3 New Chip Leaders To Focus On

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Will the Chip Industry Lead Again?

While we may not always realize it, semiconductors are vital in almost every important technology today. Think about the biggest growth sectors: clean energy, autonomous driving, military systems, healthcare, and advanced computing – semiconductors are needed and play a massive role in each.

For these reasons, the chip group was the unquestionable leader of the last bull market cycle. From February 2008 to January 2022, the Vaneck Semiconductor ETF (SMH - Free Report), the main proxy for publicly traded chips stocks, vaulted 1,300%.

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Unfortunately, at the beginning of last year, valuations got ahead of themselves and became unsustainable. For example, Nvidia (NVDA), the undisputed semiconductor leader, had a nosebleed P/E ratio of 100x earnings.

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Fast forward to 2022, and semis such as Advanced Micro Devices (AMD - Free Report) found themselves in a trifecta of the worst possible scenarios. While their businesses were still profitable, growth was slowing, and many chip stocks were faced with supply chain gluts and macroeconomic forces such as higher inflation and rising interest rates.

Finally, this led to an investor migration from high-valuation tech stocks into safer assets, such as value stocks with more attractive valuations. In other words, investors exited Nasdaq stocks and moved to Dow stocks.


2023 is Different

Thus far, the last few months and the start of the new year have been entirely different. While the Nasdaq is stuck near multi-year lows, industry juggernauts, such as Taiwan Semiconductor (TSM - Free Report), Broadcom (AVGO - Free Report), and Qualcomm (QCOM - Free Report), have stormed back and are at or near multi-month highs.

However, the rebound is not surprising, considering these stocks were pummeled last year, saw shrinking valuations, and continue to manage strong underlying businesses. The real story in the space is the crop of smaller, newer, and innovative entrants which is emerging. In yesterday's trading session, the new group of leadership was on full display.


Follow the Leaders

Impinj (PI - Free Report) is a standout performer. Amid an ugly market reversal, shares rose to new all-time highs on expanding volume.

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This company is a provider of inexpensive micro “RFID” chips, which are used by airline carriers, healthcare, retail, and other sectors to keep tabs on and manage items such as luggage and produce. Because PI’s RFID chips cost less than a dollar, many companies find value in their ability to track essential items and cut back on waste and stolen items.

Its stellar earnings track record proves this. Last quarter, PI swung to a profit and smashed EPS estimates. The stock launched higher by nearly 30% on volume six times the norm. Impinj has since digested those gains and found buyers again yesterday. The stock holds a Zack’s Rank of 2, and it is slated to report earnings on Feb. 8.

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Mobileye Global (MBLY - Free Report) is a leader in the autonomous driving space, and it supplies its technologies to automakers such as Nio (NIO), Ford Motor (F - Free Report), and General Motors (GM - Free Report). Though the company has been around for more than twenty years and was public once before, MBLY is currently on a comeback tour. The company was recently spun off from ailing chip giant Intel Corp (INTC - Free Report). 

Though revenues have been growing at a double-digit rate on average, Intel spun the company off at the same valuation it acquired it – perhaps in an act of desperation. Investors have noticed. Since coming public late last year, shares have bolted higher by more than 15%, outpacing the S&P 500 Index.

Yesterday, shares popped by more than 5% as a Deutsche Bank (DB - Free Report) analyst had glowing words for the company and ratcheted up the price target to $48.

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As deaths related to distracted driving soar, MBLY is at the forefront of the autonomous industry and in a excellent position to grow. Investors looking to get involved in this new and upcoming industry should have Mobileye shares on their short list. The stock is currently working on pre-earnings break out from its first base structure. Earnings are slated to be released Thursday, Jan. 26.

Rambus (RMBS - Free Report) has been a strong stock for a long time, but in the last year, it has morphed into a leader and an elite performer. The chip maker produces technology used in a wide variety of products, including computing, gaming, and graphics.

In fact, you may have used their technology without knowing. Rambus chips were used in the popular Nintendo 64 gaming console. Presently, the company has an impressive client base, including Samsung and Nvidia, with which Rambus has a licensing agreement.

In 2021, management announced a share buyback program of approximately $100 million in common stock – a sign of management’s confidence in the company’s long-term prospects. Outside of last quarter, earnings and revenue have been growing at an impressive clip and are expected to continue.

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Yesterday, shares shot higher by more than 5% to fresh highs. The day’s gains marked the eighth consecutive up day in the stock. Though the stock is worth watching, shares are extended. Prospective investors should watch for a price pullback or consolidation before entering.

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Conclusion  

The chip industry is seeing a resurgence in stock prices and earnings compared to the past few years. Furthermore, the industry is getting much more attractive from a valuation perspective.

Supply chain issues have slowed, and most companies in the group remain in a position of strength. However, savvy investors should focus on fresh leadership names such as Impinj, Mobileye, and Rambus, which outperform from both a technical and fundamental perspective.


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