Investing in Semiconductor stocks
The demand for semiconductors has grown exponentially in the last decade and it is widely expected by analysts that the industry will grow into a valuation of over a trillion dollars by 2030.
The electronic devices used to power everything from computers and cell phones to solar panels and cars provide a future-proof investment with the general expectation that semiconductor stocks will continue to outperform the market in the long run.
Some of the larger semiconductors companies in the world include Intel Corporation, Nvidia, and Samsung Electronics. These companies make chipsets for virtual reality headsets, self-driving cars, ATMs, LED light bulbs, gaming consoles, and sometimes even rice cookers.
Investing in semiconductors in the current market comes with the risk of volatile swings in the short term. The risk in the long term, however, is quite reasonable. With the semiconductor industry having sold a record 1.15 trillion semiconductor chips in 2021, according to the Semiconductor Industry Association, it continues to prove to be an industry every investor should look at.
Reasons to consider semiconductor stocks
Growth of the virtual world
Companies in different industries have consistently scaled their efforts in providing seamless customer experiences, creating connected ecosystems that transcend physical and virtual worlds. Real Estate companies for example have introduced virtual tours that allow their clients to use hologram-powered virtual reality sets to check out houses or hotels before making purchases or reservations.
A company that is also deeply invested in the virtual world is Meta, with the metaverse alone estimated to become an $800 billion market by 2024.
Growth of hybrid and electric car demand
Another industry that has raised the demand for semiconductors, is the Automotive industry. According to data from KPMG, the top three industries driving semiconductor revenue growth: Wireless, automotive, and the Internet of Things.
Hybrid electric vehicles for example can have up to 3,500 semiconductor chips, with an average value of around $1,000. The automotive industry depends so much on semiconductors that delivery of vehicles dropped as prices of new cars increased during the pandemic, thanks to suffered supply constraints as the pandemic-induced lockdown closed chip fabrication facilities while demand surged.
The chip demand was further driven by raised demands in PCs, mobile phones, and crypto-related graphics processing units (GPUs). But the 2022 tech meltdown reduced PC shipments, and the crypto bubble burst reduced GPU demand. Just when semiconductor supply constraints were easing, the United States banned the export of advanced chips to China, one of the largest markets for semiconductors.
Semiconductor stocks to consider
Micron Technology is a US-based semiconductors producer considered one of the largest in the world. Products produced by the company include DRAM, SRAM, flash memory, and other semiconductor devices. Micron’s semiconductors are used in a variety of products including computer memory, mobile phones, digital cameras, and automobile electronics.
The company released its 4th quarter 2022 and 2022 full-year financial results in late September. The company reported earnings of $1.36 per share with revenue of $6.6 billion. Whilst revenue fell for Q4 2022 by 19.7% on a year-over-year basis, for the full-year 2022, the company reported revenue of $30.76 billion, compared with $27.71 billion the previous year. Also, operating cash flow for fiscal 2022 came in at $15.8 billion, versus $12.47 billion in 2021. What’s more, the company said it’s projecting first-quarter non-GAAP results to range from a loss of $0.06 per share to earnings of $0.14 per share along with revenue estimates of $4.00 billion to $4.50 billion.
The company also announced that it delivered our sixth consecutive year of positive free cash flow, allowing them to return a record $2.9 billion to its shareholders. This is credited to Micron Technology and manufacturing leadership in both DRAM and NAND production.
The company’s stock has been battered alongside other Wall Street stocks this year, with the chip maker down over 40% year to date. Analysts believe this offers an opportunity to get the stock cheaply.
Nvidia is an American Technology company that mainly deals in the design and manufacturing of graphics processing units (GPUs) for the gaming and professional markets. The company also produces system-on-a-chip units (SoCs) for the mobile computing and automotive market. Nvidia’s most popular product is its flagship line, GeForce, which is responsible for high performance for gaming and other demanding applications.
Nvidia stock was up on Friday, with shares of the company rising 7% in the week, outperforming the Nasdaq Composite’s return of 2.6% over the last week. The boost in stock was courtesy of an announcement earlier on Tuesday between the company and Oracle announcing an expanded partnership to power Oracle’s cloud infrastructure with the A100 and upcoming H100 graphics processing units (GPUs). It’s a testament to Nvidia’s growing competitive position in accelerated computing with its solutions covering chip hardware, systems, and software.
The stock has fallen 58% year to date over concerns about weakening demand across the semiconductor industry. On a positive note, analysts also suggested that valuations are starting to look attractive for the chip stock, which implies that the bottom could be getting closer.