It’s a tricky time to be adding semiconductor stocks to your portfolio.
On one hand, the industry has seen sentiment improve dramatically over the past few months. Growth in technology looks likely to help keep the momentum going and a deal between the U.S. and China could add a tremendous pop to the sector. However, many analysts are cautioning against jumping into the sector with both feet, citing tepid smartphone sales and worsening macroeconomic conditions.
However, if you can stomach some volatility, here’s a look at five semiconductor stocks to buy:
Intel Corp (INTC)
It’s been a troubling year for Intel (NYSE:INTC) stock investors — the tech firm has been undergoing a major shift from relying on its antiquated PC business to focusing on its data center arm, which makes processors for things like data centers and the Internet of Things. With the Data Center Group now making up more than half of Intel’s overall revenue, the company’s turnaround days are firmly in the rearview mirror.
There are a few reasons Intel is a great bet right now — namely the fact that the firm is closely tied to China. Most are expecting to see the trade tensions between the U.S. and China resolved this year, which would be beneficial for semiconductor stocks overall, but Intel may be one of the biggest winners.
Intel sells roughly 40% of its products to China, so a positive outcome would be big news for INTC stock.
Plus, it doesn’t hurt that Intel is one of the biggest, most stable firms on this list. Intel’s dividend yields a respectable 2.26%, which could help investors stomach the volatility that comes along with investing in semiconductors.
NXP Semiconductors (NXPI)
NXP Semiconductors (NASDAQ:NXPI) is another semiconductor stock on the rise as the U.S.-China trade tensions wind down, but what makes this company an interesting opportunity is its strength in the automotive sector. NXP has a strong position among carmakers — it is the largest semiconductor supplier in the industry and its automotive business makes up half of its overall revenue. That’s a big deal because electronic advancement in the automotive market is all but certain over the next few years.
Cars are getting continuously smarter, and with autonomous driving becoming more of a reality it’s not a stretch to imagine that the demand for semiconductors among automakers will be strong over the next 5 years. Carmakers will be reluctant to switch to competing products as they continue to build out connected technology for their vehicles and NXPI’s stronghold in that industry means the shares will likely be long-term winners.
From a valuation standpoint, NXP makes sense considering it trades at a P/E of just 14.3- below the industry average and well below many of its peers.
Nvidia Corporation (NVDA)
If you’re looking for a semiconductor stock that’s got a bit more of a risk/reward profile, Nvidia (NASDAQ:NVDA) could be your best bet. The GPU firm has made a solid recovery so far this year, but NVDA stock is still miles away from its all-time highs above $290. NVDA stock suffered when cryptocurrency demand nosedived, and that created an inventory issue that has weighed on the share price for months. Most are expecting NVDA to put out disappointing Q1 and Q2 figures (management has already guided for a revenue decline of 31% in the first quarter), but after that things look likely to improve.
The case for NVDA goes like this: investors have already digested the cryptocurrency issues and the results of that misstep are evident in the first half of the year. The second half, however, is where Nvidia’s long-term growth story shines. The firm’s growth potential in both the gaming sector and data center spaces is still strong, that narrative has never changed.
That’s where the risk comes in … if Nvidia is able to show that its growth potential is still intact in the back half of the year, NVDA stock should make its way toward its previous highs. However, a weak Q3 and Q4 could confirm bears’ suspicions that the firm isn’t able to deliver high growth without the cryptocurrency market propping it up.
Broadcom Inc. (AVGO)
Broadcom (NASDAQ:AVGO) impressed investors earlier in March when it reported better than expected revenue for the fiscal first quarter. The good news sent AVGO stock up roughly 10% in just 24 hours and the firm has managed to hold on to those gains for the past month. Not only has AVGO benefitted from improved sentiment in the semiconductor space, but analysts seem to love the stock which has helped boost shares.
So can the rally continue? That depends on your outlook. AVGO is poised to benefit from the expansion of 5G smartphone connectivity as well as growth in the Internet of Things. Smartphone growth has been stagnant recently, which could put a damper on AVGO’s results this year and in turn hurt sentiment surrounding the stock.
With that said, investors who are willing to stomach some peaks and valleys are rewarded with a 3.45% dividend yield, which sets the firm apart from its peers in the industry.
Keysight Technologies (KEYS)
Keysight Technologies (NYSE:KEYS) stock has been another impressive performer so far this year and the company has the potential to keep climbing if sentiment remains positive for the industry. One of the big reasons analysts are worried about semiconductor stocks has been 5G and whether or not smartphone sales will pick up to support the demand everyone has been expecting.
What’s good about KEYS is that the company has big bets in the defense market-making it a more defensive play than some of the others on this list. Of course, KEYS is also dependent on the 5G market as the firm is heavily involved in R&D for 5G infrastructure, but it has solid footing in the defense space means there’s some cushion if the 5G optimism starts to fade.
As of this writing, Laura Hoy was long INTC stock.