In this article, we discuss the 10 stocks that benefit from global chip shortage.
The global chip industry has become an integral part of the smart landscape around the world, playing a key role in the manufacture of everything from mobile phones to electric cars. According to research by Washington-based trade body Semiconductor Industry Association, global semiconductor sales stood at more than $44 billion in June 2021, representing an increase of close to 30% from over $34 billion in June 2020. Similar, the sales for the second quarter of 2021 stood at $133 billion, up 29% year-on-year.
The numbers highlight the incredible strides the chip industry has made in the last twelve months. Due to supply chain constraints and an increase in demand for semiconductors following the reopening of the economy after lengthy COVID-19 lockdowns, a global chip shortage has pushed prices sky high. John Neuffer, the chief of the semiconductor trade body, believes that the demand for chips will continue to rise substantially in the long term. Firms in Europe, China, and the Americas are all expected to lead this growth.
Some of the companies poised to benefit from the global chip shortage include Micron Technology (NASDAQ: MU), NVIDIA Corporation (NASDAQ: NVDA), and Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), among others discussed in detail below. World Semiconductor Trade Statistics estimates that the global demand for chips will rise close to 20% in 2021 and close to 9% in 2022. As the chip industry grows, it will likely embolden further tech-enabled disruption of the marketplace.
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Our Methodology
With this context in mind, here is our list of the 10 stocks that benefit from global chip shortage.
As analysts believe that global chip shortage would redouble the demand of semiconductor chips in the world and increase orders for major semiconductor companies, you will see some of the best and most notable semiconductor companies in our list.
The list is compiled according to the number of hedge fund holders in each company. Data from the 873 funds tracked by Insider Monkey was used for this purpose.
Special importance was assigned to the basic business fundamentals and analyst ratings for each firm to provide readers with some context so they can make more informed investment choices.
Stocks That Benefit from Global Chip Shortage
10. ASML Holding N.V. (NASDAQ: ASML)
Number of Hedge Fund Holders: 44
ASML Holding N.V. (NASDAQ: ASML) is placed tenth on our list of 10 stocks that benefit from global chip shortage. The company markets advanced semiconductor equipment systems and is headquartered in the Netherlands.
On September 7, investment advisory JPMorgan maintained an Overweight rating on ASML Holding N.V. (NASDAQ: ASML) stock and raised the price target to EUR780 from EUR700. Sandeep Deshpande, an analyst at the advisory, issued the ratings update.
Out of 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 million shares worth more than $2.8 billion.
In its Q2 2021 investor letter, Polen Capital, 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:
“Dutch technology company ASML is the world’s only supplier of photolithography systems to leading-edge semiconductor manufacturers. It is a gross simplification and a valid point to note that ASML’s technology enables the computing technology we use today. For years, ASML engineers bent the laws of physics and enabled Moore’s Law—which states that computer chips will become faster and cost less—to progress.
Incremental innovation gains mushroomed with the rollout of Extreme Ultraviolet (EUV) technology. We were impressed by management’s recent acknowledgment that demand for ASML’s lithography systems is exceeding their prior expectations. Recent announcements by management and major customers for ASML give us even more confidence in the sustainability of growth. We believe ASML could grow its earnings at a high-teens rate over the coming five years.”
9. KLA Corporation (NASDAQ: KLAC)
Number of Hedge Fund Holders: 45
KLA Corporation (NASDAQ: KLAC) is ranked ninth on our list of 10 stocks that benefit from global chip shortage. The firm provides control and yield management solutions to the semiconductor industry and is headquartered in California.
On August 2, investment advisory Citi reiterated a Buy rating on KLA Corporation (NASDAQ: KLAC) stock and raised the price target to $398 from $380, predicting that the firm would be a net beneficiary of the foundry capex wars.
At the end of the second quarter of 2021, 45 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in KLA Corporation (NASDAQ: KLAC), up from 40 in the previous quarter worth $1.2 billion.
In addition to Micron Technology (NASDAQ: MU), NVIDIA Corporation (NASDAQ: NVDA), and Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), KLA Corporation (NASDAQ: KLAC) is one of the stocks that will benefit from the global chip shortage.
8. Broadcom Inc. (NASDAQ: AVGO)
Number of Hedge Fund Holders: 47
Broadcom Inc. (NASDAQ: AVGO) is a California-based firm that markets semiconductor infrastructure software solutions. It is placed eighth on our list of 10 stocks that benefit from global chip shortage.
On September 3, investment advisory Truist maintained a Buy rating on Broadcom Inc. (NASDAQ: AVGO) stock and raised the price target to $564 from $554, appreciating the earnings beat of the firm in the third fiscal quarter results.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Select Equity Group is a leading shareholder in Broadcom Inc. (NASDAQ: AVGO) with 248,816 shares worth more than $118 million.
Along with Micron Technology (NASDAQ: MU), NVIDIA Corporation (NASDAQ: NVDA), and Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), Broadcom Inc. (NASDAQ: AVGO) is a top semiconductor firm on the radar of big investors.
In its Q2 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:
“A good way to conceptualize how we think about portfolio construction is to picture a pyramid. At the bottom of the pyramid are the durable compounding growth companies that form the strong foundation, resilience and consistency for the Strategy. We think these companies should comprise just under half of portfolio assets and feature annual revenue growth rates ranging from two times GDP up to 20% as well as healthy free cash flow generation.
Broadcom has delivered similar long-term appreciation through a combination of organic growth, capital deployment into new and adjacent opportunities through merger and acquisition activity as well as returning capital to shareholders through buybacks and dividends.”
7. NXP Semiconductors N.V. (NASDAQ: NXPI)
Number of Hedge Fund Holders: 52
NXP Semiconductors N.V. (NASDAQ: NXPI) is a Netherlands-based semiconductor manufacturer. It is ranked seventh on our list of 10 stocks that benefit from global chip shortage.
On September 3, investment advisory Argus initiated coverage of NXP Semiconductors N.V. (NASDAQ: NXPI) stock with a Buy rating and a price target of $260, underlining that the shares looked attractively priced as the firm had a strong growth profile.
Out of 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 1 million shares worth more than $212 million.
Micron Technology (NASDAQ: MU), NVIDIA Corporation (NASDAQ: NVDA), and Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) are some of the best chip stocks, in addition to NXP Semiconductors N.V. (NASDAQ: NXPI).
In its Q1 2021 investor letter, ClearBridge Investments, 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:
“Within IT, we have also increased exposure to a cyclical semiconductor industry currently working through a severe supply shortage due to several years of capacity reductions, COVID-19 shutdowns and one-off production delays as well as demand resilience in areas like autos and smartphones. Two recent additions, specialty semiconductor maker (including) NXP Semiconductors, was among the portfolio’s leading contributors in the first quarter. NXP rose as auto production ramped up and electric vehicle sales continued to expand.”
6. Advanced Micro Devices, Inc. (NASDAQ: AMD)
Number of Hedge Fund Holders: 63
Advanced Micro Devices, Inc. (NASDAQ: AMD) is placed sixth on our list of 10 stocks that benefit from global chip shortage. The company makes and sells semiconductors and operates from California.
On August 9, investment advisory BMO Capital upgraded Advanced Micro Devices, Inc. (NASDAQ: AMD) stock to Market Perform from Underperform and raised the price target to $110 from $80, appreciating the expansion of the firm in the datacentre business.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Advanced Micro Devices, Inc. (NASDAQ: AMD) with 28 million shares worth more than $2.6 billion.
Micron Technology (NASDAQ: MU), NVIDIA Corporation (NASDAQ: NVDA), and Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) are some of the top chip stocks, along with Advanced Micro Devices, Inc. (NASDAQ: AMD).
In its Q4 2020 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Advanced Micro Devices, Inc. (NASDAQ: AMD) was one of them. Here is what the fund said:
“We also exited our positions in Advanced Micro Devices. Our investment campaign in Advanced Micro Devices (AMD) began in the second half of 2018, and we have seen a new management team reinvigorate the company’s product portfolio of microprocessors for PCs and servers, graphics processors, and video game consoles. These new, higher-margin products have helped the company partially close its margin gap with peers and capture share from market leader Intel. While we believe there is meaningful runway for further share gains and margin expansion, AMD has appreciated far beyond our mid-cap market cap mandate, and we exited our position.”
5. Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM)
Number of Hedge Fund Holders: 64
Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) is ranked fifth on our list of 10 stocks that benefit from global chip shortage. The firm markets semiconductors and related products and is headquartered in Taiwan.
On June 22, investment advisory Argus initiated coverage of Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) stock with a Buy rating and a price target of $150, appreciating a new five-year capital spending plan of the company.
At the end of the second quarter of 2021, 64 hedge funds in the database of Insider Monkey held stakes worth $10.6 billion in Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), down from 76 in the preceding quarter worth $10.8 billion.
In its Q1 2021 investor letter, Bonsai Partners, 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:
“Taiwan Semiconductor is the world’s largest outsourced foundry of logic semiconductor chips. TSMC’s shares appreciated 8.9% during the quarter.
Similar to last quarter, the supply-demand imbalance in semiconductor chips continues to benefit TSMC. To fuel new technological advances and meet the current supply imbalance, we see significantly increased capital spending across the industry over the coming years.
TSMC has an extraordinary track record of return on these large investments despite their rapid historical cadence of expansion. I remain hopeful that the large capital expenditure plan they now have ($100 billion of investment over the next three years) will be money well spent and not lead to industry oversupply in the medium term. Hopefully, future returns on these investments will look as good as those of the past.”
4. Applied Materials, Inc. (NASDAQ: AMAT)
Number of Hedge Fund Holders: 73
Applied Materials, Inc. (NASDAQ: AMAT) is a California-based firm that provides equipment, software, and other services to the semiconductor industry. It is placed fourth on our list of 10 stocks that benefit from global chip shortage.
On August 20, investment advisory Mizuho maintained a Buy rating on Applied Materials, Inc. (NASDAQ: AMAT) stock and raised the price target to $161 from $158, appreciating the “solid” quarterly earnings of the company.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Generation Investment Management is a leading shareholder in the firm with 4.4 million shares worth more than $630 million.
3. Intel Corporation (NASDAQ: INTC)
Number of Hedge Fund Holders: 78
Intel Corporation (NASDAQ: INTC) is a California-based firm that sells essential technologies for smart devices. It is ranked third on our list of 10 stocks that benefit from global chip shortage.
On July 23, investment advisory BMO Capital maintained an Outperform rating on Intel Corporation (NASDAQ: INTC) stock but lowered the price target to $70 from $75, noting that the gross margins for the firm in the second quarter were high but compression was expected.
At the end of the second quarter of 2021, 78 hedge funds in the database of Insider Monkey held stakes worth $6.7 billion in Intel Corporation (NASDAQ: INTC), down from 83 in the previous quarter worth $7.6 billion.
2. NVIDIA Corporation (NASDAQ: NVDA)
Number of Hedge Fund Holders: 86
NVIDIA Corporation (NASDAQ: NVDA) is placed second on our list of 10 stocks that benefit from global chip shortage. The firm operates as a visual computing company and is headquartered in California.
On August 20, investment advisory Benchmark assumed coverage of NVIDIA Corporation (NASDAQ: NVDA) stock with a Buy rating and a price target of $230, underlining that the firm had plenty of opportunity for growth in the coming months.
At the end of the second quarter of 2021, 86 hedge funds in the database of Insider Monkey held stakes worth $9 billion in NVIDIA Corporation (NASDAQ: NVDA), up from 80 the preceding quarter worth $6 billion.
In its Q1 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ: NVDA) was one of them. Here is what the fund said:
“NVIDIA Corp. is the dominant supplier of Graphics Processing Units (GPUs) worldwide. NVIDIA’s GPUs are at the intersection of a number of important computing trends including the movement to the Cloud, artificial intelligence, autonomous vehicles, edge computing, gaming, and more. We previously owned NVIDIA and sold it in the third quarter of 2020 as the price to value gap closed and our margin of safety was reduced. As with all our MVP companies, we continued to follow NVIDIA closely. Since that time, NVIDIA reported excellent results and its value has compounded rapidly. The technology selloff at the beginning of the year negatively affected the stock price while our estimate of NVIDIA’s value per share increased. This happy combination of events created a margin of safety and an opportunity to once again add NVIDIA to the portfolio.”
1. Micron Technology (NASDAQ: MU)
Number of Hedge Fund Holders: 87
Micron Technology (NASDAQ: MU) is ranked first on our list of 10 stocks that benefit from global chip shortage. The company makes and sells memory and storage products and operates from Idaho.
On July 1, investment advisory KeyBanc maintained an Overweight rating on Micron Technology (NASDAQ: MU) stock and raised the price target to $120 from $115, noting that the firm had posted strong results and guidance in the second quarter.
At the end of the second quarter of 2021, 87 hedge funds in the database of Insider Monkey held stakes worth $6.3 billion in Micron Technology (NASDAQ: MU), down from 100 in the preceding quarter worth $7.6 billion.
In its Q1 2021 investor letter, Bonsai Partners, an asset management firm, highlighted a few stocks and Micron Technology (NASDAQ: MU) was one of them. Here is what the fund said:
“Micron is a manufacturer of memory semiconductor chips. Micron appreciated 17.3% during the quarter.
With the semiconductor cycle in full swing, sentiment continued to improve for major DRAM and NAND suppliers. Spot pricing for DRAM continues its upward march due to supply shocks across the industry and sustained demand levels that continue to outstrip supply.
As a result, Micron showed improving results for the fiscal first quarter, raised guidance intra-quarter for the fiscal second quarter, and offered strong guidance for the fiscal third quarter in both growth and margins.
While the cyclical nature of DRAM hasn’t changed, the cycles themselves continue to become more benign, leading to long-term economic improvement across these businesses. Micron is now continuously profitable, with industry players in a dramatically stronger position than even just five years ago.
The biggest negative surprise in the quarter came from Micron’s exit from its 3D XPoint hybrid memory business. The company also announced its decision to sell its accompanying Utah fab. Fortunately, this development does not alter the investment thesis much since 3D XPoint was an option ticket for future growth. While it’s unfortunate this product didn’t pan out, now is an excellent time to sell a fab, so perhaps it is a blessing in disguise?”
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Disclosure. None. 10 Stocks That Benefit from Global Chip Shortage is originally published on Insider Monkey.
