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Continued Demand Boosting Microchip Industry: 4 Stocks to Buy

Growing demand for microchips amid supply crunch has been helping companies like NVIDIA Corporation (NVDA), Semtech Corporation (SMTC) and Texas Instruments (TXN).

This story originally appeared on Zacks

Growing demand from automakers and electronic-item manufacturers has resulted in a global microchip shortage. This has led many carmakers to temporarily cut production at several plants, which is biting into their revenues now. And experts believe that the crisis is not going to end anytime soon.

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In fact, predictions are that the global automotive industry will incur millions of dollars in losses this year. However, this has seen semiconductor manufacturers benefiting as a result of surging demand.

Carmakers Crippled by Semiconductor Shortage

The semiconductor shortage started posing a problem for the automotive industry from the beginning of the year — just when the industry was trying to get back on its feet after a disappointing 2020 due to the pandemic.

Although demand for cars started rising from the beginning of the year, the microchip shortage came as a big roadblock. This has been continuing since then, with big names like Ford Motor Company F, General Motors GM and Honda Motor Co., Ltd. HMC cutting down production at their various plants over the months.

However, the crisis has only escalated from there. According to consulting firm AlixPartners, the global automotive market is projected to lose $210 billion in revenues in 2021 as carmakers continue to cut production due to the microchip supply crunch.

The firm had earlier predicted in January that losses would reach $606 billion. It again revised the forecast in May to $110 billion but now sees losses doubling from there.

The crisis has escalated as demand for cars have been on the rise since the economic reopening. Most dealers are now complaining that despite high demand they can’t sell cars as production has been slashed at many of their plants.

Semiconductor Industry Benefiting

The microchip supply shortage was earlier hurting only the automobile industry but now smartphone makers and other electronic goods makers too are suffering.

The supply crisis started last year,following the coronavirus outbreak, when demand for electronic items, PCs, laptops and videogames surged. This was because people worked, learned and played from home.

Matt Murphy, CEO of Marvell Technology, recently told CNBC that the semiconductor crisis will extend till 2022 and maybe beyond that. That may not be good news for the automotive and electronic items industry but will definitely boost the morale of chipmakers as higher demand means higher sales.

Earlier this month, the Semiconductor Industry Association (SIA) said that global semiconductor sales jumped 29.7% year over year in August to $47.2 billion and 3.2% month over month.

Our Choices

Given the rising demand for semiconductors and continuing supply crunch, the semiconductor industry is only likely to benefit in the near term. Below are five chip stocks that investors can gain from in the current scenario.

NVIDIA Corporation NVDA is the worldwide leader in visual computing technologies and inventor of the graphic processing unit, GPU. Over the years, the company’s focus has evolved from PC graphics to AI-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 65.6%. The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the past 60 days. Nvidia has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Analog Devices, Inc. ADI is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed-signal and digital signal processing integrated circuits.

The company’s expected earnings growth rate for the next year is 30.6%. The Zacks Consensus Estimate for current-year earnings improved 2.2% over the past 60 days. Analog Devices carries a Zacks Rank #2.

Semtech Corporation’s SMTC devices are used in a variety of applications including computer, communications, industrial, military-aerospace and automotive. The company also provides a limited amount of wafer foundry services to other electronic component manufacturers.

The company’s expected earnings growth rate for the current year is 45.7%. The Zacks Consensus Estimate for current-year earnings improved 5.8% over the past 60 days. Semtech 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 recently announced that it will be introducing a new TI-84 graphing calculator that will supportthe programing language Python.

The company’s expected earnings growth rate for the current year is 32.7%. The Zacks Consensus Estimate for current-year earnings improved 0.8% over the past 60 days. Texas Instruments carries a Zacks Rank #2.

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Analog Devices, Inc. (ADI): Free Stock Analysis Report


Ford Motor Company (F): Free Stock Analysis Report


Texas Instruments Incorporated (TXN): Free Stock Analysis Report


NVIDIA Corporation (NVDA): Free Stock Analysis Report


Honda Motor Co., Ltd. (HMC): Free Stock Analysis Report


Semtech Corporation (SMTC): Free Stock Analysis Report


General Motors Company (GM): Free Stock Analysis Report


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