Stock markets treat semiconductor stocks to buy as a leading indicator of the health of the technology sector.
In 2022, the bear market sent iShares Semiconductor ETF (NASDAQ:SOXX) down by 44.93%. By comparison, the widely followed S&P 500 ETF Trust (NYSE:SPY) lost 24.70%. The semiconductor sector’s steep under-performance spells trouble ahead. Chip companies are already cutting back on what is normally heavy spending on capital expenditures.
Chip firms are bracing for softness that began earlier this year to continue for the rest of 2022. Chips are down because markets are betting that demand for semiconductors will persist into 2023. This speculation is too bearish.
Chips power everything from smartphones, computers and electric vehicles, to centralized servers. Demand for data storage, wider communications bandwidth, and computing problems will not slow.
Aggressive investors need to include semiconductor stocks to buy in their growth portfolio. The slowdown may continue for a brief quarter or two. Eventually, consumer spending will rebound as the economy improves.
Applied Materials (AMAT)
Applied Materials (NASDAQ:AMAT) is one of the semiconductor stocks to buy on weakness. The company cut its fourth-quarter net sales by around $400 million, explaining that the United States export regulation on chips sold in China will hurt revenue.
Applied will pursue additional export licenses and authorizations. Sales will decline again by $400 million in the first quarter of fiscal 2023. Fortunately, the market priced in the impact of the new regulations.
The chip giant benefits from the strong demand exceeding supply. For example, president and CEO Gary Dickerson met with top chief executive officers. The leaders agreed that the company cannot supply enough to meet demand.
In the longer term, Applied has billions in investments ready. It positioned the company to prepare for major positive inflections ahead.
Unfortunately, the company will not need as much marketing and sales efforts to chase weaker demand in end markets. During the pandemic, customers and corporations bought computers to support working from home.
The PC upgrade cycle started during the 2020-2021 pandemic. Now it needs to pivot beyond selling central computing chips. Late last month, Intel said that Moore’s law is not dead. In effect, CEO Gelsinger’s reference to the law ushered Intel’s entry into mainstream graphics cards.
Intel’s GPU could not come sooner. GPU suppliers are offering minimal discounts on the mid-range card. Consumers may buy Intel’s Arc A770 GPU for $329. The GPU will compete with the Nvidia 3060 Ti.
Since this model is in limited supply, Intel may sell its product at a better price. Strong demand for the new GPUs makes INTC one of the best semiconductor stocks to buy for the long term.
Lam Research (LRCX)
Lam Research (NASDAQ:LRCX) raised its dividend by 15% to $0.225 a share in its last quarterly payment. The company intends to increase dividends annually., making it one of the semiconductor stocks to buy for regular income.
Although the stock dividend of 2.19% does not compare to Intel’s 5.63% dividend yield, Lam Research has strong growth prospects today.
The chip sector has been working through a supply chain disruption for around nine months. Lam Research believes the strong NAND market will lift its results.
Layer counts are increasing. As Lam deposits more films on the wafer, it increases the time to output. The denser product should sustain profit margins. Furthermore, the company is investing in its business to maintain its competitive edge.
In December, the company will issue its guidance for 2023. The memory chip market will weaken. Still, price declines for memory will help clear the excess supply.
In addition, the industry will invest less in factories. This gives LRCX stock a boost. The company will enable new node conversions. This should help the company beat expectations.
Marvell benefits from healthy demand for its products. All but consumer hard drive disk drive demand is outpacing supply. In addition, Marvell has new products ahead. This should support its long-term growth prospects.
The cloud-optimized silicon development is a growth opportunity for the company. It has new design wins that it achieved in the last few years. This will add $400 million in revenue next year. The year after that, Marvell will earn $800 million in incremental revenue.
In the 5G business, strong adoption will fuel the company’s growth. In the automotive segment, customers require Ethernet solutions. Top automotive OEMs require Marvell’s technology. Fortunately, customers require the designs in both gas-powered and electric vehicles.
Nvidia (NASDAQ:NVDA) recently launched a powerful graphics card for the high-end gamer.
Retailers are pricing the RTX 4090 card between $1,599 and $1,699. The $100 price above the suggested retail price suggests that the product enjoys strong market demand.
At the time it announced the 4090, Nvidia announced an RTX 4080 12GB. At a glance, the product looked like it had less memory than the RTX 4080 16GB. Experts noticed the performance difference and criticized the product name. Nvidia listened. It will “unlaunch” the product and will relaunch it at a later date.
The company is likely producing limited units of a high-end product. It wants the market to sell out of the current RTX 30 series first.
Nvidia’s revenue warning sent NVDA stock lower. It expects revenue will fall by around $5 billion. The firm revised its growth outlook. It did not see a strong back-to-school demand bump. The weak sales may continue this holiday. Investors should consider accumulating shares as the company works down the excess inventory.
Qorvo (NASDAQ:QRVO) is heavily reliant on smartphone sales. High inflation rates are hurting consumers’ disposable income. If they delay iPhone upgrades, it would hurt Qorvo, which depends on 33% of its sales from Apple (NASDAQ:AAPL).
Investors may take advantage of the lower price-to-earnings multiples on QRVO stock. It is a diversified firm. For example, it has diversification in growth product areas.
The cellular market benefits from multiyear content and integration. In connectivity and sensing, Qorvo’s portfolio has multiple connectivity standards. This includes Matter, Wi-Fi, and ultra-wideband.
Markets overlook Qorvo’s high-performance analog segment. Instead of appreciating the upgrade cycle and 5G infrastructure growth, stock traders react to its stock price.
Qorvo will navigate past the macrocosmic headwind by continuing its design efforts. It will increase volume output as the supply conditions strengthen. Investors may time the low point in its business. The Android business is weakest during the December quarter.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor (NYSE:TSM) is a highly profitable manufacturer. It posted gross margins of 60.4% in its Q3 report. Free cash flow is very strong. Markets refuse to acknowledge the business strength. TSM stock is down by 50% year to date.
In 2023, TSM expects challenges from higher depreciation costs, higher inflationary costs, and unfavorable semiconductor cyclicality. Still, its overseas fab expansions are long-term investments that benefit the company’s health. The company will closely work with its customers to support them strategically. Internally, it will find ways to improve costs.
TSM is cautious about the PC and smartphone market. The market’s softness in the quarter weighed on results. Utilization will be under pressure. During that time, it will work with customers to develop radio frequency and connectivity solutions. This increases TSM’s addressable market.
After customers will work through weak demand, TSM’s utilization will recover. Investors should consider buying a small position before that happens.
On the date of publication, Chris Lau 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.