While everyone has been focusing on the FANGs, the semiconductor stocks have been quietly dominating. The sector benchmark — the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) –managed to clock in a whopping 41% return in 2017. That’s roughly double what the S&P 500 managed to put up last year.
Driving that growth has been rising consumer gadget demand, automation, cloud computing and other high-tech trends. And it doesn’t look like any of these trends are abating any time soon. According to tech data provider Gartner, worldwide semiconductor revenues are forecast to hit a massive $451 billion this year. This is an increase of 7.5% over 2017’s numbers and a near-doubling of Gartner’s previous estimate of growth for this year.
That leaves plenty of room to grow for the semiconductor stocks.
Which means the sector could be a major buy. But which semiconductor stocks offer some of the biggest gains? Here are 3 possibilities.
Superb Semiconductor Stocks #1: Texas Instruments (TXN)
Despite trading for just a few dollars below its all-time high, Texas Instruments Incorporated (NYSE:TXN) could be one of the biggest bargains among the semiconductor stocks. That’s because it’s not just a play on one type or variety of chip. It does them all and it does them with gusto.
This includes plenty of lower-margin commodity-like analog chips. These are the kind that makes their way into every device — from your washing machine to coffee pot. Demand for these sorts of analog chips remains steady and produce plenty of cash flows for TXN. But what is really driving the show is the firms focus on higher-margined and higher-tech fare. This includes plenty of chips for self-driving cars, cloud computing and the internet of things (IoT). In fact, Texas Instruments manage to report a 20% jump in year-over-year sales for these sorts of semiconductors.
This two-prong attack has provided TXN with an abundance of cash flows and earnings. And management has been more than willing to share the wealth. TI has some of the best dividend growth in the entire tech sector. Last year alone, TXN managed to increase its dividend by a whopping 24%.
Those sorts of big revenue and dividend gains should continue as demand for all of Texas Instruments products rise. In the end, TXN is one of the best semiconductor stocks to own for the long haul.
Superb Semiconductor Stocks #2: ON Semiconductor (ON)
It would be great if you could back in time and buy Texas Instruments before it became the two-headed cash-generating monster. Well, you sort of can with ON Semiconductor (NASDAQ:ON).
Historically, ON was a maker of strictly low-margined, high-comedized memory chips. That was fine, but memory chips aren’t exactly a booming business. As we said with TXN, its steady, but not very growth-oriented. So to counteract its low growth state, ON’s management decided to move into higher-margined chips. A 2016 buyout of Fairchild, as well as some strategic moves, has now made ON a player in the automotive, power management and image sensors sectors.
And these sectors are now growing like weeds. Today, nearly 77% of the firm’s revenues come from these higher-margined and higher-tech semiconductors. Those revenues, by the way, managed to increase 7% year over year from the year-ago quarter’s level. Meanwhile, their higher margins have helped on the profit front. ON’s EPS jumped more than 48% year-over-year as well.
That’s some torrid growth. But ON could be just getting started. This is only a few years into its transformation and has plenty of gas left in the tank as it unveils new offerings in these product lines. And yet, shares are still cheap. ON only trades for a trailing 12-month P/E of 13. That’s super cheap for any stock, let alone a tech one.
At that cheap of a price and with such growth, ON could be one of the sleeper semiconductor stocks in the sector.
Superb Semiconductor Stocks #3: AMD Inc. (AMD)
You can’t say that Advanced Micro Devices, Inc. (NYSE:AMD) is second fiddle anymore. The chipmaker is starting to win the war in a big way.
A few years ago, AMD was at Intel Corporation’s (NASDAQ:INTC) mercy. Thanks to better chipsets, faster processors, and licensing deals, INTC became the dominate semiconductors found in PCs. This was a huge issue for AMD when the personal computing boom started to bust. At one point, AMD shares could be had for less than $2.
But that was then, and this was now.
AMD has been innovating. After the successful launch of its ZEN line of CPUs back in 2016, the semiconductor stocks RYZEN and EPYC lines have quickly gained market share in the server and personal computing spaces. Meanwhile, its graphics processing units (GPUs) have quickly become the gold standard for artists, gamers and variety of other intense applications. Bitcoin mining, anyone?
Because of this, AMD sales and earnings have surged. As has its share price — it’s up more than 400% over the last two and a half years. While gains like that aren’t very likely again, a steady climb upwards is almost assured as AMD continues to take market share back from its rival Intel. And as it does, that should boost its share price and investors fortunes.
At the end of the day, AMD is quickly becoming the king of the PC semiconductor stocks once again.