In this article, we will look at the 8 Best Small-Cap Semiconductor Stocks to Buy Right Now.
On June 26, Paul Meeks from Freedom Capital Markets appeared on a Schwab Network interview to discuss the key driving factors for semiconductor stocks, especially after Micron surprised the market with strong earnings. He noted that the interesting point with Micron and other DRAM suppliers is that the demand is so strong that, in comparison, the supply of all the DRAM suppliers combined appears to be scarce. Meeks added that this supply shortage has led to these semiconductor manufacturers signing agreements with all big hyperscalers to lock in prices over the next 3 to 5 years. Meeks believes this to be unprecedented for commodity vendors like Micron and other DRAM players.
He added that despite the strong earnings, memory stocks are expected to go higher even when multiplied by the usual market valuation multiple. The recent contracts with hyperscalers suggest that more than 50% of the revenue for companies like Micron will come from these contracts. This gives visibility for strong earnings growth over at least the next 2 to 3 years.
Meeks believes that we are still in the early investment cycle when it comes to AI buildout. He sees an investment horizon spanning at least 2 to 3 more years. He added that while stocks like Micron have performed well, this does not mean that the whole sector is a buy. Meeks likes DRAM and NAND suppliers particularly.
Now that we have looked at what drove Micron higher, let’s take a look at some smaller semiconductor companies. Here’s our list of the 8 Best Small-Cap Semiconductor Stocks to Buy Right Now.
Our Methodology
To curate the list of 8 Best Small-Cap Semiconductor Stocks to Buy Right Now, we used the Finviz stock screener, WSJ, and Insider Monkey’s hedge fund database. We used the screener to identify small-cap semiconductor stocks and checked the market capitalization from the WSJ. Lastly, we shortlisted the stocks that were most widely held by hedge funds and ranked them in ascending order of this indicator.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Insider Monkey’s quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 599.2% since May 2014, beating its benchmark by 372 percentage points (see more details here).
8 Best Small-Cap Semiconductor Stocks to Buy Right Now
8. POET Technologies Inc. (NASDAQ:POET)
Market Cap: $1.63 billion
Number of Hedge Fund Holders: 14
POET Technologies Inc. (NASDAQ:POET) is one of the Best Small-Cap Semiconductor Stocks to Buy Right Now. POET Technologies Inc. (NASDAQ:POET) has declined roughly 29% over the past month. The major reason behind the significant price drop has been multiple lawsuits regarding the company’s tax status as well as the cancellation of purchase orders by Marvell associated with Celestial AI.
Earlier in May, the stock was trading close to an all-time high of around $20. The Street expects more than 100% upside for the stock over the next 12-months. In the same month, the company reported a significant advancement by signing a supply agreement with Lumilens to jointly develop a new type of optical interconnect technology called the Electrical-Optical Interposer.
Management noted that the aim of this partnership is to solve a growing bottleneck in AI infrastructure, which is the optical layer that connects GPUs at scale. POET highlighted that the current optical components are expensive and slow to manufacture because they rely on manual, precision assembly. The EOI platform eliminates this by using wafer-level processing, bringing semiconductor-style efficiency to photonics.
Notably, as part of the deal, Lumilens has placed an initial $50 million purchase order with POET, with the potential to grow to over $500 million over five years. POET has also granted Lumilens warrants to purchase shares.
POET Technologies Inc. (NASDAQ:POET) develops high-speed optical engines, light sources, and photonic integrated circuits designed for artificial intelligence, hyperscale data center, and telecommunications applications. Founded in 1985 and headquartered in Toronto, Ontario, Canada, the company focuses on enabling faster and more energy-efficient optical connectivity solutions for the rapidly expanding AI infrastructure market.
7. Arteris, Inc. (NASDAQ:AIP)
Market Cap: $2 billion
Number of Hedge Fund Holders: 17
Arteris, Inc. (NASDAQ:AIP) is one of the Best Small-Cap Semiconductor Stocks to Buy Right Now. On June 24, Arteris, Inc. (NASDAQ:AIP) announced that a Chinese automotive chipmaker, SiEngine Technology, licensed the company’s FlexNoC network-on-chip (NoC) interconnect IP for a next-generation automotive SoC platform.
Management noted that the chips will power intelligent cockpit systems, advanced driver assistance, and AI-driven cockpit-drive fusion applications. The company also highlighted that this isn’t a new relationship with SiEngine as the company had used Arteris technology across multiple chip generations. The latest agreement represents a continued expansion of that partnership.
Management highlighted that the need for more sophisticated on-chip connectivity is being driven by increasingly software-defined and compute-heavy automotive architectures. Arteris’ FlexNoC 5 addresses this by improving data routing, reducing congestion, lowering power use, and meeting ISO 26262 automotive safety standards.
Arteris Inc. (NASDAQ:AIP) is a California-based provider of semiconductor system intellectual property solutions. The company also offers professional & licensing services, IP support & maintenance, and on-site support services.
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