Technology MCHP, NVIDIA Corporation NVDA, Analog Devices ADI and NXP Semiconductors NXPI will be a wise decision.
Microchip Sales Projected to Grow
The pandemic saw millions working and learning from home, which resulted in them investing more in PCs, laptops and other communication devices. At the same time, entertainment was also restricted to indoors, driving demand for videogames and other electronic products, thus pushing demand for microchips.
The growing demand has since then continued, helping the microchip industry flourish. According to a new report from the insurance company, Euler Hermes, the semiconductor industry is one of the biggest winners of the pandemic, and after a solid 2020 and 2021, sales are projected to grow 9% and cross $600 billion for the first time this year. This would follow solid 26% sales growth in 2021, totaling $553 billion.
According to the firm, there are three factors boosting sales. First, soaring demand for consumer electronics such as PCs, smartphones and laptops helped sales. Second, higher prices pushed prices that further helped semiconductor manufacturers earn more revenues. Third, improved product mix due to rising prices made manufacturers come up with new-generation chips, which further helped sales.
Semiconductor Industry on a High Despite Challenges
Global shipments of microchips during the pandemic resulted in massive delays, while demand continued to soar. This resulted in a supply crunch but, at the same time, pushed prices up. However, despite soaring prices, industries like electronics and automobile are still to struggling to procure microchips.
The crisis exists, with carmakers still cutting down production owing to supply shortage. This has led many companies to announce plans to ramp up production. Also, governments across the world are pumping in millions of dollars to come up with new facilities to enhance semiconductor production.
This has resulted in semiconductor manufacturers making the most of the opportunity. Semiconductor sales soared almost every month in 2021, barring one, showing the underlying strength in the industry.
The Semiconductor Industry Association said on Jan 3 that global semiconductor sales hit $49.7 billion in November 2021, increasing 23.5% on a 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.
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.
Analog Devices is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed-signal and digital signal processing (“DSP”) integrated circuits. ADI’s product line comprises amplifiers and comparators; analog to digital converters; digital to analog converters; video encoders and decoders; embedded processing products and DSPs; MEMS and temperature sensors; RF/IF components and converters; power and thermal management ICs, audio/video converters, amplifiers, CODECs, filters and processors. Analog Devices also offers analog, digital and RF switches and multiplexers; analog microcontrollers; clock and timing products.
Analog Devices’ expected earnings growth rate for the current year is 16.6%. The Zacks Consensus Estimate for current-year earnings has improved 5.2% over the past 60 days. Shares of ADI have gained 7.2% in the past six months. Analog Devices carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Microchip Technology has been consistently benefiting from the strength in analog and microcontroller businesses. MHCP’s dominance in 8, 16, and 32-bit PIC microcontrollers remains a major driver of 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 0.5% over the past 60 days. Shares of MCHP have gained 15.1% in the past three months. Microchip Technology carries 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 23.24% in the past three months. NVIDIA carries a Zacks Rank #1.
NXP Semiconductors provides high-performance mixed-signal and standard product solutions that leverage its RF, analog, power management, interface, security, as well as digital processing expertise. NXPI seems well-positioned to capitalize on the level 2-5 automotive market. Its safety products for advanced driver assistance systems and other key categories of autonomous vehicles — Connectivity, Powertrain & Vehicle Dynamics, Body & Comfort as well as Connected Infotainment — have been gaining momentum.
NXP Semiconductors’ expected earnings growth rate for the current year is 34.8%. The Zacks Consensus Estimate for current-year earnings has improved 2.6% over the past 60 days. Shares of NXP have gained 18.7% in the past three months. NXP Semiconductors carries a Zacks Rank #2.
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