The macroeconomic and geopolitical environment remains fluid, impairing visibility into a turnaround in equity market sentiment. Tech stocks have led the current market downturn.
The SPDR S&P Semiconductor ETF (NYSE: XSD) has fallen about 35% year-to-date (YTD), signaling that chip stocks are in bear-market territory. In comparison, the SPDR S&P 500 ETF Trust (NYSE:SPY) and the Invesco QQQ Trust (NASDAQ:QQQ) are down about 19% and 27%, respectively.
Growth in the global chip industry is expected to slow by more than half to 10% in 2022 from 25% in 2021, Deloitte said in its 2022 semiconductor outlook report. The slowdown was underscored by memory chipmaker Micron (NASDAQ:MU) in late June when it reported its fiscal year 2022 third-quarter results. Chief executive officer Sanjay Mehrotra said in the release, “Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023.”
Outlook Positive For Semiconductor Stocks
The mid- and long-term outlook is positive. Chip shortages and supply chain issues that were front and center in the first half of 2022 will likely ease by the second half, per Deloitte, though the management consultancy firm does expect lead times for some components to stretch well into 2023.
More and more products — connected devices at homes and smart tags on every box in warehouses — integrate at least some chips in their design. Deloitte expects chip content per car to nearly double between 2013 and 2030.
Against this backdrop, these are a few semiconductor stocks that can be picked up as bargain buys on the dips:
|SMART Global (NASDAQ:SGL)||$17.11|
|Marvell Technology (NASDAQ:MRVL)||$47.11|
|Allegro MicroSystems (NASDAQ:ALGM)||$20.64|
San Jose, California-based Synaptics (NASDAQ:SYNA) is a developer of custom-designed chips, firmware, and software semiconductor solutions for end markets, including Internet of Things (IOT), PCs, and mobile. It supplies connectivity products, audio input and output system-on-chips (SoCs), high-definition video and vision SoCs, SoCs with AI capabilities, touch controllers, touchpads, display drivers and fingerprint biometric sensors.
Third-quarter results released in early May showed 44% year-over-year (Y-o-Y) revenue growth to $470.1 million and record non-GAAP earnings per share (EPS) of $3.75. Synaptics said IOT product applications accounted for roughly two-thirds of its total revenue.
Synaptics flagged weakness in China and at a North American handset maker, along with softer PC sales. The company circumvented the adverse developments with its well-diversified products and customer base. Synaptics issued upbeat guidance for the fourth quarter.
Notwithstanding the stellar fundamental performance, the stock is down close to 60% YTD. The average analysts’ price target for the stock is $216.11, suggesting roughly 85% upside potential.
MaxLinear (NASDAQ:MXL) is a provider of radio-frequency (RF) analog, digital and mixed-signal semiconductor solutions meant for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications.
For the first quarter that ended in March 2022, the company reported a record revenue of $263.9 million. Y-o-Y, the topline grew 26%.
In early May, the company announced a deal to buy Silicon Motion (NASDAQ:SIMO), a manufacturer of NAND flash controllers for solid-state storage devices. The proposed deal will create a profitable company with over $2 billion in revenue. It also adds to MaxLinear’s total addressable market, increasing it from $8 billion currently to $15 billion by 2024.
The stock is down about 55% YTD. The average analysts’ price target of $57.50 suggests scope for over 70% upside potential.
SMART Global (SGH)
SMART Global (NASDAQ:SGH), which was once focused 100% on memory solutions, has now diversified its products and geographies. The recent quarterly results released by the company showed that about 57% of revenue came from memory solutions, 22% from intelligent platform solutions and the remaining 21% from LED solutions.
In the third quarter that ended in May 2022, the company’s revenue grew for the ninth consecutive quarter. Non-GAAP EPS climbed 24% to $0.87.
Also in late June, SMART Global announced a deal to buy Stratus Technologies for up to $275 million. The latter is a provider of autonomous computing solutions in the data center and at the Edge. In March 2021, the company had bought CREE LED products business for up to $300 million.
The stock is down about 50% YTD. The average analysts’ price target for SMART Global is $31.60, up about 85% from current levels.
Nvidia (NASDAQ:NVDA) is a must-have blue-chip chip stock that is trading at a very attractive valuation. As I have pointed out in my late March story reviewing the company’s GPU Technology Conference and subsequently in a May article, Nvidia has a diversified product portfolio and customer base. The company’s fundamentals have been fairly solid for years now.
Even amid the economic and market mayhem in the March quarter, Nvidia reported stellar quarterly results. The company, however, issued soft guidance, citing the China lockdowns and weaker gaming demand from Russia. The predicament alone cannot justify the nearly 50% drop in the company’s stock for the YTD.
The company has an enviable TAM opportunity of $1 trillion, with contributions from both hardware and software.
Recently, a slew of analysts lowered their price targets for Nvidia stock. Most Wall Street firms are concerned about inventory build-up that could negatively impact prices. Despite all the price target reductions, the average analysts’ price target for the stock is $257.41, up nearly 70% from current levels.
Marvell Technology (MRVL)
Santa Clara, California-based Marvell Technology (NASDAQ:MRVL) manufactures semiconductors for data infrastructure and technology companies. The company reported in late-May record revenue for the first quarter of fiscal-year 2023, thanks to strong bookings in all of its data infrastructure end markets. Within the data center, Cloud served as a key source of strength.
Upside in carrier infrastructure and automotive end markets also helped. The company has a relatively smaller exposure to the consumer end market. Any slowdown in consumer sentiment and in turn spending amid the economic challenges may not hurt Marvell Technology disproportionately.
CEO Matt Murphy sounded upbeat on the earnings call.
As we look into the second half of this year and beyond, we are confident that our unique growth drivers in our cloud, 5G, auto and enterprise networking end markets, and our strong track record of execution through economic cycles will continue to be a source of strength.
Murphy also touted the company’s recent design wins as contributors to incremental revenue going forward.
The average analysts’ price target for Marvell Technology stock is $80.33, representing roughly 70% upside from current levels. The stock is down about 45% YTD.
AMD (NASDAQ:AMD) is another high-profile chipmaker that has seen a strong turnaround since early 2017. The fortunes of the company have been rising since the launch of the Ryzen lineup of desktop processors and EPYC server processors. AMD was previously competing only on price and did not focus on high-performance processors.
All these changed under the visionary leadership of CEO Lisa Su. She shifted the company’s focus and product roadmap to align with evolving technologies. The company began developing high-performance computing products that posed competitive threat to its bigger rival Intel (NASDAQ:INTC).
AMD’s market share in the x86 processor rose to a record 27.7% in the first quarter of 2022, according to Mercury Research. The company is also making strong inroads into the server market. Intel, though still a leader, is seeing its market share continuously erode, primarily due to AMD’s competitive push and its own product missteps.
After an extended rally that lasted from late-2017 through late-2021, AMD’s stock has retreated notably. This positions the company for a strong rebound when the macroeconomic conditions and industry fundamentals improve.
Dublin, Ireland-headquartered Navitas (NASDAQ:NVTS) manufactures gallium nitride (GaN) power integrated circuits (ICs). These chips integrate GaN power with drive, control, and protection, boasting fast charging, high power density, and energy savings. GaN, according to the company, runs up to 20 times faster than legacy silicon, provides up to three times more power, and allows three times faster charging in half of the size and weight.
Founded in 2014, Navitas caters to end markets such as mobile, consumer, enterprise, eMobility and new-energy markets. Its clientele include the high-and-mighty in the tech world, including Lenovo (OTC:LNVGF), Dell (NYSE:DELL) and LG Electronics.
GaN IC’s TAM opportunity is about $13 billion by 2026, the company estimates. Demand for connectivity, the shift away from fossil fuels, and the accent on sustainable energy sources will likely serve as positive catalysts for growth.
The company came public via a special purpose acquisition company (SPAC) deal with blank check company Live Oak. The deal valued the combined company at about $1 billion, including private investment in public equity of around $145 million.
The added incentive is its extremely attractive valuation. The stock is down over 71% for the YTD. Analysts, on average, expect the stock to more than double from current levels.
Allegro MicroSystems (ALGM)
Allegro MicroSystems (NASDAQ: ALGM) is a provider of sensing and power semiconductor solutions for motion control and energy-efficient systems. The Manchester, New Hampshire-based company caters to electric vehicles, solar and charging infrastructure end markets.
For the fourth-quarter that ended March 2022, the company reported 14% Y-o-Y revenue growth to $200.3 million. Roughly 70% came from the automotive end market.
Recently, Allegro MicroSystems acquired Heyday Integrated Circuits, a private-held company specializing in fully-integrated gate drivers that enable energy conversion in semiconductor designs.
YTD, the stock has lost about 45%. Analysts, on average, expect the stock price to rise about 55% to $31.60.
I used the following screening criteria for screening chip stocks:
- Market-cap over $300M
- Average volume over 500,000
- Analyst recommendation of Buy or better
- Average price target 50% above current price
- YTD performance down over 40%
Disclosure: On the date of publication, Shanthi Rexaline 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.