Semiconductors are used in virtually all of the most important emerging technologies. Data centers, gaming, and electric cars all require a substantial number of chips. In fact, electronic components make up nearly 40% of internal combustion vehicles. Additionally, semiconductor chips play a vital role in the electronic equipment such as laptops, tablets, and smartphones that we use every day.
Thus, it’s not surprising to note that demand for chips surged in 2020 and 2021. That said, supply chain difficulties made it difficult to get the chips where they needed to be. This caused many chip stocks to move down from record highs in 2022.
Now, with many manufacturers overestimating their need for chips, these semiconductor stocks have been hit hard. While some argue this has allowed chipmakers to focus on the next generation of chips that will be in high demand, this is still a sector with some risk. That said, as more attention is paid to bringing semiconductor manufacturing in the United States, 2023 may be the start of another semiconductor super cycle.
With that in mind, here are seven semiconductor predictions and supporting stocks for 2023.
Taiwan Semiconductor (TSM)
If you’re going to pick one semiconductor stock, you can’t do much better than Taiwan Semiconductor (NYSE:TSM). This company is the largest pure play in the semiconductor foundry/manufacturing space. Taiwan Semiconductor manufactures semiconductors for other companies, notably Apple (NASDAQ:AAPL), as well as other chip makers such as Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA).
This gives investors in TSM stock diversification within the sector. But as far as semiconductor stock predictions go, I’ll just say that the stock will be at the forefront of the chip market, when it turns around. Accordingly, with the sector’s focus now shifting to next-generation chips, that turnaround could come sometime in 2023.
That doesn’t make TSM stock an easy buy right now. It’s down 47% for the year. That’s more than double the drop in the S&P 500 this year. But at a price-earnings ratio of just 14-times earnings and a dividend with a current yield of approximately 2.9%, Taiwan Semiconductor should have a place on your watch list as we head into 2023.
Texas Instruments (TXN)
Texas Instruments (NASDAQ:TXN) stock is down 19% this year. The reason can be traced to the automotive sector.
The company generates the bulk of its revenue from three primary sectors: automotive, industrial, and personal electronic. Although investors are most familiar with the company’s footprint in the personal electronic sector (i.e. the calculator company), it’s the automotive sector that gives it a real presence in the semiconductor space.
As far as semiconductor stock predictions go, 2023 is likely to be the year when supply chains get untangled. That may lead to a glut on the market that will temporarily be a headwind for TXN stock. But with battery electric vehicles making up only 5% of the nation’s vehicles, the future addressable market will be huge.
TXN stock is currently trading at a price-earnings ratio of around 16.5-times which makes it slightly more expensive than the sector average. However, the company does pay a dividend that currently yields over 3%, and the company has increased it for the last 18 consecutive years.
It’s one thing for the United States to say it wants to bring home semiconductor manufacturing. It’s another thing for companies to be open to doing business stateside. Intel (NASDAQ:INTC) is trying to make that a reality, but the company’s $20 billion plant in Ohio won’t be open for business anytime in 2023.
That isn’t preventing the company from attempting to spend money to make that growth happen. In February 2022, Intel paid over $5 billion for the Israeli semiconductor company, Tower Semiconductor. The company was widely criticized for overpaying for Tower.
More recently, the company is raising more eyebrows by bringing Mobileye public during a bear market. Given the fact that Mobileye would likely be a highly sought-after stock once the market turns around, this acquisition is the latest to raise concerns about Intel’s balance sheet.
However, with a price-earnings ratio of 5.5-times and a dividend yield that is over 5%, INTC stock looks to be falling into the “too cheap to ignore” category.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) has been one of the biggest losers in this sector in 2022. Currently, MU stock is down around 47% for the year. However, the company just announced it broke ground on a leading-edge memory manufacturing fab in its hometown of Boise, Idaho, the first new plant of its type built in the United States in the last 20 years.
What might be concerning investors is that the company continues to spend heavily on capital expenditures. In its last fiscal year, Micron spent more than $12 billion, which represented 39% of its revenue. However, the company believes these investments will pay off in the future.
That said, will investors believe it? One of my semiconductor stock predictions is that they will. In fact, with a price-earnings ratio of 7-times along with a consensus price target that suggests that the stock has a 36% upside, MU stock presents an intriguing buying opportunity for patient investors.
Lam Research (LRCX)
Lam Research (NASDAQ:LRCX) is another picks-and-shovels play in the semiconductor industry. The company makes the equipment necessary to make semiconductor wafers. This puts it on the leading edge of the semiconductor supply chain. The company is a leader and pioneer in the dry etch process. This allows the company to remove material with high-tech equipment.
Unsurprisingly, the company has been posting consistent year-over-year gains in both revenue and earnings. However, one of the most compelling reasons to own LRCX stock is that the company is based in the United States, and that makes it an easy winner as semiconductor companies look to shift to fabricating their chips within our borders.
LRCX stock has an attractive valuation at around 10-times earnings, and the company pays a dividend yield over 2%.
Applied Materials (AMAT)
Applied Materials (NASDAQ:AMAT) is a competitor of Lam Research. And the fact that I’m putting both companies on this list suggests that one of my semiconductor stock predictions is that U.S. companies will broadly benefit from export controls.
In the short term, the company will likely suffer due to slowing demand as well as competition from China. However, Applied Materials expects to grow its revenue at a compound annual growth rate (CAGR) of 13% over time.
Additionally, as Alex Sirois wrote recently, investors can take advantage of the stock’s year-to-date drop which is positioning it as a value stock within the tech sector. Given the company pays a dividend that currently yields 1.4% yield with a payout of $1.04 on an annual basis, this is a stock with strong fundamentals right now.
The last stock on this list is not a semiconductor stock at all. Teradyne (NASDAQ:TER) manufactures testing equipment that is used for semiconductors. Teradyne is poised to benefit from the next generation of 3 nanometer semiconductor manufacturing technology.
This is a stock that proves boring can be beautiful. As you look at the company’s revenue and earnings over any length of time, you just see a company that delivers consistent results. What’s more, over half of that revenue comes from semiconductor testing.
This consistency is reflected in the fact that the stock has 98% institutional ownership. That means it’s included in a lot of mutual funds and exchange-traded funds (ETFs).
That hasn’t stopped the stock from being down 55% in 2022. But the stock is trading at a price-earnings ratio of just over 15-times earnings and even pays a modest dividend that currently yields right around 0.6%.
On the date of publication, Chris Markoch 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.