The most valuable and in-demand product on the planet right now isn’t an EV, smartphone or game console. It’s semiconductors — a key component found in all of these devices and every other high-tech product on the market. A global shortage of semiconductors is having a huge ripple effect. Car manufacturers are idling plants because they can’t get the chips they need. Smartphone releases have been delayed. The price of TVs is going up by as much as 30%.
This demand isn’t going anywhere. If anything the demand for semiconductors is only going to increase. That makes the companies involved in the production of semiconductors a very smart investment for a growth-focused portfolio.
As such, I’ve put together a list seven semiconductor stocks that would make great choices:
- Applied Materials, Inc. (AMAT)
- Corning Incorporated (GLW)
- Lam Research Corporation (LRCX)
- Micron Technology, Inc. (MU)
- NVIDIA Corporation (NVDA)
- Taiwan Semiconductor Mfg. Co. Ltd. (TSM)
- United Microelectronics Corp. (UMC)
The obvious choices — semiconductor fabricators — are well-represented on this list. But it pays to cast a wider net. I’ve also included less obvious choices that many investors make the mistake of overlooking, including companies that supply raw materials or provide the technology required to make those “silicon gold” semiconductors.
California-based Applied Materials (AMAT) describes itself as “the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world.”
That’s a big claim, but Applied Materials isn’t just idly boasting. The company supplies material engineering solutions that manufacturers of semiconductors use in the design, product development and fabrication of chips. In its first quarter 2021 results, Applied Materials showed just how much it is benefiting from the scramble to ramp up chip production and yields. It set a record with quarterly revenue of $5.16 billion, up 24% year-over-year. The company projected it will “substantially outgrow our markets again in 2021 and beyond.”
After 8 years of stagnation, AMAT stock caught fire in mid-2020, as the global shortage of semiconductors began to take hold. It has now posted growth of 122% over the past 12 months.
Corning (GLW) is an American company that significantly predates the computer and semiconductor industries. But the glass-maker became a high-tech company through the introduction of optical fiber and the Gorilla Glass that protects many smartphone, tablet and laptop displays.
You may not have realized it, but Corning also holds a critical role in the manufacture of semiconductors. Corning supplies ultra-pure materials for the fabrication process, including fused silica. Its optical materials and lenses are used in the photolithography process used in the manufacture of semiconductor wafers. Advances like Corning’s EUV (extreme ultraviolet lithography) are helping make smaller and more complex chips possible.
Corning makes a great addition to a portfolio. It’s a way to invest in the semiconductor rush, but Corning is also an integral part of many growing high-tech trends, including putting displays in devices and deploying high-speed broadband using fiber optics.
GLW stock is a proven performer, and has delivered growth of 123% over the past 5 years.
Described as a “fundamental enabler” of the global semiconductor industry, Lam Research (LRCX) is focused on the production — or fabrication — of chips. Lam doesn’t design or fabric chips itself. Instead, the company supplies the highly specialized equipment needed to fabricate chips. Higher demand for chips, and fabricators investing in new plants means increased demand for Lam’s services.
When Lam Research announced a record quarter in March, the company’s CEO told investors: “Semiconductors are reaching new heights of strategic relevance, and Lam’s differentiated ability to meet our customers’ scaling challenges positions us well amid a strong wafer fabrication spending environment.”
While growth has steepened over the past year, LRCX was already on a firm growth trajectory. Over the past 5 years, it has rewarded investors with returns of 690%.
Micron (MU) is a leading producer of key components used in high tech products such as RAM and Flash NAND memory. The company’s chips are found in smart phones, games consoles, PCs, graphics cards, thumb drives, servers, TVs, smart watches, automobiles and others. In other words, just about anything you’d care to own.
Micron manufactures its memory chips in its own fabrication plants. This gives the company an advantage over the many fab-less companies that are forced to contract out the production of their semiconductors to third parties. Those companies are waiting in a growing lineup as demand far exceeds production capacity.
An investment in MU stock 5 years ago would net a return of 640%. With demand for Micron’s products going nowhere but up, expect that impressive growth trajectory to continue.
Nvidia (NVDA) is one of the most recognized names in the computer chip market. The company is a GPU and graphics card powerhouse. Nvidia chips power game consoles, gaming PCs, artificial intelligence, autonomous driving systems and crypto currency mining rigs. This prominent position has helped drive NVDA stock to gains of 1,210% over the past 5 years. That’s a number that would be much higher if not for the dip that’s knocked 12% off NVDA share value since mid-April.
As I mentioned in a post several days ago, Nvidia is making big moves outside of graphics processors. In April, the company announced Grace, its first foray into data center CPUs. Expanding from GPUs into computer CPUs has the potential to shake up the data center server market — and significantly boost Nvidia’s data center revenue, which was already worth $1.9 billion in the last quarter. Nvidia is also in the middle of an attempted acquisition of Arm. The U.K.-based designer of custom semiconductors counts the world’s largest technology customers among its customers.
Taiwan Semiconductor (TSM) — better known as TSMC — is ground zero for the global semiconductor industry. It’s the world’s largest contract chipmaker. The company operates vast fabrication plants where it produces 10,761 products for 499 different customers. That puts a spotlight on TSM stock as the poster child for semiconductor stocks.
In April, the company reported its Q1 earnings. The effect of the unprecedented surge in demand for semiconductors was evident in TSMC’s quarterly profit, which beat market estimates with a 19% YoY increase. TSMC sees no end in sight to the demand for semiconductors. In response, it recently announced planned expenditures of $100 billion over the next 3 years to increase its chip fabrication capacity.
TSM stock has delivered a return of 370% over the past 5 years. This is an investment that has long-term growth opportunity written all over it.
Finally, another Taiwanese contract chip manufacturer that makes semiconductors under contract for well-known consumer electronics giants. United Microelectronics (UMC) has seen demand for chips continue to outstrip production capacity at its fabrication facilities, despite running them at full capacity.
As a result — like TSMC — United Microelectronics is investing in additional capacity. The company announced it will spend $3.59 billion over the next three years to do so. Helping to take some of the sting out of the capital expenditure, customers are making deposits to ensure their place in line at the new facilities.
While it showed flat growth for most of the past 5 years, UMC stock shot up in 2020 as demand for semiconductors soared. Over the past 12 months it has posted a gain of 244%. With a seemingly never-ending demand for custom chips, it’s likely to be settling into a period of long-term growth.
On the date of publication, Louis Navellier had a long position in MU, NVDA, TSM, and UMC. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
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