In this piece, we will take a look at the ten best semiconductor penny stocks to buy. If you want to skip our primer on the semiconductor industry, and the top players, head on over to 5 Best Semiconductor Penny Stocks to Buy.

Next to oil, the semiconductor industry is one of the most important sectors in the world today. Chips power every modern day gadget, from a watch to a computer, and even cars. Therefore, the slightest disruption in the industry carries the risk of shocking global supply chains, causing shortages, production outages, and inflation.

Naturally, this also makes the semiconductor industry quite valuable. According to research, the global semiconductor industry was worth $573 billion in 2022 and is expected to grow at a compounded annual growth rate (CAGR) of 12% to be worth an estimated $1.3 trillion in 2029. One of the biggest sectors that is expected to fuel this growth is artificial intelligence with it and the associated machine learning industry is expected to grow its operating income from roughly $8 billion right now to a whopping $40 billion in just a couple of years from now.

Delving deeper into the industry, the semiconductor sector is made up of a variety of different firms. At the start of the supply chain are electronic design automation (EDA) companies that provide firms such as Advanced Micro Devices, Inc. (NASDAQ:AMD) and NVIDIA Corporation (NASDAQ:NVDA) with the tools to design their products. Then, AMD, Intel, and other firms design the central processing units (CPUs) and graphics processing units (GPUs) and send them off to chipmakers such as the Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM). TSMC uses machines made by ASML Holding N.V. (NASDAQ:ASML) to manufacture semiconductors, and the end products are packaged before making their way to consumers.

When it comes to advanced chip manufacturing technology, TSMC is the undisputed industry leader. Its rise to global dominance has come after Intel Corporation (NASDAQ:INTC) miscalculated a shift to advanced chipmaking technologies and Apple’s demand for the iPhone skyrocketed. And these days, all the buzz in the industry is about 3-nanometer chip manufacturing technologies. For the uninitiated, chip manufacturing technologies are marketed through the dimensions of a single transistor. A chip, like the one powering Apple’s iPhone, has billions of transistors, and they can be as small as nanometers. Therefore, 3-nanometers refer to the size of a feature on this transistor, and the marketing terminologies can refer to differently sized transistors even if two companies use the same terminology.

TSMC, and its smaller rival Samsung Foundry have both started to mass produce 3-nanometer products. Yet, at the same time, both of them are also planning to make the next generation chips under the 2-nanometer branding from 2025. These chips will feature a transistor design upgrade that will improve electrical conductivity and by extension the performance of any gadget that uses them.

A key area of controversy in the semiconductor industry is the machines that are used to make advanced chips. Right now, only the Dutch firm ASML Holding N.V. (NASDAQ:ASML) is capable of making these machines that use high energy light wavelengths to print the minuscule circuits on a piece of silicon. And these machines are making their way into geopolitics, with the latest development coming as the Dutch government introduced new export control regulations that require ASML to seek government approval before exporting any of its more advanced products.

Finally, companies such as TSMC, Intel, and Samsung are busy expanding their manufacturing footprint in America. The U.S. government has passed the CHIPS Act which promises government support to companies that either produce advanced chips on U.S. soil or engage in research. TSMC is busy building its new fabrication plant in Phoenix, Arizona with the facility expected to enter production in 2024. Samsung is also building a plant in Taylor, Texas while Intel is also building new facilities in Arizona.

The semiconductor industry is also right now at what appears to be the end of a downturn that kicked off last year due to the supply demand mismatch resulting from the coronavirus pandemic and an inflationary environment that sapped demand for the products. On this front, here’s what ASML’s management is currently experiencing in the market as of its Q1 2023 earnings:

Customers continue to see demand weakness in consumer-driven end markets, causing the industry to actively reduce inventory and lower the utilization of their production base, while demand in other end markets, such as automotive and industrial, remains relatively strong.Specifically, memory customers are more aggressively lowering CapEx and are limiting wafer output to reduce inventory to more healthy levels.

Logic customers are also moderating wafer output for some market segments, while demand continues to be strong in other markets, especially in markets requiring more mature nodes. Despite this, both logic and memory customers are still following their technology roadmaps and continue making strategic technology investments.As a result of this market dynamic, we do see customers making adjustments to demand timing relative to last quarter. However, we also see other customers more than willing to absorb this demand change, particularly in Deep UV. For example, Chinese domestic customers focusing on mid-critical and mature applications, which make up over 20% of our backlog at the end of Q1, are now expected to grow to a similar allocation of our system revenue this year.After taking these demand adjustments over the quarter into account, our system demand still exceeds our capacity for this year, albeit by a smaller margin than in the last quarter and as a reference, during 2022, the demand for Deep UV was 50% higher than our build capacity, while this gradually reduced from 30% at the end of Q4 2022 to 20% at the end of Q1 2023.As Roger mentioned, we saw orders moderate in Q1 after several quarters of very strong bookings.

A moderation in the rate at which customers are adding orders is to be expected in the current environment, especially considering the long period in which our backlog can cover shipments, which extends well beyond our normal order lead times.With regard to our total system capacity, we are still planning to ship around 60 EUV systems and around 375 Deep UV systems in 2023, with around 25% of the Deep UV systems being immersion. We currently see no change in our full year outlook as provided last quarter.

Today, we’ll shift gears and look at some great penny stocks with hedge fund interest with the top picks being Valens Semiconductor Ltd. (NYSE:VLN), EMCORE Corporation (NASDAQ:EMKR), and Sequans Communications S.A. (NYSE:SQNS). If you want to see billionaire semiconductor investments, head on over to 10 Semiconductor Stocks Billionaires Are Loading Up On.

Our Methodology

To compile our list of best semiconductor penny stocks, we first compiled a list of companies whose shares trade below $5 and which operate in the semiconductor industry. Then, the number of hedge fund investors that had bought their shares in Q1 2023 was determined from the 943 funds in Insider Monkey’s database. The final list of best penny semiconductor stocks hot with hedge fund sentiment is as follows.

10 Best Semiconductor Penny Stocks to Buy

10. Transphorm, Inc. (NASDAQ:TGAN)

Number of Hedge Fund Investors In Q1 2023: 2

Transphorm, Inc. (NASDAQ:TGAN) sells transistors and products that are used in several devices such as smartphone chargers, power converters, inverters, and more. The firm was set up in 2017 and is headquartered in Goleta, California.

By the end of 2023’s first quarter, two out of the 943 hedge funds part of Insider Monkey’s database had held a stake in Transphorm, Inc. (NASDAQ:TGAN). There’s quite a bit of analyst share price upside to its shares too, with the average share price target being $6.50 – nearly twice the current price of $3.4.

Along with EMCORE Corporation (NASDAQ:EMKR), Valens Semiconductor Ltd. (NYSE:VLN), and Sequans Communications S.A. (NYSE:SQNS), Transphorm, Inc. (NASDAQ:TGAN) is a top hedge fund semiconductor penny stock pick.

9. Nano Labs Ltd (NASDAQ:NA)

Number of Hedge Fund Investors In Q1 2023: 2

Nano Labs Ltd (NASDAQ:NA) is a Chinese company headquartered in Hangzhou, China. It is a semiconductor design company that designs and sells computing chips, network cards, and storage products.

After looking through 943 hedge fund portfolios for this year’s first quarter, Insider Monkey discovered that two had invested in Nano Labs Ltd (NASDAQ:NA).

8. Trio-Tech International (NYSE:TRT)

Number of Hedge Fund Investors In Q1 2023: 3

Trio-Tech International (NYSE:TRT) is one of the older companies on our list. Set up in 1958, it is based in Van Nuys, California. The firm is a diversified chip testing company, as it provides testing services, testing products, and products that are associated with electronics manufacturing such as display and touchscreen panels.

Three of the 943 hedge funds part of Insider Monkey’s database had bought Trio-Tech International (NYSE:TRT)’s shares as of March 2023. Out of these, the largest investor is Jim Simons’ Renaissance Technologies with a $880,000 investment.

7. Peraso Inc. (NASDAQ:PRSO)

Number of Hedge Fund Investors In Q1 2023: 3

Peraso Inc. (NASDAQ:PRSO) is another American company. It primarily focuses on designing and selling connectivity and communications semiconductors such as modems, antennas, and baseband chips. Peraso Inc. (NASDAQ:PRSO) is headquartered in San Jose, California.

Insider Monkey dug through 943 hedge funds for their first quarter of 2023 investments and discovered that three had bought stakes in Peraso Inc. (NASDAQ:PRSO). While the shares currently trade at 50 cents, the average analyst price target estimate is $1.38 along with a Buy rating.

6. SemiLEDs Corporation (NASDAQ:LEDS)

Number of Hedge Fund Investors In Q1 2023: 3

SemiLEDs Corporation (NASDAQ:LEDS) is a Taiwanese company, which, as the name suggests, makes and sells products associated with light emitting diode (LED) systems. These products include chips and lightning products to industrial, residential, horticultural, and other users.

As of Q1 2023, three of the 943 hedge funds polled by Insider Monkey had bought and owned SemiLEDs Corporation (NASDAQ:LEDS)’s shares. Israel Englander’s Millennium Management is the firm’s biggest investor with an $88,000 stake.

Valens Semiconductor Ltd. (NYSE:VLN), SemiLEDs Corporation (NASDAQ:LEDS), EMCORE Corporation (NASDAQ:EMKR), and Sequans Communications S.A. (NYSE:SQNS) are some great semiconductor penny stocks.

Click to continue reading and see 5 Best Semiconductor Penny Stocks to Buy.

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Disclosure: None. 10 Best Semiconductor Penny Stocks to Buy is originally published on Insider Monkey.