6 Microchip Stocks to Buy as Supply Shortage Boosts Demand

Acute shortage of semiconductors has been hurting several industries, with carmakers and electronic goods manufacturers suffering the most. This has led many carmakers to temporarily halt production, which is now affecting their sales and revenues.

At the same time, higher demand means that the semiconductor industry is doing well at a time when others are still trying to get back on their feet after taking a hit owing to the pandemic. It can thus safely be said that semiconductors will be in high demand in the coming days but a further supply crunch may compel automakers to go for further production cuts.

Semiconductor Shortage Hitting Automakers

The automotive industry had taken a bad hit following the coronavirus outbreak in March 2020. Factories had to be temporarily closed down and both production and sales plummeted. However, as the economy started reopening, the industry started to make a rebound. That is again facing a roadblock now because of the chip shortage.

Several major automakers were already compelled to cut down production in the first quarter and the same is happening in the second quarter too. This is one major reason why auto sales declined in May.

According to the advisory firm Forrester, the chip shortage is going to last through 2022 and into 2023, which definitely is a reason to worry. 

According to a report by accounting firm KPMG, global automakers could end up losing $100 billion in revenues in 2021 owing to the semiconductor shortage.

Last year, as the pandemic struck, people restricted themselves to their homes. The pandemic changed their entire lifestyle. From working and learning from home to even getting entertained, they did everything without moving out of their homes. This triggered sales of PCs, electronic gadgets and goods to videogames, everything in which microchips play an integral role. Thus demand rose and the shortage intensified, hurting industries like automotive and electronics.

Semiconductor Industry on a High

The U.S. government has addressed the issue of semiconductor shortage but the crisis is far from over. Also, many chipmakers are investing more to open new production facilities. In March, Intel Corporation INTC announced that it would invest $20 billion to come up with two new chip plants in Arizona.

That said, the semiconductor industry has been benefiting ever since the COVID-19 outbreak gave a huge boost to it sales and revenues.

According to the Semiconductor Industry Association (SIA), microchip sales are expected to jump 8.4% in 2021 on a year-over-year basis. The association also expects sales to grow as the supply shortage is likely to continue for over a year.

Besides, the semiconductor industry has started 2021 on a high. After a successful first quarter, sales have been soaring in the second quarter too. Global semiconductor sales jumped 3.6%, totaling $123.1 billion, in the first quarter from fourth-quarter 2020.

Notably, SIA said that demand across various categories of products categories drove sales in the first quarter. This includes higher demand from the electronic goods segment and the automobile industry.

Our Choices

The semiconductor market is likely to continue thriving in 2021.Below are five chip stocks that investors can gain from in the current scenario.

Maxim Integrated Products, Inc. MXIM is an original equipment manufacturer of semiconductor analog and mixed-signal integrated circuits. The company has a broad product portfolio that includes analog-to-digital converters, amplifiers and comparators, communications devices, data converters, and management components, sensors and wireless products.

The company’s expected earnings growth rate for the current year is 38.5%. The Zacks Consensus Estimate for current-year earnings has improved 5% over the past 60 days. Maxim Integrated Products holds a Zacks Rank #2 (Buy).

Silicon Laboratories, Inc. SLAB is a leading provider of silicon, software and solutions for the Internet of Things, Internet infrastructure, industrial automation, consumer and automotive markets. They solve the electronics industry's toughest problems, providing customers with significant advantages in performance, energy savings, connectivity and design simplicity.

The company’s expected earnings growth rate for next year is 28.9%. The Zacks Consensus Estimate for current-year earnings has improved 11.5% over the past 60 days. Silicon Laboratories holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

NXP Semiconductors N.V. NXPI provides high-performance, mixed-signal and standard product solutions that leverage its RF, analog, power management, interface, security, as well as digital processing expertise. 

The company’s expected earnings growth rate for next year is 22.6%. The Zacks Consensus Estimate for current-year earnings has improved 3.1% over the past 60 days. NXP Semiconductors carries a Zacks Rank #2.

NVIDIA Corporation NVDA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that now support high-performance computing, gaming and virtual reality platforms.

The company’s expected earnings growth rate for the current year is 58.4%. The Zacks Consensus Estimate for current-year earnings has improved 18.5% over the past 60 days. NVIDIA has a Zacks Rank #1.

Texas Instruments Incorporated TXN is an original equipment manufacturer of analog, mixed-signal and digital-signal processing integrated circuits.

The company’s expected earnings growth rate for the current year is 23.8%. The Zacks Consensus Estimate for current-year earnings has improved 9.2% over the past 60 days. Texas Instruments carries a Zacks Rank #2.

Micron Technology, Inc. MU through global brands, namely Micron, Crucial and Ballistix, manufactures and markets high-performance memory and storage technologies, including Dynamic Random Access Memory, NAND flash memory, NOR Flash, 3D XPoint memory and other technologies.

The company’s expected earnings growth rate for the current year is 96.1%. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the past 60 days. Micron carries a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.