When the novel coronavirus first swept across the globe in February, semiconductor stocks fell off a cliff. Why? Investors feared that the pandemic would kill economic activity, and therefore, kill demand in the global semiconductor market.
But that didn’t happen.
Instead, semiconductor sales actually rose 7% year-over-year in March, and 6% year-over-year in April. That’s because Covid-19 actually accelerated demand from the cloud and gaming end-markets. Plus, the negative demand impacts Covid-19 had on things like smartphone demand are now phasing out.
Against this backdrop of rising semiconductor sales, beaten-up semiconductor stocks have bounced back. In a big way. Since late March, the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) has risen more than 50%.
This big rally in semiconductor stocks will persist.
Thanks to strong demand from the cloud, gaming and 5G end-markets — think about catalysts like the 5G iPhone, the PlayStation 5 and the Xbox Series X, just to name a few — the fundamentals underlying the semiconductor market will dramatically improve over the next six to 18 months.
As they do, semiconductor stocks will stay in rally mode.
With that in mind, take a look at these top five semiconductor stocks to buy as the market rebounds over the next few quarters:
- Intel (NASDAQ:INTC)
- Advanced Micro Devices (NASDAQ:AMD)
- Nvidia (NASDAQ:NVDA)
- Qualcomm (NASDAQ:QCOM)
- Micron (NASDAQ:MU)
Semiconductor Stocks: Intel (INTC)
The bull thesis on Intel breaks down into three parts.
First, Intel is the 800-pound gorilla in the data center market. Globally, Intel owns over 95% of the data center CPU market, with a data center business that grew revenues by over 40% last quarter. That’s important, because one of the strongest drivers of semiconductor market strength over the next few months will be super-charged data center demand, as companies across the globe virtualize their offices and workflows, and pivot toward cloud infrastructure.
Second, in 2020, Intel is finally unveiling a new portfolio of 10-nanometer products to match offerings from competitors who have, over the past few years, stole market share from Intel. This new portfolio gives Intel the tools it needs to regain lost market share in 2021 and 2022.
Third, the valuation on INTC stock is highly attractive. INTC stock trades at just 12.5 times forward earnings, with a 2.1% dividend yield.
Combining these facts, it’s easy to see why Intel is one of the best semiconductor stocks to buy for the next six to 18 months.
Advanced Micro Devices (AMD)
Much like the bull thesis on Intel, the bull thesis on AMD breaks down into three parts.
First, when it comes to the semiconductor market, AMD has been, still is and will remain the best game in town, thanks to the company’s ahead-of-the-curve innovation track and portfolio of leading next-generation products. That’s why in the first quarter of 2020, AMD reported 40% year-over-year revenue growth. Analysts expect second-quarter sales to rise more than 20%. Full-year 2020 sales are expected to rise 25%.
You’d be hard-pressed to find those consistently large growth rates anywhere else in this sector.
Second, AMD’s gaming business is ready for a blockbuster second-half showing. That’s because, for the first time since 2013, Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) are unveiling new gaming consoles this holiday season. And both consoles are built on AMD’s Zen 2-powered CPUs. It’s also because AMD is launching its new GPU, the highly hyped Big Navi, in the back half of 2020. That comes against the backdrop of the market wherein 60% of AMD gamers use legacy GPUs (implying a huge upgrade opportunity).
Third, AMD’s strong cloud business — which grew by leaps and bounds in 2018 and 2019 — will remain strong for the foreseeable future, thanks to new product launches and elevated end-market demand. Sustained strength from this all-important business unit will help support continued strength in AMD stock.
AMD stock — which has been one of the hottest semiconductor stocks in the market for several years — will remain red-hot for the foreseeable future.
At risk of sounding like a broken record, the bull thesis on Nvidia stock also boils down to three things.
First, Nvidia is the semiconductor leader in self-driving tech. That’s important, because the global standardization of 5G will enable breakthroughs in edge computing, which will lay the groundwork for significant advancements in self-driving technology. Such significant advancements will create strong end-market demand in the self-driving vertical for Nvidia’s GPUs.
Second, Nvidia’s GPUs are considered best-in-breed. This market leadership positions the company for huge growth in 2021 and 2022, as new video game console launches, coupled with advancements in cloud gaming and AR/VR tech, spark enormous growth throughout the entire gaming sector.
Third, Nvidia has robust exposure to the world’s most important cloud infrastructure businesses. Amazon’s (NASDAQ:AMZN) AWS. Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Cloud. Microsoft’s Azure. All three businesses incorporate Nvidia GPUs. As more and more companies migrate to those cloud infrastructure businesses over the next few years, it will create sustained strong demand for Nvidia’s data center GPUs.
All together, Nvidia’s leadership position in the hyper-growth cloud, gaming and self-driving verticals will allow the company — and NVDA stock — to stay on a winning path.
When it comes to Qualcomm stock, the bull thesis is all about 5G.
The coming 5G revolution is expected to present a $13 trillion global opportunity. And Qualcomm finds itself at the epicenter of the 5G megatrend.
Over the past several years, Qualcomm has amassed a portfolio of intellectual property in order to cement itself as the authority in smartphone chips. Chances are, if you have a smartphone, it uses a Qualcomm processor.
This dominance doesn’t stop at 4G. In 2019, among the first iteration of 5G smartphones, Qualcomm captured over 35% market share. Most analysts believe the launch of new 5G Snapdragon processors in 2020 will only extend Qualcomm’s dominance in 5G smartphones.
With that in mind, Qualcomm is positioned for two-plus years of huge growth as the 5G revolution sparks a global smartphone upgrade super-cycle like we’ve never seen before.
Revenues will roar higher. Profit margins will significantly improve. Net profits will soar.
Against that favorable backdrop, it’s tough to see QCOM stock not going higher.
Last, but not least, on this list of semiconductor stocks to buy is memory chip giant Micron.
Micron reported blockbuster third-quarter earnings at the end of June. Revenues rose 14% year-over-year and 13% sequentially. Gross margins expanded. Operating expense rates fell. Profits rose.
In short, the quarter emphasized that the global memory market is in the midst of a big rebound.
This big rebound won’t stop anytime soon.
Just think about all the catalysts on the horizon here.
5G smartphones, led by Apple’s (NASDAQ:AAPL) 5G iPhone in the second half of 2020. The PlayStation 5. The Xbox Series X. A potential Switch 2 gaming console in 2021. A new class of internet of things devices unlocked by 5G standardization. Self-driving advancements. Super-charged cloud computing demand from accelerated digitization trends.
Inevitably, all of those catalysts will continue to spark elevated demand in the global memory market over the next six to 18 months. As they do, MU stock will stay in rally mode.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long MSFT.