The semiconductor industry that took a hit in the second half of 2023 is making a solid rebound and holds promise for the rest of the year. Experts had predicted that sales would bottom in the first quarter and then make a rebound and grow further in 2024.
According to the Semiconductor Industry Association (SIA), sales in the second quarter of 2023 were solid compared to the first quarter on rebounding demand. Also, the future looks bright as the worst seems to be over, with sales now having increased for four straight months.
Microchip Sales Rebound
According to SIA, global semiconductor sales reached $124.5 billion in the second quarter, increasing 4.7% from the first quarter. Although sales are still down 17.3% year over year, the jump in the second quarter indicated a positive trend.
Sales grew for the fourth consecutive month in June, reaching $41.5 billion, an increase of 1.7% from the previous month, according to the World Semiconductor Trade Statistics (WSTS).
John Neuffer, SIA president and CEO, also showed optimism about the industry’s prospects, given the steady rise in sales. He also said that the uptrend bodes well for the industry in the second half of the year.
In terms of regional sales trends, sales jumped 4.2% in June in the Americas from the previous month. This was trailed by China, where sales increased by 3.2%, while Japan saw an increase of 0.9%. In Europe, there was marginal growth of 0.1% in sales.
Semiconductor sales surged during the peak of the pandemic and the months that followed as millions stayed indoors and worked remotely, driving demand for PCs, communication devices, electronic goods and videogames.
However, the semiconductor industry suffered following a global shortage of microchips owing to higher demand and supply-chain difficulties triggered by lockdown measures.
This scarcity disrupted several industries like automobiles, power, lighting, and electronics. In the subsequent year, 2022, the supply-chain situation improved, and demand for semiconductors moderated. Despite the ongoing challenges, the semiconductor sector excelled in 2022, recording a solid 3.2% increase in sales, a jump from $555.9 billion in 2021 to $573.5 billion.
The current short-term decline in the semiconductor industry is being fueled by a series of interconnected factors, such as rising prices, geopolitical tensions, and the persistent impacts of the pandemic. Nonetheless, the demand for semiconductors remains resilient.
The worldwide adoption and use of consumer electronics, coupled with the growing influence of artificial intelligence, the Internet of Things, and machine learning technologies, stand as primary drivers for the rising demand for semiconductors. This trajectory is projected to continue strengthening the demand for semiconductors in the coming years.
Our Choices
Considering the promising outlook, investing in semiconductor stocks appears to be a prudent choice. Here are four chip stocks that investors can gain from in the near term.
ON Semiconductor Corporation ON is a supplier of broadband and power management integrated circuits and standard semiconductors used in numerous advanced devices ranging from high-speed fiber optic networking equipment to the precise power management functions found in portable electronics.
ON’s products provide clock management and data flow management for precision computing and communications systems, and power management for distributing and monitoring the supply of power to different elements within virtually every electronic device.
ON Semiconductor’s expected earnings growth rate for next year is 9.4%. The Zacks Consensus Estimate for current-year earnings has improved 7.2% over the past 60 days. ON currently has a Zacks Rank #2 (Buy).
NVIDIA Corporation NVDA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit (GPU). Over the years, NVDA’s focus has evolved from PC graphics to AI-based solutions that now support high-performance computing, gaming and virtual reality platforms. NVIDIA’s GPU success can be attributed to its parallel processing capabilities supported by thousands of computing cores, necessary to run deep-learning algorithms.
NVIDIA’s expected earnings growth rate for next year is 48%. The Zacks Consensus Estimate for current-year earnings has improved 36.5% over the past 60 days. NVDA presently sports a Zacks Rank #1.
ACM Research, Inc. ACMR develops, manufactures and sells single-wafer wet cleaning equipment, which semiconductor manufacturers can use in numerous manufacturing steps to remove particles, contaminants and other random defects. ACMR is headquartered in Fremont, CA.
ACM Research’s expected earnings growth rate for next year is 2.4%. The Zacks Consensus Estimate for current-year earnings has improved 36.3% over the past 60 days. ACMR presently carries a Zacks Rank #1.
Lam Research Corporation LRCX supplies wafer fabrication equipment and services to the semiconductor industry. LAM’s products are used by semiconductor manufacturers in front-end and WLP processes, creating memory, microprocessors, and other logic-integrated circuits for a broad range of electronic devices.
Lam Research Corporation’s expected earnings growth rate for next year is 24.6%. The Zacks Consensus Estimate for current-year earnings has improved 8.8% over the past 60 days. LRCX currently sports a Zacks Rank #1.
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Lam Research Corporation (LRCX): Free Stock Analysis Report
ACM Research, Inc. (ACMR): Free Stock Analysis Report
ON Semiconductor Corporation (ON): Free Stock Analysis Report
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