Semiconductor stocks are in an odd spot right now. The VanEck Semiconductor ETF (NASDAQ:SMH) is up nearly 50% year-to-date. However, actual earnings for many semiconductor companies have been lackluster at best and often downright terrible.
The industry is experiencing a glut in many categories, including GPUs, CPUs, analog and memory chips — among other categories. Still, semiconductor stocks are largely up this year not because of earnings today but rather expectations of what might happen in the future as it relates to chips for artificial intelligence-related (AI) applications.
It’s understandable why folks are optimistic, but much of the AI story will take many years to play out. In the meantime, quite a few chip stocks are up sharply despite flat or declining earnings. These three top semiconductor stocks stand out as having strong fundamentals, and their shares are still at attractive prices today.
Texas Instruments (TXN)
Texas Instruments (NASDAQ:TXN) is the world’s largest analog semiconductor company. And it is by a substantial margin, having a notable share advantage over the #2 player Analog Devices (NASDAQ:ADI).
Analog chips are an attractive field, as they have a slower development cycle than chips that go into fast-moving consumer electronics fields. In recent years, the analog market has grown rapidly thanks to new applications in fields like vehicle electronics, automation and remote monitoring/security.
Right now, with the auto market cooling off, TXN stock has slid as well. That’s understandable, as inventories are up across the chip industry. But long-term investors will be richly rewarded; Texas Instrument’s management prioritizes growing free cash flow and returning it to shareholders via both its buyback and generous dividend policy.
Intel (INTC)
Intel (NASDAQ:INTC) has been at the center of the current semiconductor stock storm. Sales of computers have fallen sharply from the boom levels seen early during the pandemic. That makes sense, as the work- and study-from-home trends have now played out, and folks have returned to the office and classroom.
Intel also faces pressure from its evolution to the next generation of chips. The company also experienced significant technical setbacks in rolling out its next generation of microprocessors.
However, sentiment seems much too negative. The computing market will stabilize and return to growth in time. And Intel’s massive R&D budget makes it likely that the company can regain technical parity with its leading rivals.
Meanwhile, Intel’s heavy investments in new American manufacturing facilities will give it access to a great deal of funding from the American government, subsidizing such activity. These new plants should modernize Intel’s operations and set it up for another decade of fruitful innovation going forward.
Taiwan Semiconductor Manufacturing (TSM)
Intel isn’t the only semiconductor giant cashing in on the CHIPs Act opportunity.
Taiwan Semiconductor Manufacturing (NYSE:TSM) is setting up substantial operations in the United States as well. Given the unsettled state of political affairs between China and Taiwan, that seems like a good insurance policy. And some estimates suggest TSM will secure between $2 billion and $6 billion in government assistance for building its Arizona and Texas plants.
TSM will be able to put those plants to good use. The company is the undisputed leader in the chip foundry market, as it earns more than 55% of the entire industry’s revenues. As new chip applications such as AI take off, TSM will see its market grow. Thanks to recession fears and geopolitical worries, the stock is still available at less than 20 times forward earnings.
On the date of publication, Ian Bezek held a long position in TXN and INTC stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
