This year is already proving to be a pivotal one for semiconductor stocks. The benchmark iShares Semiconductor ETF (ticker: SOXX) is up 19.5% on a year-to-date basis as of April 24, and VanEck Vectors Semiconductor ETF (SMH) is up about 21.7% over the same period.
The industry is also on the upswing on the political front, with both the U.S. and Europe forwarding government support with the $52.7 billion U.S. CHIPS Act and the $47 billion European Chips Act in 2023. Both pieces of legislation build government funding platforms to upgrade domestic semiconductor growth opportunities and to improve supply chain issues that crimped industry expansion during the pandemic years.
With worldwide semiconductor industry revenues poised to grow to $1 trillion by 2030, which companies deserve a closer look for the rest of 2023? Here’s a set list for the semiconductor-investing crowd:
YTD return as of April 24|
NXP Semiconductors NV (NXPI)|
Qualcomm Inc. (QCOM)|
Monolithic Power Systems Inc. (MPWR)|
Intel Corp. (INTC)|
Nvidia Corp. (NVDA)|
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)|
Advanced Micro Devices Inc. (AMD)|
NXP Semiconductors NV (NXPI)
This semiconductor company is underperforming against the broader industry index, with a year-to-date gain of 8.1% versus VanEck’s nearly 22% growth margin. But all is not what it seems with NXP, which appears to be positioned ideally to benefit from a ramp-up in demand from some of its strongest buyers, including those in the automobile, industrial and Internet of Things industries. Of the $13 billion earned in 2022, $9.5 billion came from those customers. Mix into the recipe NXP’s solid dividend yield of 2.4% and its appealing forward price-earnings ratio of 12.3, and it’s apparent that NXPI should be a lock as one of the top chip stocks of 2023.
Like a lot of semiconductor stocks, QCOM revenues have been negatively impacted by a slowdown in the global smartphone market, as 5G infrastructure spending has drifted downward in 2023. Chip stocks have a reputation of being among the most cyclical on global markets, and a brief trough may be in play this spring as semiconductor expectations soften.
According to Deutsche Bank analyst Ross Seymore, taking the long view is a wise move with companies like Qualcomm. “Heading into Q1 earnings, the key message from our point of view is ‘patience,'” Seymore said in a note to clients in mid-April. The industry “has priced in a ‘V-shaped fundamental recovery beginning in the second half of 2023 that may prove challenging to deliver due to high levels of inventory and continued macroeconomic headwinds,” such as inflation, interest rates and weak demand across the economy.
By May or June, industry headwinds are expected to pick up again, which means that high-value stocks like QCOM may be a bargain.
Monolithic Power Systems Inc. (MPWR)
At a 34% run-up so far in 2023, Monolithic Power is rewarding investors who know the value of a strong supporting stock in a rising industry. MPWR is tightly aligned with the major semiconductor giants, providing integrated power and power delivery architectures for a broad array of microchip markets, including computing and storage, automotive, industrial, communications and consumer applications markets.
A good portion of its revenues from MPWR’s expertise is in building direct current to DC integrated circuits used to bolster voltages of various electronic systems, such as portable electronic devices and medical equipment. Analysts are generally bullish on Monolithic Power, with Wells Fargo’s Gary Mobley calling for a price target of $525 on MPWR. It’s selling at $472.93 per share as of April 24, up from around $424 per share in the past 90 days.
March was the best of times for Intel shareholders, with the company’s share price rising 31% against a modest upswing for the S&P 500. But INTC isn’t the stock for short-term profiteers – it’s really built for the long haul. Prior to 2023, the stock was held back by its strong dependence on personal computer providers to buy its chips, and that’s a market that is going out of style.
Now, Intel is refocusing on more robust client bases that need reliable semiconductor chip manufacturers. The auto industry, for example, recently needed about 1,200 computer chips per automobile, about double the number in 2010.
As vehicle technology expands, automakers will need even more chips for their cars, trucks and SUVs, and dependable suppliers like Intel will be ready to provide them.
Nvidia continues to perform in blockbuster style, with its share price exploding in 2023. On a year-to-date basis, NVDA stock has risen 85% through the first three weeks of April, and it’s up over 40% in the past 90 days.
Can that robust outperformance continue? Certainly, share growth has slowed as Nvidia stock only ticked up 1% in the past month, but it’s another semiconductor stock that’s built to last. The Wall Street Journal rates NVDA as No. 6 on its list of “Top Companies for Financial Strength,” and once-skeptical HSBC technology analyst Frank Lee upgraded NVDA to a “buy” from “reduce” and is calling for the share price to double. Lee says he’s “shocked” (in a good way) by Nvidia’s pricing power going forward.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Taiwan Semiconductor has an advantage not only among other large-cap stocks but also has a big edge in its own industry. According to a new research note from Needham, “Taiwan Semiconductor is one of only three companies in the world (along with Intel and Samsung Electronics Co. Ltd.) capable of producing sub-10-nanometer semiconductors. TSM also leads all competitors in both wafer process and advanced packaging technologies.” Needham is especially bullish on TSM as a gateway stock for new chip investors. “As such, we recommend TSMC as a core holding for investors who look to invest in semiconductors, which we view as the foundation of the expanding digital economy, at a price target of $110.” TSM closed at $84.64 on April 24.
Advanced Micro Devices Inc. (AMD)
AMD has gained an impressive 35.2% on a year-to-date basis as of April 24. Like many high-profile chip manufacturers, AMD is diversifying its client base, from gaming to cloud computing and artificial intelligence. In the first quarter of 2023, AMD rolled out its Ryzen 7040 laptop microchip that features an onboard AI engine – a technology feat no other semiconductor provider has matched. Additionally, AMD’s new MI300 APU merges CPU performance with high-end integrated graphics, adding more iron to its product line. In doing so, AMD is sending a shot across the bow to major competitors and an invitation to investors because of its long-term value, as a stock that already produces results for shareholders.