In this article, we discuss the 10 semiconductor stocks to buy on the dip.
Investors are starting to get concerned about chip stocks like NVIDIA Corporation (NASDAQ:NVDA), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Intel Corporation (NASDAQ:INTC) in the past few days even as the United States government outlines a plan to spend hundreds of billions on the semiconductor industry through the CHIPS Act. This is because NVIDIA Corporation (NASDAQ:NVDA) recently posted earnings for the second quarter of 2022 in which it missed market estimates on revenue by $400 million.
The company blamed gaming demand for the revenue miss, which came in just a little over $2 billion, down 4% sequentially and 33% year-over-year. Data center revenue, meanwhile, continued to register growth, climbing 61% year-over-year to $3.81 billion. The firm said it has slowed operating expenses during the quarter but would continue with a share buyback program. The weak earnings led to a more than 8% drop in the share price of the firm that has already seen shares plunge by more than 30% so far this year.
The earnings of NVIDIA Corporation (NASDAQ:NVDA) have added to investor concerns about the chip industry but analysts remain bullish about the long-term growth catalysts for the sector. A report by management consulting firm McKinsey has forecast that the chips industry could be worth $1 trillion by the end of this decade. Journalist investor Jim Cramer has also advised investors to buy beaten down chip stocks that are almost certain to provide “growth at a reasonable price” in the present macro environment.
Our Methodology
The chip companies that have registered a more than 10% percentage decline in their share price over the past six months as of August 8 but have the potential to grow in the coming years based on the products or services they offer were selected for the list. In order to provide readers with some context for their investment choices, the business fundamentals and analyst ratings for the stocks are also discussed. Data from around 900 elite hedge funds tracked by Insider Monkey in the first quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Semiconductor Stocks to Buy on the Dip
10. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 71
Percentage Decline in Share Price Over Past Six Months: 10.76%
Broadcom Inc. (NASDAQ:AVGO) supplies semiconductor infrastructure software solutions. Reports indicate that tech giant Meta Platforms will become the latest addition to the $1 billion-plus ASIC cloud customer base for Broadcom. The chip firm is the largest player in the application-specific integrated circuit cloud business, a step up from the traditional IC chips used by other cloud setups. Broadcom is already partnering with Google to bring a new artificial intelligence chip to the marketplace.
On July 20, Deutsche Bank analyst Ross Seymore maintained a Buy rating on Broadcom Inc. (NASDAQ:AVGO) stock and lowered the price target to $635 from $700, backing the firm to display strength on fundamentals in the ongoing purgatory stage of the chip cycle.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Cantillon Capital Management is a leading shareholder in Broadcom Inc. (NASDAQ:AVGO), with 1 million shares worth more than $652 million.
Just like NVIDIA Corporation (NASDAQ:NVDA), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Intel Corporation (NASDAQ:INTC), Broadcom Inc. (NASDAQ:AVGO) is one of the stocks feeling the heat of inflation.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Broadcom Inc. (NASDAQ:AVGO) was one of them. Here is what the fund said:
“However, ClearBridge portfolio companies are responding by supporting their workforces and showing resilience in adapting and thriving. Semiconductor companies ClearBridge owns and engages with have been successful in advancing vaccinations in their global supply chains. In Malaysia, for example, Broadcom Inc. (NASDAQ:AVGO) has taken part in PIKAS, a public-private partnership vaccination program focusing on the workforce in critical manufacturing sectors. By the summer of 2021 Broadcom Inc. (NASDAQ:AVGO) was able to get over 90% of workers in its Penang factory at least one dose of vaccine, and roughly 73% fully vaccinated. Companies in the program also pay the administration cost for vaccinations including cases where the employee is no longer employed by the company before full immunization of the employee.”
9. NXP Semiconductors N.V. (NASDAQ:NXPI)
Number of Hedge Fund Holders: 43
Percentage Decline in Share Price Over Past Six Months: 14.21%
NXP Semiconductors N.V. (NASDAQ:NXPI) makes and sells various products related to semiconductors. In late July, the company announced that it was partnering with Taiwan-based electronics firm Foxconn to bring a new generation of connected smart devices to the market. The latter is expected to source automotive technologies and the architectural innovation and platforms for electrification that the former offers for connectivity and safe automated driving as part of the deal.
On July 27, Cowen analyst Matthew Ramsay maintained an Outperform rating on NXP Semiconductors N.V. (NASDAQ:NXPI) stock and raised the price target to $200 from $190, noting that the firm was proactively de-risking its backlog.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in NXP Semiconductors N.V. (NASDAQ:NXPI), with 923,855 shares worth more than $170 million.
In its Q1 2022 investor letter, Sound Shore Management, an asset management firm, highlighted a few stocks and NXP Semiconductors N.V. (NASDAQ:NXPI) was one of them. Here is what the fund said:
“Similarly, analog chip supplier NXP Semiconductors N.V. (NASDAQ:NXPI) declined even though the company reported above consensus revenue growth. A leading chip maker for infrastructure and automotive applications, we view NXP Semiconductors N.V. (NASDAQ:NXPI) as a “new industrial,” uniquely positioned to benefit from increased chip content per application/vehicle. This includes electric and autonomous vehicles and more broadly, connectivity and the internet of things. We added the stock to the portfolio during the volatile fourth quarter of 2018 at just 10 times earnings. Today, NXP is still valued at a very reasonable 14 times earnings.”
8. ASML Holding N.V. (NASDAQ:ASML)
Number of Hedge Fund Holders: 46
Percentage Decline in Share Price Over Past Six Months: 15.82%
ASML Holding N.V. (NASDAQ:ASML) makes and sells advanced semiconductor equipment systems. The company is one of the largest suppliers of semiconductor equipment and tools to the chip industry in China, a source of revenue that has come under scrutiny in the past few weeks as the US government pushes the firm towards other markets. One of the cutting edge tech it offers to Chinese firms is extreme ultraviolet lithography systems. The firm recently beat market estimates on revenue for the second quarter of 2022.
On July 21, investment advisory Credit Suisse maintained an Outperform rating on ASML Holding N.V. (NASDAQ:ASML) stock and lowered the price target to EUR 920 from EUR 960. Analyst Adithya Metuku issued the ratings update.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in ASML Holding N.V. (NASDAQ: ASML), with 4.4 million shares worth more than $2.9 billion.
In its Q1 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and ASML Holding N.V. (NASDAQ:ASML) was one of them. Here is what the fund said:
“During the quarter, we reduced our semiconductor exposure through the trim of ASML Holding N.V. (NASDAQ:ASML) to manage concerns of a slowdown due to the risk of double ordering and potential softness in some consumer end markets. We increased our position in IT services with the purchase of Accenture as we remain optimistic about the long-term growth potential these companies provide, which is underpinned by the compressed digital transformation cycle, rising cloud adoption and growth in data-driven insights.
Despite the market volatility and hyper focus on rising rates, chief information officer surveys continue to forecast resilience in IT budgets this year. Growth in IT spending for 2022 is expected to remain above the 10-year pre-COVID-19 average, according to Morgan Stanley. We believe this is a result of the strong secular underpinnings brought on by digital transformation and businesses focusing on increasing efficiencies through technology.”
7. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 73
Percentage Decline in Share Price Over Past Six Months: 19.65%
QUALCOMM Incorporated (NASDAQ:QCOM) develops and sells foundational technologies for the wireless industry. On August 8, the company announced that it was extending a deal with chip firm GlobalFoundries, under which the manufacturing agreement between the two parties will be more than doubled. As part of the deal, the latter will expand a facility in New York to meet production demand. The deal focuses on chips for 5G wireless transceivers, Wi-Fi, automotive, and Internet of Things connectivity technologies.
On July 28, Wells Fargo analyst Gary Mobley maintained an Equal Weight rating on QUALCOMM Incorporated (NASDAQ:QCOM) stock and raised the price target to $150 from $135, appreciating the second quarter earnings beat of the firm.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in QUALCOMM Incorporated (NASDAQ:QCOM), with 3.5 million shares worth more than $538 million.
6. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 83
Percentage Decline in Share Price Over Past Six Months: 24.67%
Advanced Micro Devices, Inc. (NASDAQ:AMD) operates as a semiconductor manufacturer. In early June, the company announced that it was partnering with NIO, one of the largest EV makers in China, to supply chips for EVs. As part of the deal, the latter will use the EPYC processors of the former to help improve the performance of the HPC platform in NIO cars. AMD claims the new processors come with enhanced Zen 3 cores with up to 32 MB L3 cache per core, a new cache architecture, and high clock frequency.
On August 3, Northland analyst Gus Richard maintained an Outperform rating on Advanced Micro Devices, Inc. (NASDAQ:AMD) stock and raised the price target to $105 from $95, noting that server market share momentum for the firm will accelerate entering into 2023.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Advanced Micro Devices, Inc. (NASDAQ:AMD), with 24 million shares worth more than $2.6 billion.
Just like NVIDIA Corporation (NASDAQ:NVDA), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Intel Corporation (NASDAQ:INTC), Advanced Micro Devices, Inc. (NASDAQ:AMD) is one of the stocks that elite investors are monitoring.
Here is what Carillon Tower Advisers had to say about Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth-quarter 2021 investor letter:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) supplies semiconductor chips for central processing units (CPUs) and graphic processing units (GPUs). The firm has been gaining share against its primary competitor in the datacenter server CPU space, as this rival has been unable to match the design and manufacturing capabilities of AMD and its partners. Investors are also looking forward to the closing of the previously announced merger with a semiconductor manufacturer that is another one of the portfolio’s holdings. The merger will increase AMD’s capabilities in the Field Programmable Gate Array (FPGA) chip space, and the combined company should possess the potential to win additional market share in the datacenter chip market.”
5. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Holders: 74
Percentage Decline in Share Price Over Past Six Months: 25.22%
Applied Materials, Inc. (NASDAQ:AMAT) provides equipment, services, and software for the semiconductor industry. The company is one of the safest bets in the chip space as it has an impressive dividend history that stretches back seven years. For the past four years, the payouts have registered consistent growth in a sector where the median in this regard is just one year. On June 9, the company declared a quarterly dividend of $0.26 per share, in line with previous. The forward yield was 0.97%.
On July 15, Goldman Sachs analyst Toshiya Hari maintained a Buy rating on Applied Materials, Inc. (NASDAQ:AMAT) stock and lowered the price target to $95 from $133, noting that there was continued deterioration in the macro operating environment for the chip industry.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Generation Investment Management is a leading shareholder in Applied Materials, Inc. (NASDAQ:AMAT), with 4.2 million shares worth more than $560 million.
4. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 76
Percentage Decline in Share Price Over Past Six Months: 29.11%
Intel Corporation (NASDAQ:INTC) markets key technologies for smart devices. Reports indicate that the company is close to an agreement with authorities in Italy to build a new chip making plant in the country. Intel is likely to invest $5 billion into the plant. The move is part of a broader plan by the company to invest around $88 billion in Europe over the next ten years to compete with European chip makers and Chinese chip makers. The agreement with Italy is expected to be announced by the end of August.
On August 1, Northland analyst Gus Richard maintained an Outperform rating on Intel Corporation (NASDAQ:INTC) stock with a price target of $55, noting that the firm controlled its own destiny and had a manufacturing capability that had strategic value for the US.
At the end of the first quarter of 2022, 76 hedge funds in the database of Insider Monkey held stakes worth $3.1 billion in Intel Corporation (NASDAQ:INTC), compared to 72 in the previous quarter worth $5.5 billion.
Baron Funds, an asset management firm, mentioned Intel Corporation (NASDAQ:INTC) in its first-quarter 2022 investor letter. Here is what they said:
“Intel Corporation (NASDAQ:INTC) capital spending process is guided by a process they appropriately named “copy exactly.” This means that they attempt to “copy exactly” what they have already built and attempt to improve tried and true processes iteratively.”
3. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 81
Percentage Decline in Share Price Over Past Six Months: 29.94%
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) makes and sells integrated circuits and semiconductors. The firm has deals in place to supply chips to big firms like Apple and Volkswagen but has come under pressure in recent months as the US increases restrictions on business with Chinese chip firms. Reports indicate that Apple has already asked chip makers from China to relabel shipments to avoid this increased scrutiny. US lawmaker Nancy Pelosi recently met TSM founder Morris Chang during a visit to Taiwan.
On July 12, Citi analyst Roland Shu maintained a Buy rating on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stock with a price target of NT$570, appreciating the second quarter earnings beat of the firm.
At the end of the first quarter of 2022, 81 hedge funds in the database of Insider Monkey held stakes worth $10.1 billion in Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), up from 72 in the preceding quarter worth $10.9 billion.
In its Q1 2022 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was one of them. Here is what the fund said:
“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) detracted in the first quarter due to rising geopolitical tensions, macroeconomic uncertainties, and concerns over softening demand for consumer electronics. We retain conviction that Taiwan Semi’s technological leadership, pricing power, and exposure to secular growth markets, including high-performance computing, automotive, and IoT, will allow the company to deliver above its 15% to 20% revenue growth target over the next several years.”
2. Micron Technology (NASDAQ:MU)
Number of Hedge Fund Holders: 78
Percentage Decline in Share Price Over Past Six Months: 30.27%
Micron Technology (NASDAQ:MU) makes and sells memory and storage products. On June 30, the company posted earnings for the third fiscal quarter, reporting earnings per share of $2.59, beating market estimates by $0.15. The revenue over the period was $8.6 billion, up more than 16% compared to the revenue over the same period last year. The firm said it expected revenue for the fourth fiscal quarter to be around $7.6 billion, compared to consensus estimates of more than $9 billion, amid weakening industry demand.
On July 1, Evercore ISI analyst C.J. Muse maintained an Outperform rating on Micron Technology (NASDAQ:MU) stock with a price target of $90, noting that there was excess conservatism in the update outlook for the firm given the macro environment.
At the end of the first quarter of 2022, 78 hedge funds in the database of Insider Monkey held stakes worth $3.4 billion in Micron Technology (NASDAQ:MU), compared to 83 in the preceding quarter worth $5.5 billion.
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 102
Percentage Decline in Share Price Over Past Six Months: 33.37%
NVIDIA Corporation (NASDAQ:NVDA) operates as a visual computing firm. The company is expected to be one of the biggest beneficiaries of the recently passed CHIPS Act. Under the Act, the US government will pour in hundreds of billions into the chip industry to increase manufacturing capabilities and shore up the research and development as part of a larger effort to compete with Chinese chip makers in Europe and across the world. Tech giant Samsung, a NVIDIA customer, is also going to invest $200 billion in the US chip industry.
On August 8, Oppenheimer analyst Rick Schafer maintained an Outperform rating on NVIDIA Corporation (NASDAQ:NVDA) stock and lowered the price target to $250 from $300, noting that the firm was well positioned to outperform peers in the long term despite short term headwinds.
At the end of the first quarter of 2022, 102 hedge funds in the database of Insider Monkey held stakes worth $6.3 billion in NVIDIA Corporation (NASDAQ:NVDA), compared to 110 the preceding quarter worth $10.4 billion.
In its Q1 2022 investor letter, RiverPark Funds, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ:NVDA) was one of them. Here is what the fund said:
“NVIDIA Corporation (NASDAQ:NVDA) is the leading designer of graphics processing chips (commonly known as GPU’s- graphics processing units), required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming- focused chip vendor to one of the largest semiconductor/software vendors in the world, dominating the core secular growth markets of gaming, data centers and professional visualization. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. For 2021 the company generated 61% revenue growth to $27 billion, expanded its EBITDA margins to over 44% and generated over $8 billion of free cash flow. Over the past five years, the company has generated a cumulative $23 billion of FCF after cumulative capital expenditures of less than $4 billion.
We expect future growth to remain robust as NVIDIA Corporation (NASDAQ:NVDA) chips and software are critical to many of the core technologies being adopted globally, including cloud computing, virtual reality and advanced artificial intelligence. As with NFLX, we took advantage of the over 40% recent drop in the company’s shares over the last several months to initiate a small position.”
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Disclosure. None. 10 Semiconductor Stocks to Buy on the Dip is originally published on Insider Monkey.
