The red-hot semiconductor sector has cooled off recently as the artificial intelligence hype that fueled massive gains last year simmers down. Now, as the industry’s valuation multiples start plateauing from previously lofty levels, many hidden gem chipmakers seem primed for their time in the sun.
While headline grabbers like Nvidia (NASDAQ:NVDA) soaked up much of the attention during the AI craze, more underappreciated players in the space offer intriguing value now. The rising tide of digitization, AI, automotive electronics, and the metaverse mania will provide a tide that should lift many boats in the semiconductors space over the long haul. Investors just need to look beyond the shiny objects to find the most discounted tickets for that ride. Here are three.
ACM Research (ACMR)
Flying under the radar as a provider of specialized wafer cleaning tools to the semiconductor industry, China-based ACM Research (NASDAQ:ACMR) looks poised to ride powerful geopolitical trends accelerating domestic chip production, in my opinion.
ACM Research posted record Q2 2023 revenue growth of almost 39% year-over-year, driven by strong demand trends in mature node investments within China. Management called out the substantial gap between China’s domestic mature node capacity and actual semiconductor consumption, which creates solid tailwinds for equipment suppliers like ACMR that have significant exposure there.
Additionally, ACMR is making strides with international expansion, having delivered its first evaluation tool order received from a major European semiconductor manufacturer last quarter. While regulatory risks associated with U.S.-China relations exist, I believe ACMR’s differentiated proprietary technology across wafer cleaning, electroplating, furnaces, and other areas gives it a strong, sustainable competitive edge both in China and abroad.
Trading at just around 10.6-times forward earnings, ACMR stock presents sizable upside potential if execution continues, especially given the favorable industry trends. The average analyst price target of $25.80 for this stock implies a massive upside potential of 91.4% from current levels.
Intel Corporation (INTC)
Left behind during the pandemic bull market, Intel (NASDAQ:INTC) now trades at a bargain level compared to the broader semiconductor sector average. Over the past decade, Intel slowly lost process leadership to Taiwan SemiconductorManufacturing Company (NYSE:TSM) as manufacturing challenges mounted. However, under new leadership, Intel’s bold turnaround strategy aims to reorganize the current hierarchy of process technology companies, with Intel in the lead by 2025. It even had its CPU business under threat by AMD (NASDAQ:AMD), but thankfully, the company has started a turnaround here, too, with the company gaining market share.
Additionally, recent boosts to Intel’s foundry ambitions make me very bullish on its prospects. The announcements that Boeing (NYSE:BA) and Northrop Grumman (NYSE:NOC) are joining Intel’s Department of Defense program to develop next-generation chips domestically are huge. Furthermore, the CHIPS Act providing $52.7 billion of funding to bolster semiconductor manufacturing in the U.S. will likely support Intel’s ambitious plans to build new cutting-edge fabs stateside. In Q2 2023, Intel’s foundry revenue already grew over 300% versus last year, showing promising early traction.
Despite the near-term economic demand uncertainty, Intel reiterated its full-year 2023 guidance on its latest earnings call, signaling confidence in its ability to execute the product roadmap. The company expects to launch its Intel 20A node in 2024, which promises major performance and efficiency gains.
With its beaten-down valuation and progress toward achieving both IDM 2.0 leadership and foundry business growth, Intel deserves greater investor attention. Analyst price targets suggest as much as 87% upside from current levels, though the average target has been dragged down by a lowball $17 price target by Rosenblatt Securities.
Qorvo (QRVO)
As a leading radio frequency (RF) solution supplier, Qorvo (NASDAQ:QRVO) serves diverse end markets like defense, internet-of-things (IoT), automotive, and smartphones. Despite macroeconomic uncertainty, Qorvo’s recent design wins across radar, auto, and defense applications provide a solid base of business, in my view.
The company also looks well-positioned to me in higher growth segments like Wi-Fi 7, IoT connectivity, and silicon carbide power devices. Qorvo’s recent multi-million-dollar order for its silicon carbide chips shows its strong positioning to enable more efficient AI servers and data centers. Its Matter 1.1 smart home certification also significantly expanded its serviceable addressable market among top smart home ecosystem players, a segment I’m very bullish on.
Although Qorvo’s Q1 FY2024 results showed declines versus last year amid inventory adjustments across the supply chain, management expects demand recovery in the second half of 2023. Qorvo’s very strong cash balance of $744 million and reasonable debt load of $2 billion provide stability amidst market volatility. And given its leading market share in RF solutions, exposure to diverse secular growth drivers, and reasonable valuation around 20-times forward price-earnings ration, QRVO looks poised for upside in my view. The average analyst price target of $113.64 represents a modest 14% upside potential from current levels. It may not seem like a lot, but it is a far cry from the downside risk that most semiconductor stocks currently face.
On the date of publication, Omor Ibne Ehsan 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.
