Tech stocks have been one of the biggest casualties of the market bloodbath, which started in the beginning of the year. This has pushed the S&P 500 and the Nasdaq in the bear market territory, while the Dow is in correction. However, the semiconductor industry is going strong despite the market onslaught.
Higher demand is driving semiconductor sales over the past year, which is helping manufacturers garner more revenues. Higher demand has resulted in a global semiconductor shortage, which is affecting several industries. And the supply crisis is going to exists this year, thus indicating that sales will once get a boost in the coming days. Given this situation, stocks like
Analog Devices
ADI
,
Microchip Technology Incorporated
MCHP
,
STMicroelectronics N.V.
STM
,
RF Industries, Ltd.
RFIL
are expected to benefit in the near term.
Semiconductor Revenues Continue to Grow
The Semiconductor Industry Association (“SIA”) said on Jul 5 that demand for semiconductors continued to rise through May, which saw sales growth once again. According to SIA, global semiconductor revenues grew 18% on a year-over-year basis in May to $51.8 billion from $43.9 billion in May 2021.
Revenues climbed 1.8% month over month in May from April’s figures of $50.9 billion. Semiconductor sales have now grown more than 20% on a month-over-month basis for the 14th consecutive time. This not only reflects the industry’s underlying strength but also the continued surge in semiconductor demand.
The report also mentioned that sales increased across regions both year over year and month over month. On a year-over-year basis, sales increased 36.9% in the Americas in May, 19.8% in Japan, 16.1% in Europe, 15.8% in the Asia Pacific and 9.1% in China.
On a month-over-month basis, sales jumped 3.9% in Japan, 2.9% in the Americas, 1.7% in China and 1.1% in the Asia Pacific.
Semiconductor Sales Poised to Grow
The semiconductor industry has put up a tremendous performance this year, following a solid 2020 and 2021. Sales were already on the rise and the pandemic gave a further boost to semiconductor demand as millions worked and learned from home during that time.
Demand for PCs, laptops, and other networking and communication equipment also increased. In fact, soaring demand has led to a shortage in semiconductor supply globally. Since the crisis began more than a year ago, numerous governments have invested millions of dollars to increase semiconductor sales. Additionally, producers are increasing their output.
This has been directly impacting sales, which have been rising almost every month over the past two years. According to International Data Corp.’s Worldwide Semiconductor Technology and Supply Chain Intelligence service, global semiconductor revenues are projected to reach $661 billion in 2022, jumping 13.7% year over year.
The industrial and automotive sectors experienced maximum year-over-year growth in demand in 2021. Demand for semiconductors in the industrial sector surged 30.2%, while for the automotive industry grew 26.7%. Higher demand from the automotive sector and a supply crunch have resulted in several carmakers cutting production.
According to IDC, applications like 5G phones, wireless access points, gaming consoles, wearables and datacenters will continue to grow in 2022, which will help drive semiconductor sales.
As the Internet of Things (IoT), artificial intelligence, and virtual reality become more commonplace, the demand for microchips will continue to climb. These cutting-edge technologies cannot be developed without semiconductor technology.
Our Choices
The semiconductor industry is only likely to benefit in the near term, given the surging demand for semiconductors and the ongoing supply shortage. In the current market, there are four chip stocks that investors might gain from.
Analog Devices
is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed-signal and DSP integrated circuits. ADI’s product line is composed of 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 has manufacturing facilities in the United States, Ireland, and Southeast Asia.
Analog Devices’ expected earnings growth rate for the current year is 42.9%. The Zacks Consensus Estimate for current-year earnings has improved 9.5% over the past 60 days. ADI carries a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Microchip Technology Incorporated
develops and manufactures microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks. MCHP reported total revenues of $6.821 billion in fiscal 2022.
Microchip Technology Incorporated’s expected earnings growth rate for the current year is 17.4%. The Zacks Consensus Estimate for current-year earnings has improved 4% over the past 60 days. MCHP has a Zacks Rank #2.
STMicroelectronics N.V.
is a global independent semiconductor company, which designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices used in a wide variety of microelectronic applications. STM’s semiconductor integrated circuits and discrete devices are used in telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems.
STMicroelectronics N.V.’s expected earnings growth rate for the current year is 54.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 60 days. STM holds a Zacks Rank #2.
RF Industries, Ltd.
is engaged in the design, manufacture and distribution of coaxial connectors used in radio communications applications as well as in computers, test instruments, PC LANS and antenna devices.
RF Industries, Ltd’s expected earnings growth rate for the next year is 10.4%. The Zacks Consensus Estimate for current-year earnings has improved 11.6% over the past 60 days. RFIL has a Zacks Rank #2.
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