Expectations are high when it comes to semiconductor stocks. Maybe too high. Several leading microchip and semiconductor stocks have taken big hits recently after they posted first-quarter financial results that beat Wall Street expectations but still managed to disappoint investors who have come to anticipate meteoric growth from the sector. Fueled by demand for artificial intelligence (AI) chips, semiconductor stocks have been red hot over the last 18 months. Now it seems that a cooldown period is taking place. This makes it a great time to go after these must-buy semiconductor stocks.
The VanEck Semiconductor ETF (NASDAQ:SMH) declined nearly 10% in April after running up 75% during 2023. Much of the growth has been led by semiconductor giant Nvidia (NASDAQ:NVDA) which currently produces about three-quarters of the world’s AI chips. Other names also joined the rally and rose at lightning fast speed over the past year. The decline seems to be more about investor expectations than any serious problems at the semiconductor companies. As such, investors would be smart to buy the dip.
Here is stock market crash alert: three must-buy semiconductor stocks when prices plunge.
Super Micro Computer (SMCI)
On the day of this writing, the stock of Super Micro Computer (NASDAQ:SMCI) is down as much as 18% after the company delivered financial results that did not live-up to very high expectations. In fact, SMCI stock is falling largely because the company missed its revenue target, announcing sales of $3.85 billion when Wall Street was looking for $3.95 billion. However, despite the miss, Super Micro Computer’s revenue was up 200% in Q1 from a year earlier.
For all of this year, the company is forecasting revenue growth of nearly 600%. Yet the huge growth doesn’t seem to be enough to satisfy investors who had sent SMCI stock up more than 700% in the last 12 months. The maker of high-efficiency servers that run AI chips and semiconductors did beat profit forecasts, announcing earnings per share (EPS) of $6.65 compared to $5.78 that was expected among analysts. The post-earnings selloff seems like an overreaction and presents a buying opportunity.
This is especially true as the growth story related to Super Micro Computer remains intact. Even with the current pullback, SMCI stock is still up more than 150% year to date.
Advanced Micro Devices (AMD)
There’s also an opportunity with semiconductor company Advanced Micro Devices (NASDAQ:AMD) after its stock fell 10% immediately following a Q1 print that left analysts and investors wanting more. AMD’s earnings and revenue beat forecasts and the company raised its guidance for AI microchip sales this year to $4 billion from $3.5 billion previously. However, the results weren’t enough for Wall Street and the stock is down double digits.
Investors should pounce on the opportunity to buy AMD stock amid the selloff. Like Super Micro Computer, Advanced Micro Devices’ long-term growth story remains solid. As part of its Q1 results, AMD said that revenue at its Data Center unit grew 80% year over year to $2.3 billion due to strong sales of its latest MI300 series AI microchips. The company has sold more than $1 billion of the AI chips since they launched late in 2023. On an earnings call, management said the company is now working on new, more powerful AI chips.
AMD stock is up 400% over the last five years, including a 60% gain in the last 12 months.
Texas Instruments (TXN)
Texas Instruments (NASDAQ:TXN) has been on an upswing. Since bottoming last Halloween, the legacy semiconductor company’s stock has risen 25%. It’s a big reversal for TXN stock, which has long been a laggard among chipmakers. Texas Instruments got a further boost after the company issued better-than-expected financial results for this year’s first quarter, sending its share price up 7% in a day. Texas Instruments reported earnings per share $1.20, which topped Wall Street forecasts of $1.07.
Revenue during the first three months of the year totaled $3.66 billion, ahead of analyst estimates of $3.60 billion. Looking forward, Texas Instruments said it expects Q2 revenue of $3.65 billion to $3.95 billion and profits of $1.05 to $1.25 per share. The company’s Q2 guidance aligned with Wall Street forecasts. Texas Instruments mostly makes chips and semiconductors for use in the automotive sector and industrial applications, areas that are starting to gain traction. Investors should look for a pullback and buy TXN stock. If you are looking for must-buy semiconductor stocks, start here.
On the date of publication, Joel Baglole held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
