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The semiconductor market is growing, and that is expected to continue based on several factors going forward. In this article, learn all about top-performing semiconductor stocks, including what each of these companies’ strengths and weaknesses are, and which ETFs offer the best exposure to chip manufacturers.
Semiconductors are part of the supply chain for almost all electronic devices, including bank machines, smartphones, cars, and computers. Here are some of the reasons long-term growth is still expected in semiconductor manufacturing:
Cars are increasingly becoming electronic, as are many other forms of transportation. Most new car models use a computer that requires microchips. Learn more about electric car stocks.
5G technology also requires sophisticated electronics to support it, which, in turn, requires more semiconductors. Learn more about 5G stocks.
Add in the increasing use of artificial intelligence (AI), drones, cloud computing, the internet of things (IoT), automation, digitalised weapons technology, and metaverse, and it seems like there is an endless need for semiconductors.
A chip shortage in 2020 and 2021, stemming from supply disruptions amid Covid-19, also means there could be pent-up demand for semiconductors for years to come.
Known for its graphics processors, this California-based company was founded in 1993. The chips are used in gaming computers to enhance the overall experience. Nvidia is also broadening into technologies for data centres, autonomous driving cars, and AI for aeroplanes. These are early-stage fields with growth potential as autonomous driving and AI are just starting to emerge with the potential for widespread use.
Advanced Micro Devices was founded in 1969 and is also based in California. The company’s GPUs (graphics processing units) are commonly used in personal computers (PCs) and gaming consoles such as Sony’s PlayStation and Microsoft’s Xbox. In 2020, Advanced Micro Devices agreed to merge with Xilinx to broaden its reach in data centres. Xilinx also focuses on logic devices and serves the aerospace, military, and commercial industries.
Intel is one of the most recognised brands in the space because its chips appear in a wide range of PCs. The company, founded in 1968, has branched into other areas, including server processors, which are used for cloud technology. It is also diversifying into the IoT, automotive chips and AI industries. This diversification was primarily a result of the stagnating PC industry, as most PC users don’t need the massive advances in technology that other areas require.
The company is a pureplay in the semiconductor industry, with more than half the global market share. It also has one of the largest chip foundries in the world. TSMC focuses on high-end 5- and 7- nanometre chips. It was founded in 1987 and is based in Taiwan. The company trades on the US’s NYSE market as an ADR (American depository receipt). Supply shortages have given the company pricing power, which means that investors could expect it to continue pushing forward at full operating capacity if demand remains high. Its chips are used in the Apple iPhone.
The company was formed through a merger of Broadcom and Avago Technologies in 2016. Broadcom, founded in 1961, focuses on manufacturing network semiconductors that handle Bluetooth, wi-fi and broadband television, for example. Meanwhile, Avago, founded in 2005, focuses on amplifiers and frequency filters for Apple and Samsung devices, as well as some industrial applications. The company has a history of ambitious expansion deals with other businesses.
Qualcomm provides nearly every smartphone maker with processors, making it the largest wireless chip supplier. It is a leader in 5G technology and holds patents that all 3G and 4G networks run off. It has moved into producing automotive chips and IoT chips and also licenses wireless technology. The company was founded in 1985 in San Diego.
Texas Instruments was known for its calculators many years ago, but now nearly all its revenue comes from semiconductors. It is the world leader in analogue chips, which process power and sound. It also has a large share of the signal processors market, which are used in wireless communication and other functions. The company was formed in 1930 in Dallas, Texas.
This Idaho-based company was founded in 1978. Its primary focus is the making of DRAM (dynamic random-access memory), which is used in servers and PCs. Samsung is the global leader in this field by market share, but Micron Technology is a major player. It also makes NAND flash memory, which is used in solid-state hard drives, for example. Its products are also used in data centres, the automotive industry, smartphones, and gaming consoles.
This US company, founded in 1967, provides the equipment that nearly every other semiconductor maker uses in multiple stages of the production process. The exception is photolithography (discussed below), which is handled by ASML Holding. Products include electron microscopes for defect detection, dimension measurement, etching, chemical polishing and vapour deposition. Its goal is to keep advancing technology, allowing for faster chips, higher resolution displays, and more efficient electronics.
This company from the Netherlands was founded in 1984. Its photolithography technology is in the supply chain of every other semiconductor company. According to StockRover, “photolithography is the process in which a light source is used to expose circuit patterns from a photomask onto a semiconductor wafer”. This allows for more transistors to be added to the chip. Advances in this technology will allow for progress beyond 7-nanometre chips.
Semiconductor exchange-traded funds (ETFs) have holdings in various semiconductor stocks. An ETF performs based on how the basket of semiconductor stocks perform. It is a way for investors to diversify their holdings with a single transaction, as opposed to buying multiple stocks individually. The ETFs primarily hold US stocks, but may include some foreign stocks.
Some popularly traded semiconductor ETFs by volume are:
iShares Semiconductor ETF [SOXX] with $7bn in assets under management.
VanEck Semiconductor ETF [SMH] with $6.5bn in assets under management.
SPDR S&P Semiconductor ETF [XSD] with $1.1bn in assets under management.
FAQs
Nvidia is the ninth-largest company in the world by market cap, followed by TSMC in tenth place, making them the biggest semiconductor companies. These have grown substantially throughout the last decade.
As of October 2021, Broadcom is the semiconductor company that pays the biggest dividend of $14.40 per share. In comparison, Intel pays a dividend of $1.39. To get the dividend yield, you can divide the dividend per share by the current stock price. Please remember that past performance is not a reliable indicator of future results.
Some other popular semiconductor stocks include Analog Devices [ADI], Marvell Technology [MRVL], and NXP Semiconductors [NXPI].
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