Semiconductors power the modern world. From the navigation in your car to the smart fridge that tells you you’re out of ice, to your cell phone, laptop and video game console, semiconductor microchips enable the technology that each of us rely on to run our daily lives.
Our growing dependence on semiconductors has been driven home this year as the world struggles with a shortage of these all important microchips. The auto industry has been particularly hurt by the current shortage, with automakers ranging from General Motors (NYSE:GM) to Tesla (NASDAQ:TSLA) forced to scale back production due to a lack of semiconductor chips. Cell phones and video game console manufacturers have also seen disruptions.
President Joe Biden has held meetings with the heads of leading semiconductor companies and allocated $50 billion in his infrastructure bill to remedy the problem. As the world becomes more connected and dependent on semiconductors, we take a look at four companies that are leaders in this all-important sector.
- Nvidia (NASDAQ:NVDA)
- Taiwan Semiconductor (NYSE:TSM)
- Intel (NASDAQ:INTC)
- NXP Semiconductors (NASDAQ:NXPI)
Semiconductors: Nvidia (NVDA)
Nvidia stock is finally breaking out and reaching new highs after months of consolidation and pullback. Following a peak in early November of $582 a share, NVDA stock fell as low as $463.73 in early March as investors rotated out of technology and started buying shares of airlines and restaurants again.
Uncertainty surrounding approval of Nvidia’s $40 billion purchase of British semiconductor and software design company Arm Ltd. further depressed Nvidia’s share price.
What a difference a month can make. Since bottoming on March 8, NVDA stock has rallied 22% and is now trading at more than $600. Growing optimism that the Arm deal will be approved by regulators and give Nvidia greater capacity in artificial intelligence, coupled with strong sales and growing demand for its semiconductor chips has this Santa Clara, California-based company back in the good books with investors.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor is working around the clock these days to manufacture the components that semiconductor companies desperately need to reverse the current microchip shortage and help companies ranging from vehicle makers to smartphone producers get back on track.
This is because Taiwan Semiconductor is what’s known as a “semiconductor foundry.” It fabricates the integrated circuits that are needed to make semiconductor chips. Other semiconductor companies outsource the manufacturing of their needed chip components to Taiwan Semiconductor.
With the current microchip shortage impacting the global economic recovery, there is considerable demand for Taiwan Semiconductor’s specialized work. Demand is so great that Taiwan Semiconductor announced on April 1 that it will spend $100 million over three years to expand its manufacturing capacity.
This demand has been reflected in the company’s share price, which is up 8% since the end of March. At $116, TSM stock still has a ways to go if it is to retest its 52-week high of $142.20 that it reached in mid-February before the so-called “tech wreck” began.
Semiconductors: Intel (INTC)
Investors turned bullish on Intel, which remains the world’s biggest semiconductor chip manufacturer by revenue, after new CEO Patrick Gelsinger announced that the company will spend $20 billion to build two new microchip manufacturing factories in Chandler, Arizona.
While semiconductor companies have increasingly been choosing between microchip design and fabrication, Intel says it will do both going forward. Investors stood up and cheered.
After years of stagnating and trailing the stocks of other semiconductor companies such as Nvidia, INTC stock is again hot. Year-to-date the company’s share price is up 30% to $63. Investors also seem to like the vision espoused by Gelsinger, the new CEO, who has said that he wants the U.S. to claim at least a third of the global market share for semiconductor microchip manufacturing, up from just over 10% currently.
Gelsinger and other Intel executives have also been advising the White House on the current chip shortage and how to weather the storm.
NXP Semiconductor (NXPI)
Now for a less-obvious choice. NXP Semiconductor is a Dutch company that is at the center of the current microchip shortage. This is because NXP makes semiconductors and related technology that power in-car entertainment systems, mobile phones and security applications the world over.
Today, 40% of the company’s $9 billion in annual sales comes from the auto industry. The semiconductors made by NXP are also widely used in the wireless infrastructure that is now converting to 5G (fifth-generation broadband) amid surging demand from companies and consumers.
Strong demand has helped lift NXPI stock 26% since the end of January and it now trades at $200 a share. Because NXP Semiconductor focuses on connectivity and connected devices, such as the ones that are increasingly found in vehicles, its business is booming. The company reported that fourth-quarter revenue increased 9% from a year earlier to $2.5 billion.
NXP’s guidance has been equally strong, with the company forecasting that its sales will increase 26% in this year’s first quarter alone. Boom times indeed!
On the date of publication, Joel Baglole held a long position in NVDA. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article.