4 Stocks To Buy On Semiconductor Industry's Growth Potential

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The semiconductor industry didn’t have a memorable 2023, as sales declined year over year. However, the good sign is that the industry has been trying to stage a solid rebound since the second half of the year. Sales have been steadily on the rise and are poised to grow further in 2024.

The Semiconductor Industry Association (SIA) said earlier this month that global semiconductor sales totaled $526.8 billion in 2023, reflecting a decline of 8.2% from $574.1 billion in 2022.

However, microchip sales totaled $146 billion in the fourth quarter of last year, jumping 11.6% year over year and 8.4% sequentially. Also, sales increased month over month in December, totaling $48.6 billion, a rise of 1.5% from November, according to the SIA.

The semiconductor industry witnessed unprecedented growth during the peak of the pandemic. However, challenges such as rising costs, supply-chain disruptions, and higher interest rates due to the Federal Reserve's monetary tightening policy began impacting sales in 2022 as demand waned.

The initial slow sales of semiconductors in the first half of 2022 were attributed to inventory adjustments made by clients in the PC, consumer electronics and server sectors. The situation improved in the second half of 2023 as inflation showed signs of decline, alleviating price pressures.

In 2023, semiconductor products across segments recorded impressive sales. Logic products emerged as the leading category, with sales totaling $178.5 billion.

Following closely, memory products totaled $92.3 billion in sales. Microcontroller units (MCUs) saw robust growth of 11.4%, totaling $27.9 billion in sales. Also, sales of automotive integrated circuits (ICs) witnessed impressive year-over-year growth of 23.7%, setting a new record at $42.2 billion.

Now, SIA anticipates double-digit growth in semiconductor sales, driven by increasing demand. Also, the industry is going to benefit once the Federal Reserve starts cutting interest rates, as it will further ease price pressures.

Our Choices

Given the promising future, it would be wise to invest in semiconductor stocks like Applied Materials, Inc. (AMAT), NVIDIA Corporation (NVDA), Micron Technology, Inc. (MU), and Lam Research Corporation (LRCX), which investors can gain from in the near term.

Applied Materials, Inc. is one of the world's largest suppliers of equipment for the fabrication of semiconductors, flat panel liquid crystal displays, and solar photovoltaic cells and modules. AMAT also offers deployment and support services related to the equipment supplied.

Applied Materials’ expected earnings growth rate for next year is 11.8%. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the past 60 days. AMAT presently carries a Zacks Rank #2 (Buy). 

NVIDIA Corporation 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 the current year is 64.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 60 days. NVDA currently holds a Zacks Rank #2.

Micron Technology, Inc. has established itself as one of the leading worldwide providers of semiconductor memory solutions. Through global brands, namely Micron, Crucial and Ballistix, MU 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. Micron Technology’s solutions are used in leading-edge computing, consumer, networking and mobile products.

Micron Technology’s expected earnings growth rate for next year is 1,723.3%. The Zacks Consensus Estimate for current-year earnings has improved 61.3% over the past 60 days. MU currently carries a Zacks Rank #2.        

Lam Research Corporation 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 400%. The Zacks Consensus Estimate for current-year earnings has improved 37.5% over the past 60 days. LRCX presently has a Zacks Rank #2.

Zacks Names #1 Semiconductor Stock

It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.

With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.

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