Everyone knows the top semiconductor stocks to buy. Headliners like Nvidia (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:AMD), and Taiwain Semiconductor (NYSE:TSM) capture investor attention. And, in most cases, they’re direct funnels for retail investor capital.
But secret semiconductor stocks are hiding in today’s market. If you find them, you could be positioned to ride the next leg up as automation, machine learning (ML), artificial intelligence (AI), and more unstoppable trends begin their next leg up. Ultimately, look to one of two things. First, find semiconductor stocks with a niche end item (like a specific part of electric vehicle assemblies, for example). These companies typically dominate their market and are unshakable from that position.
Alternately, look to companies leveraging widespread tech utilization. Semiconductors are an integral part of daily life, and we don’t usually know it. Some companies make components for hundreds of products you interact with daily. These companies spread their risk across many sub-sectors and industries, which also serves to ensure longevity.
Infineon (OTCMKTS:IFNNY) is a strategic stock that taps into two hot sectors: semiconductor stocks and electric vehicle (EV) stocks. This European company specializes in semiconductor manufacturing. Its components are part of many applications, including powering essential vehicle components such as infotainment systems, dashboards, and more.
Infineon’s semiconductors also play a crucial role in less glamorous but vital EV features like anti-lock brake systems, airbag deployment mechanisms, and air conditioning. As EVs evolve into increasingly higher-end automotives (due to R&D costs reducing manufacturing expenses), demand for these semiconductors will skyrocket. Infineon is one of the few chip manufacturers ideally positioned to capitalize on this growing demand.
Beyond simply safety features, the EV infotainment system outlook is especially strong. According to a research report, the demand for EV infotainment systems is expected to see an annual growth of 38% through 2030. As vehicle internals become increasingly intricate, semiconductor demand follows suit. Infineon’s unique position within this niche of the EV value chain sets it apart from broad, niche-use semiconductor stocks.
Semiconductor Stocks to Buy: Lattice Semiconductor (LSCC)
Lattice Semiconductor (NASDAQ:LSCC) is a bigger-picture semiconductor stock focusing efforts on a range of “big data” computing solutions, including edge and cloud computing. At the same time, its core products span across end items ranging from televisions to laptops. This market penetration ensures Lattice’s staying power and recent financials point to strength for this overlooked semiconductor company.
Across the board, LSCC improved its financial standing in this week’s earnings report. Revenue expanded 11% year-over-year. LSCC adapted to cost-cutting initiatives and expanded its gross margin. Likewise, the company’s free cash flow jumped 40% and management executed the twelfth consecutive quarter of share buybacks. Despite the great news, shares fell off a cliff after earnings, posting a net 35% loss over October. What gives?
In a word, demand slowed slightly. AI/ML enthusiasm reached a fever pitch, and, critically, consumers are slashing spending. This means that, generally, the firms with an AI advantage have sufficient computing power to continue for the foreseeable future.
At the same time, consumer sentiment slowing means LSCC’s peripheral products like televisions are sitting on shelves. Of course, the upcoming holiday season could mark a trend reversal. Still, LSCC’s strong financial position means it can withstand a few periods of flat sales growth. At the same time, its expansive portfolio ensures longevity in a competitive industry.
Skyworks Solutions (SWKS)
Skyworks Solutions (NASDAQ:SWKS) is another niche semiconductor stock with deep market penetration. SWKS services wireless companies. Its semiconductors are vital to the overall wireless ecosystem, and they’re found in cell towers and individual user phones alike. SWKS stands to specifically gain from increased 5G network connectivity, as its components assist in band switching and other technical traits associated with 5G.
Beyond its broad market opportunity, SWKS is entrenched with industry juggernauts like Apple (NASDAQ:AAPL), to whom SWKS owes nearly 60% of its 2022 revenue. Of course, reliance on a single source isn’t ideal. But the broad 5G market is set to grow 32% annually through 2030, cushioning SWKS’ precarious reliance on Apple’s whims.
Institutional investors see something in SWKS and own 84% of the company’s total shares. As the saying goes, “Follow the smart money.” Massive institutional giants are the definition of smart money. With 19 companies holding more than half the float, they’re staking much of their financial future on SWKS’ success – pointing to the fact that there’s something special about this semiconductor stock.
Semiconductor Stocks to Buy: Wisekey (WKEY)
Wisekey (NASDAQ:WKEY) is a penny stock, a rare trait among semiconductor stocks. But this diversified tech stock, which provides cybersecurity solutions and Internet of Things integration, increasingly relies on its semiconductor sector as “strategic premium revenue” in the United States. That semiconductor segment exploded 38% in the most recent report, marking an important milestone as (like we saw with SWKS) general demand falls.
Notably, WKEY also serves as a space stock play alongside its semiconductor status. The company enjoys a strategic partnership with Elon Musk’s brainchild, SpaceX, to launch and maintain a series of satellites. Those satellites reinforce WKEY’s Internet of Things paradigm, offering greater device connectivity and faster execution times.
Onto Innovation (ONTO)
Onto Innovation (NYSE:ONTO) is technically a semiconductor support stock but one vital to the overall industry. The support stock is still riding the AI wave, and its year-to-date surge of 65% isn’t the end of this hardware company’s story.
In August, the company unveiled a massive $100 million deal for its Dragonfly inspection system. This hardware plays a pivotal role in identifying flaws and defects in third-party semiconductors, a critical operational concern for companies like Nvidia.
Onto holds a firmly established position within the semiconductor supply chain based on that inspection requirement, making it a key semiconductor stock. Onto’s services cater to a diverse range of customers, given that chips have become an integral component in most electronic systems.
As AI demand grows, the existing GPU and tech stack market, currently valued at $3.16 billion, will expand to $25.5 billion by 2030. As companies strive to lead the charge in the semiconductor “space race”, Onto stands in the prime position to capitalize on this trend, irrespective of the ultimate victor.
Semiconductor Stocks to Buy: Microchip Technology (MCHP)
Microchip Technology (NASDAQ:MCHP) is deeply embedded in your daily life, whether you know it or not. The semiconductor stock makes a range of control systems ranging from garage door openers to chip readers. If there’s a theme for this list, MCHP embodies semiconductor stock potential: these components are increasingly entrenched in our daily lives. To that end, investors looking for semiconductor stocks to buy need to target those that link us with everyday objects in a way we don’t even consider as we go about our business.
A recent report highlights this thesis. Analysts detailed that the electroluminescent driver market, of which MCHP is a key component, will explode over the next few years. Never heard of the electroluminescent driver market? Me neither, but you interact with it daily.
Laptops, cell phones, internal car light systems, and more – all leverage that market and integrate MCHP semiconductor products when doing so. Morningstar pegs MCHP’s fair value 30% above its current share price. That seems reasonable, considering MCHP’s far-reaching market penetration (even if you haven’t heard of many of its core offerings!).
Fabrinet (NYSE:FN), our final semiconductor stock, is like ONTO because it serves a supporting role in the semiconductor industry. But that role, like ONTO’s, is massive.
Fabrinet specializes in standardized electronic and technical component manufacturing. Those components are, in turn, used by companies to assemble their final products. This is akin to how automobile manufacturers, for instance, outsource the production of components like doors before assembling the complete vehicle in their facilities.
However, in Fabrinet’s case, it manufactures optical communication components and advanced lasers for companies such as Cisco (NASDAQ:CSCO), which happens to be their largest revenue-generating customer.
But beyond their core blue-chip clientele, experts see how semiconductor sectors and AI enthusiasm can push Fabrinet to the stratosphere. Following a robust earnings report, analysts have raised the consensus price target for Fabrinet to $165, largely due to their promising AI-related opportunities. FN stock popped nearly 40% since that collective upgrade, but shares remain below the price target.
It’s worth noting that Nvidia constitutes 13% of Fabrinet’s revenue, and other AI-focused data communications companies are increasingly drawn to the company. Similar to Onto Innovation, Fabrinet’s components play a critical role in fueling the growth and expansion of AI markets.
Importantly, the success of both these companies is not dependent on the specific winners in today’s competitive AI landscape. They stand to benefit from the broader trend, regardless of which companies ultimately emerge as victors or face challenges in the AI race.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.