One of the slow-developing situations that began with the novel coronavirus pandemic has come to a boil in 2021: chip shortages. This began with a combination no one saw coming. In 2020, supply chains, which were already disrupted by an ongoing trade war between the U.S. and China, took a hit when the pandemic began to close down factories in China. Then, as remote learning and working from home surged, so did laptop sales. After years of decline, PC sales had their first big growth in a decade in 2020. Semiconductor stocks were in the spotlight.
Consumers snapping up PCs and other electronics like TVs and tablets kicked off a massive spike in demand for chips that has resulted in widespread shortages. Now, companies from car manufacturers to smartphone makers are feeling the pinch. Chip shortages are resulting in auto plants being idled and ongoing shortages of next-gen game consoles. The situation has reached the point where the President is now getting involved. The sudden recognition of just how ubiquitous these chips are has boosted interest in semiconductor stocks.
Here are seven that are well worth considering if you want some silicon in your portfolio:
- Advanced Micro Devices (NASDAQ:AMD)
- Broadcom (NASDAQ:AVGO)
- Nvidia (NASDAQ:NVDA)
- Qorvo (NASDAQ:QRVO)
- Taiwan Semiconductor (NYSE:TSM)
- Texas Instruments (NASDAQ:TXN)
- United Microelectronics (NYSE:UMC)
While the demand for laptops will eventually fade to more typical levels, silicon chips are embedded in so many products at this point, that it’s difficult to imagine a scenario where chipmakers aren’t still scrambling to fill orders.
Semiconductor Stocks: Advanced Micro Devices (AMD)
Of course Advanced Micro Devices features prominently on a list of semiconductor stocks. AMD stock has been one of the top performers over the past few years. It topped the S&P 500 in 2019, and followed that up by just barely missing triple-digit growth in 2020.
AMD is supplying the custom processors used by the hit next-gen Xbox Series X/S and PlayStation 5 game consoles. AMD’s desktop processors and graphics cards were in hot demand in 2020, resulting in widespread shortages. At CES 2021, the company took the wraps off new Ryzen 5000 mobile processors and they are expected to become the “must-have” silicon for high-performance laptops in 2021.
AMD stock has yet to recover from its December 2020 highs — and it’s currently right about where it started in 2021 despite a big fourth quarter earnings beat — but that just makes it even more tempting.
Broadcom supplies semiconductors used in a wide range of products, primarily in the telecommunications, smartphone and industrial sectors. Perhaps one of its best-known products are wireless modems, used for connecting to Wi-Fi and Bluetooth networks. Last year, the company announced it would be supplying $15 billion worth of these wireless components for use in iPhones.
AVGO stock had been on a growth trajectory, but that accelerated in 2020 when it notched a gain of 37%. With its chips in high demand, the gains have been even larger in 2021. AVGO stock is up 15.8% so far, and we’re only six weeks into the new year.
Nvidia is a rival to AMD on the graphics card and data center fronts. And it has been a poster child for the impact of chip shortages.
The final quarter of 2020 and into this year has been full of headlines about the shortages of Nvidia’s new RTX 3000 series graphics cards. They are in high demand, and the company simply can’t make them fast enough for PC gamers. Like AMD, the company supplies custom silicon for a game console. In Nvidia’s case, it’s the Switch, which spent most of 2020 setting new sales records, while also being tough to find in stock.
The company also sells GPUs and SOCs (system-on-a-chip) to the automotive industry. This includes its Nvidia Drive self-driving platform, but also a range of sensors and processors used by auto makers and their suppliers. These chips are in high demand as sophisticated semi-autonomous features grow in popularity.
In 2020, NVDA stock topped AMD, posting 121.9% growth. That put it among the elite in the S&P 500, and made it the top-performer among semiconductor stocks in that index. NVDA is off to a strong start in 2021, with shares posting gains over 16% already. If the company can overcome chip shortages to keep up with demand for its products, look out.
Qorvo is best known for its wireless and RF solutions, although the company has been in headlines recently for its Omnia test platform. The National Institutes of Health (NIH) is adapting Omnia for rapid Covid-19 antigen testing. 2020 was a big year for QRVO stock, with its 5G and Wi-Fi 6E chips in high demand for consumer electronics, including smartphones. Qorvo has also been supplying 5G and Wi-Fi chips to numerous auto makers.
With the current shortages rocking the semiconductor industry, Qorvo has an advantage over many of its competitors because it operates its own foundry. Qorvo isn’t forced to wait in line, it can churn out the silicon needed to meet demand. And demand has been surging.
Since the March 2020 market crash, QRVO stock is up nearly 150%. With 5G adoption going mainstream, Wi-Fi 6E starting to roll out in consumer devices, automakers adding wireless connectivity to their cars, rapid testing more important than ever — and no backlogged foundries to put a brake on sales — expect to see future gains for QRVO stock.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor — better known as TSMC — is the world’s biggest contract chipmaker. A who’s who of the technology world counts on TSMC to produce their custom silicon. Companies like AMD and Nvidia design their own sophisticated chips, but it’s TSMC that actually manufactures them. You’ll also find TSMC-produced chips powering the iPhone and the company manufactures the revolutionary M1 processor that’s found in the latest new MacBook Air.
Surging demand for chips from all directions including laptops, game consoles, automobiles and 5G smartphones, have pushed TSMC to the limit. The company told the Wall Street Journal it is increasing capital investments by at least 47% this year in order to boost production. That’s an expenditure of between $25 billion and $28 billion.
TSMC stands to gain even more market share by ramping up capacity on that scale to capitalize on the surging semiconductor stocks.
Over the past 12 months, TSM stock has posted growth of over 135%, including a gain of nearly 24% already in 2021. The prospects for this company are excellent and the 34 investment analysts polled by CNN Business rate it as a near-unanimous “Buy.”
Texas Instruments (TXN)
Many people write off Texas Instruments as a company that used to make calculators. In reality, this is a long-lived semiconductor company with a market capitalization over $165 billion. Its customers span a huge range of industries, including consumer electronics and automotive. TI chips are found in VR headsets, video streamers, infrared thermometers, laptops, automotive displays, satellites and defense technology like sonar and electronic warfare systems. The audio output on the new turntable sitting on my desk is stamped with the TI logo. And yes, Texas Instruments still makes calculators.
If you picked up one of those TI calculators and started punching in numbers, you would quickly realize this is a great company to look at if you’re interested in semiconductor stocks. TXN stock has been in high growth mode for the past five years. That trend is continuing in 2021, with TXN up 12% so far.
United Microelectronics (UMC)
Taiwanese semiconductor manufacturer United Microelectronics fabricates chips and integrated circuits under contract for other companies. UMC stock had a pretty spectacular 2020. After a decade where shares went nowhere, they suddenly caught fire last summer.
Why? It’s that global demand for semiconductors. By the fourth quarter, United Microelectronics reported that its foundries were running at a 99% utilization rate. In comparison, in Q4 2019, they were running at 92%. Go back to Q4 2018, and it was just 88%. In other words, UMC saw a big jump in orders in 2020, and is now essentially running at full capacity. That’s paying off. Several weeks ago the company released unaudited net sales numbers for January 2021, showing revenue up 10.21% YoY for the month.
United Microelectronics is making multiple lists this year. With growth of over 200% in 2020, strong demand for its products, and shares priced in the $10 range, UMC stock also made my list of “7 Great Cheap Stocks to Buy For Solid Growth in 2021.”
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
On the date of publication, Louis Navellier had a long position in AMD, AVGO, NVDA, QRVO, TSM, TXN and UMC. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.