Last year, investors may have noticed a massive flight of capital took place. Capital moved away from tech, as widespread concerns about rising interest rates caused fear. Semiconductors are integral to the tech sector, and suffer as a consequence. That said, some semiconductor stocks have rebounded, trending upward since late last year. This can be easily seen by looking at various ETFs, such as the iShares Semiconductor (NASDAQ:SOXX).
Still, the semiconductor market remains well below its early 2022 levels, as measured by these indices. So, it’s reasonable to assume that investors could see continued returns in the near-term, as a rebound continues. The EV sector should continue contributing to the growth, and the emergence of AI poses further prospects.
Ultimately, investors who play the long game will likely succeed in owning undervalued chip stocks, particularly as growth projections remain robust.
Here are the seven top undervalued semiconductor stocks on my watch list now.
|AMD||Advanced Micro Devices||$92.47|
Skyworks Solutions (SWKS)
Skyworks Solutions (NASDAQ:SWKS) sells many products, including amplifiers, attenuators, diodes, modulators, isolators, optocouplers, and phase shifters, among other things. If you’re a relative outsider to the industry (like me), that doesn’t mean a lot. What’s important here is that Skyworks Solutions stock produces chips for the ubiquitous, always-on technology that dominates our society.
Fortunately for investors, shares of SWKS stock are undervalued, based on Wall Street’s analysis. Analysts believe it’s underpriced by roughly $15 per share. Gurufocus, a technical-analysis screener, believes Skyworks is much more deeply discounted. It estimates that SWKS shares have approximately $70 of upside.
The firm’s strong performance seems to substantiate these upbeat views. Skyworks Solutions exceeded consensus revenue expectations while posting record cash flows in Q1. The company continued to build relationships with leading firms across IT, EVs, and data centers, each a promising growth area in its own right. Skyworks has grown revenue by 20.2% over the last three years, ahead of more than two-thirds of its semiconductor competitors.
MaxLinear (NASDAQ:MXL) is another undervalued semiconductor stock worth considering. The company is focused on the realization of multi-gig connectivity. In other words, MaxLinear creates technology that allows internet speeds over 1 gigabit per second. So, the company’s appeal is in fulfilling our ever-increasing demand for more critical information at incredible speeds.
Current estimates suggest that MXL stock has 33% upside above its $34 share price. The firm’s financial results support such a view. MaxLinear’s revenues reached $290.6 million in Q4, up 17% year-over-year. While that is a strong figure, it is still lower than the 45.8% revenue growth the company has experienced over the past three years. That slowing growth likely scares away many investors. This is especially true following a 2022 in which the chip industry struggled.
However, MaxLinear still saw revenues increase 26% in 2022 overall. Net income increased, too. Perhaps most importantly, free cash flow from operations doubled to $388.7 million. These numbers suggest more upside could be on the horizon for this strong performer.
Intel (NASDAQ:INTC) is, in many respects, the opposite of MaxLinear and other smaller, rapidly-growing chip stocks. Intel is a massive player in this sector, but its performance hasn’t been beautiful. The firm has been in a prolonged slump, culminating in a Q4 performance that saw sales drop 32% year-over-year.
Many will rightly argue that the company has suffered due to its incompetence. But the company has also faced severe competition as well. That means there’s reason to suspect that INTC shares might be oversold.
Intel’s price-earnings ratio of 16.4-times is ranked better than 58% of its semiconductor peers. So, it’s not unreasonable to say that INTC shares could be oversold. Other traditional valuation metrics, including the price-to-book ratio, also indicate that Intel’s current price should be higher. It’s probably a less-compelling choice on this list, but Intel remains arguably a decent value for investors at current levels.
ON Semiconductor (ON)
The reason that ON Semiconductor’s (NASDAQ:ON) stock continues to be discounted is its meteoric growth. The company joined the elite ranks of the S&P 500 in June of last year following a rapid ascent that saw this company become a household name. Last year’s slide in the chip industry made investors suspect ON shares would fall too. That hasn’t been the case, as the company continues to exceed expectations. Yet, ON stock remains undervalued, an opportunity for investors everywhere.
As mentioned, On Semi beat expectations recently, with revenues and earnings coming in just ahead of analyst forecasts. The company’s growth is something of a curse, though. Macroeconomic uncertainty caused the company to issue unfavorable guidance for the first quarter. Investors have grown accustomed to earnings beats, so the news was poorly received.
I would rely instead on the company’s $3 billion stock repurchase plan as evidence that shares value will rise over time.
Advanced Micro Devices (AMD)
On the one hand, it’s difficult to characterize AMD (NASDAQ:AMD) stock as ‘undervalued.’ Its current price is higher than its average target price after all. Technically-speaking, it’s ‘overbought.’
So why do sites, including Gurufocus, place their assessed value $40 higher than current prices? While I can’t say with 100% certainty, I guess it has something to do with the company’s performance, especially in the relative sense.
AMD’s sales increased by 44% in 2022 and 16% in the fourth quarter. Compare that to Micron Technology (NASDAQ:MU), where Q2 sales fell by nearly 33%. Micron continues to see operational troubles, even as it garners lots of press as an American chip-maker in an era where re-shoring is paramount.
So, although AMD stock appears fully-priced at first glance, I’d argue that it remains undervalued. Capital could reasonably be expected to flow into AMD stock, as investors realize that performance isn’t consistent across the chip sector.
Nvidia (NASDAQ:NVDA), like Micron Technology, suffered a decrease in sales of late, with Q4 revenues down 21%, to $6.05 billion. Last year, Nvidia’s revenue growth flattened, and its net income dropped precipitously. Yet, investors can’t get enough NVDA stock, despite this stock remaining relatively fully-priced.
The reason is likely that Nvidia is doing more than enough to capture investor interest. The company’s data center revenues grew by 11%, accounting for over half of overall sales. That likely helped. And automotive revenues increased by 135%. That’s the key driver most investors have been watching, considering the amount of technology today’s vehicles require. As the EV sector continues to grow at a rapid pace, so too should NVDA stock.
But it’s AI that is probably the overarching catalyst investors are focusing on when it comes to NVDA stock. Nvidia announced partnerships across banking and robotics that leverage its AI capabilities, making the company relevant in the futuristic world we find ourselves in.
Nvidia is angling to carve out significant market share in the intersection of AI and enterprise. That will mean generative AI, chatbots, and other AI catalysts could drive NVDA stock higher from here.
Marvell Technology (MRVL)
Marvell Technology (NASDAQ: MRVL) is an up-and-coming chip stock name. Its performance in the fiscal year 2023 was strong, which matters a great deal.
The company has proven it can sell chips even in unstable macroeconomic conditions. The company’s sales increased by 6% in the most recent quarter, and by 33% over the last year. Remember, Nvidia’s sales were relatively flat over the same period. That’s a solid testament to Marvell Technology. The company is coming off its best year in terms of sales in its history.
Surging sectors including 5G, auto, enterprise networking, and cloud growth drove the company’s strong performance. Marvell Technology has aligned its business operations with some of the fastest-growing semiconductor sectors as we near the midpoint of 2023.
Yet, MRVL stock remains undervalued based on its average target price of $56.35, while it currently trades for around $40. The company is still producing losses, but those losses have narrowed to $163.5 million at year’s end from $421 million a year earlier. Thus, this is a company that’s making a compelling (and rapid) move toward profitability. Long-term investors should like that.
On the date of publication, Alex Sirois 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.