The global shortage of semiconductors is wrecking the automotive industry. And with that, there are some semiconductor stocks to buy out there for investors to consider.
The latest estimate is that the shortage of semiconductors and microchips will cost the auto industry $110 billion in lost revenue this year. Ford Motor Co. (NYSE:F) recently announced that it is halting production of a handful of its cars due to the semiconductor shortage. Ford expects problems from the microchip shortage to reduce its earnings by $2.5 billion. Additionally, General Motors (NYSE:GM) has also idled production of some vehicles.
So, with auto manufacturers reeling, a number of semiconductor companies are pulling out all the stops to help end the shortage and get production back on track. Thus, let’s examine four semiconductor stocks to buy in order to play the global chip shortage.
- Taiwan Semiconductor Manufacturing Company (NYSE:TSM)
- NXP Semiconductor (NASDAQ:NXPI)
- Advanced Micro Devices (NASDAQ:AMD)
- Intel (NASDAQ:INTC)
Now, let’s dive in and take a closer look at each one.
Semiconductor Stocks to Buy: Taiwan Semiconductor (TSM)
Taiwan Semiconductor Manufacturing Company kicks off this list as the world’s largest and most valuable semiconductor company. It also operates the largest semiconductor foundry on planet earth. The company currently controls 57% of the global semiconductor market with sales of $45.6 billion in 2020. The semiconductors manufactured by TSM are used in everything from vehicle infotainment systems to safety features such as lane departure warnings.
Most analysts agree that the current shortage of semiconductors around the world is likely to persist until Taiwan Semiconductor increases its output. To that end, TSM is planning to build an expansive semiconductor and microchip manufacturing plants in Arizona. The company announced in May 2020 that it would spend $12 billion to build a manufacturing facility in Arizona, but now says it could expand production further in the southwestern state. Taiwan Semiconductor has said it will spend as much as $100 billion over three years to bolster production.
TSM stock is flashing a buy signal right now as it is down 16.5% from its 52-week high of $142.20 per share. At its current price of $115.77 per share, investors should grab stock.
NXP Semiconductor (NXPI)
Next up is NXP Semiconductor, the Dutch semiconductor manufacturer headquartered in the Netherlands that employs 31,000 people in 35 countries around the world. Semiconductors and microchips produced by NXP are used in vehicle brakes and power steering systems, and the company is frequently mentioned in media reports about the impact of the global semiconductor shortage on the automotive industry. In 2020, 44% of NXP Semiconductor’s sales came from the automotive industry.
NXP Semiconductors is also unique in that it both designs and fabricates semiconductors and microchips in-house. Most semiconductor companies concentrate on design and outsource the fabrication to companies such as Taiwan Semiconductor Manufacturing. NXP Semiconductor focuses heavily on the auto industry, developing semiconductors and microchips for autonomous vehicles and advanced driver assistance systems, as well as electric vehicles.
Year-to-date, NXPI stock is up 32%. However, the share price is currently 1% below its 52-week high and looks attractive at just over $200.
Semiconductor Stocks to Buy: Advanced Micro Devices (AMD)
Although mainly focused on making semiconductors and microchips for personal computers, laptops, and data centers, some of Advanced Micro Devices products make their way into motor vehicles, in areas such as onboard navigation systems and voice over commands. And AMD’s overall business is booming as demand for its products spikes during the global shortage. The company’s first-quarter revenue this year was 93% higher than in the same period of 2020. Net income was up 189% year-over-year.
Advanced Micro Devices is now finalizing the acquisition of Xilinx (NASDAQ:XLNX), which will give AMD more capacity in the data center and networking segments of the semiconductor market. The Xilinx purchase will also enable AMD to expand into the cloud computing market. Despite strong demand and sales, AMD stock is currently 17% below its 52-week high of $99.23 reached in January of this year. At its current level of $78.42 per share, AMD looks like a steal for investors.
Intel (INTC)
Intel Corp. has been struggling to regain its footing in the competitive semiconductor market, and the global shortage that is hurting automotive production looks to be providing the Santa Clara, California-based company with an opportunity. Intel announced in April that it is planning to produce microchips for automakers within six to nine months in an effort to alleviate the current shortage that has halted vehicle production around the world.
Like NXP Semiconductor, Intel is one of the few companies in the semiconductor industry that still designs and manufactures its own semiconductors and microchips. To help the auto industry, Intel has said that it will use its factories to manufacture automotive microchips and enable production to resume on assembly lines across the U.S. and abroad. Manufacturing of automotive microchips is expected to begin at Intel factories in Oregon, Arizona, New Mexico, Israel and Ireland this autumn.
After reaching a 52-week high of $68.49 on April 12, INTC stock has fallen 12% and now trades at $57.73. The new focus on making chips for auto companies could give the shares a lift in coming months.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
