In this article, we discuss 10 semiconductor stocks for the next 20 years.
Lawmakers in the United States recently passed the CHIPS Act, a legislation aimed at providing massive governmental funding for the semiconductor sector to decrease reliance on Chinese firms. The bill has earmarked $52 billion in government subsidies for chip stocks to boost production in the US, $200 billion over the next decade for scientific research and development in the industry, and also includes nearly 25% in investment tax credits for chip firms. Some chip stocks, which are down close to 30% year-to-date amid a mass exodus from growth stocks due to recession fears, will benefit more than others from this legislation.
Mark Smith, the senior vice president and portfolio manager at investment bank Wells Fargo, recently made an appearance on news platform CNBC to discuss the implications of the bill for semi stocks in the US. Smith noted that with the amount of money that the federal government was going to be spending on the sector in the coming years, investors “had to be bullish” on the semi space. He said that he would buy more semis if they go lower. Smith also noted the impact of the Russian war in Ukraine on the industry, highlighting that neon and krypton, two important gasses used in chip manufacturing, were primarily exported from Ukraine, giving further impetus to spend more on the sector in the US.
“You have got to redesign these chips and source from somewhere that is safer in the world. And you are going to need every bit of that $52 billion (in government spending). And so I am bullish because of the amount of investment being made and how much money is going to flow in there.”
Smith further highlighted that demand imbalances were also helping extend a price rally in the industry. He backed the demand for chips to increase in the coming years, and as firms like NVIDIA Corporation (NASDAQ:NVDA), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Advanced Micro Devices, Inc. (NASDAQ:AMD) made more of them, he predicted that “people will keep buying”. Smith also addressed concerns around wasted spending with regards to the CHIPS Act, saying that there was a precedent that the accelerated spending would work in China and Taiwan.
“I am feeling bullish about the chip (industry) because of the fact that it is down so much. And I am a value investor, just like Mr Buffett, and he is behind them too. I think everyone who is a long term investor, this is your retirement money, this is money you are not going to use for twenty or thirty years, you are going to look back and see this was a great buying opportunity.”
At the end of his interview, Smith reiterated his bullish stance on the semiconductor sector and said:
“If it goes lower, buy some more.”
Our Methodology
The companies that have the potential to grow in the coming two decades 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.
Photo by Yogesh Phuyal on Unsplash
“If It Goes Lower, Buy Some More”: Semiconductor Stocks for the Next 20 Years
10. NXP Semiconductors N.V. (NASDAQ:NXPI)
Number of Hedge Fund Holders: 43
NXP Semiconductors N.V. (NASDAQ:NXPI) makes and sells various products related to semiconductors. On July 25, the firm posted earnings for the second quarter of 2022, reporting earnings per share of $2.53, beating analyst expectations by $0.10. The revenue over the period was $3.3 billion, up more than 27% compared to the revenue over the same period last year and beating market estimates by $40 million. The firm guided revenue $200 million above consensus estimates for the next quarter.
On July 27, Cowen analyst Matthew Ramsay maintained an Outperform rating on NXP Semiconductors N.V. stock and raised the price target to $200 from $190, noting that demand in the chip industry was continuing to outstrip supply.
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., with 923,855 shares worth more than $170 million.
Just like NVIDIA Corporation, Taiwan Semiconductor Manufacturing Company Limited, and Advanced Micro Devices, Inc., NXP Semiconductors N.V. is one of the stocks that elite investors are monitoring.
In its Q1 2022 investor letter, Sound Shore Management, an asset management firm, highlighted a few stocks and NXP Semiconductors N.V. was one of them. Here is what the fund said:
“Similarly, analog chip supplier NXP Semiconductors N.V. 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. 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.”
9. ASML Holding N.V. (NASDAQ:ASML)
Number of Hedge Fund Holders: 46
ASML Holding N.V. (NASDAQ:ASML) makes and sells advanced semiconductor equipment systems. The firm is one of the better defensive plays in the chip sector as it also has a solid dividend profile. The company has consistently paid a dividend to shareholders for the past ten years. In the last seven years, these payouts have also grown consistently. The sector median in this regard is just three years. On July 20, the firm declared a quarterly dividend of €1.37 per share. The dividend will be payable to shareholders by mid-August.
On July 21, investment advisory JPMorgan maintained an Overweight rating on ASML Holding N.V. stock but lowered the price target to $794 from $925. Analyst Sandeep Deshpande 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., 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. 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. 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.”
8. KLA Corporation (NASDAQ:KLAC)
Number of Hedge Fund Holders: 52
KLA Corporation (NASDAQ:KLAC) markets process control and yield management solutions for the semiconductor industry. The ability of the firm to sell equipment and other material to companies in China, including SMIC, the largest chipmaker in the Asian country, has come under increased scrutiny as the Biden administration imposes tougher sanctions on Chinese firms in order to boost the manufacturing and export capabilities of American chip firms in North America and Europe.
On July 29, Deutsche Bank analyst Sidney Ho maintained a Buy rating on KLA Corporation stock and raised the price target to $400 from $385, noting that the firm was benefiting from the robust demand despite supply chain headwinds.
At the end of the first quarter of 2022, 52 hedge funds in the database of Insider Monkey held stakes worth $1.8 billion in KLA Corporation, compared to 49 in the previous quarter worth $2.4 billion.
In its Q1 2022 investor letter, Vltava Fund, an asset management firm, highlighted a few stocks and KLA Corporation was one of them. Here is what the fund said:
“We then used the money freed up to, among other things, open three new positions. The stock price declines during the Russian invasion brought a lot of good prices to the market. Out of all the possibilities we considered, we picked the stock of KLA Corporation.
KLA Corporation develops leading-edge equipment and services that enable innovation throughout the electronics industry. It specialises in process management and control in semiconductor manufacturing and the related nano-electronics industries. During manufacturing processes, products must be inspected for defects and correct critical dimensions in order to identify and eliminate possible sources of problems. As customers continue to enforce Moore’s Law, smaller chips must meet more precise specifications, which in turn increases the need for advanced inspection and diagnostic tools. This is a key step within the entire manufacturing process and one in which the company has built a very strong, and in places dominant, global position. We have been watching and waiting for an opportunity to acquire this stock for some time already, and this year’s drop in its price finally prompted us to buy.”
7. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 71
Broadcom Inc. (NASDAQ:AVGO) supplies semiconductor infrastructure software solutions. The company has been one of the biggest beneficiaries of the increase in cloud spending over the past few years since the chips it markets are used to power servers that provide a host of cloud services for businesses across the globe. Some of the firms that buy Broadcom products include Microsoft, Google, and Meta. Cloud spending will accelerate in the second half of 2022 as well, benefiting Broadcom despite supply chain headwinds, per JPMorgan’s Harlan Sur.
On July 20, Deutsche Bank analyst Ross Seymore maintained a Buy rating on Broadcom Inc. stock and lowered the price target to $635 from $700, noting that investors were now actively factoring in macro headwinds in the chip sector.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Cantillon Capital Management is a leading shareholder in Broadcom Inc., with 1 million shares worth more than $652 million.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Broadcom Inc. 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. 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. 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.”
6. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Holders: 74
Applied Materials, Inc. (NASDAQ:AMAT) provides equipment, services, and software for the semiconductor industry. The firm is one of the beneficiaries of the CHIPS Act that was passed by lawmakers in the US recently. The Act will limit the sale of American equipment to Chinese chip firms, allow $52 billion in government spending on the chip sector to improve manufacturing capabilities, and also pour $200 billion into scientific research in the sector to get ahead of the Chinese.
On July 25, Morgan Stanley analyst Joseph Moore maintained an Equal Weight rating on Applied Materials, Inc. stock and lowered the price target to $115 from $133, noting that demand for equipment was softening in the fabrication sector.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Generation Investment Management is a leading shareholder in Applied Materials, Inc., with 4.2 million shares worth more than $560 million.
In addition to NVIDIA Corporation, Taiwan Semiconductor Manufacturing Company Limited, and Advanced Micro Devices, Inc., Applied Materials, Inc. is one of the stocks that hedge funds have their eye on.
5. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 76
Intel Corporation (NASDAQ:INTC) markets key technologies for smart devices. On July 28, the company posted earnings for the second quarter of 2022, reporting earnings per share of $0.29, missing market estimates by $0.41. The revenue over the period was $15.3 billion, down close to 17% compared to the revenue over the same period last year and missing estimates by $2.6 billion. The firm also lowered full-year revenue guidance to $68 billion against estimates of $74 billion. The company retained adjusted free cash flow guidance for the year.
On August 1, Northland analyst Gus Richard maintained an Outperform rating on Intel Corporation stock with a price target of $55, noting that the manufacturing capability of the firm had strategic value to the US government.
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, compared to 72 in the previous quarter worth $5.5 billion.
Baron Funds, an asset management firm, mentioned Intel Corporation in its first-quarter 2022 investor letter. Here is what they said:
“Intel Corporation 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.”
4. Micron Technology (NASDAQ:MU)
Number of Hedge Fund Holders: 78
Micron Technology (NASDAQ:MU) makes and sells memory and storage products. On July 29, a day after lawmakers agreed to spend hundreds of billions in government spending to boost chip manufacturing in the US, Micron announced that it would be investing heavily in research and development to bring cutting edge chip manufacturing capabilities to the US. The firm said that it would be sharing more details about the plans in the coming weeks. Micron was founded in 1978 and is based in Idaho.
On July 1, Evercore ISI analyst C.J. Muse maintained an Outperform rating on Micron Technology stock with a price target of $90, noting that there was excess conservatism in the update outlook on the firm.
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, compared to 83 in the preceding quarter worth $5.5 billion.
3. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 81
Taiwan Semiconductor Manufacturing Company Limited makes and sells integrated circuits and semiconductors. On July 20, carmaker Volkswagen announced that it had signed an agreement with STMicroelectronics to design new chips that will specifically cater to the needs of software-enabled vehicles. The new chips will be manufactured by Taiwan Semiconductor Manufacturing Company. The move is part of a broader plan by the carmaker to restructure the supply chain around chip purchasing.
On July 14, Susquehanna analyst Mehdi Hosseini maintained a Neutral rating on Taiwan Semiconductor Manufacturing Company Limited stock and lowered the price target to $88 from $90, noting the revenues of the firm in 2022 made 2023 guides challenging.
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, 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 was one of them. Here is what the fund said:
“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited 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. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 83
Advanced Micro Devices, Inc. operates as a semiconductor manufacturer. On August 2, the company posted earnings for the second quarter of 2022, reporting earnings per share of $1.05, beating market estimates by $0.01. The revenue over the period was $6.55 billion, up more than 70% compared to the revenue over the same period last year and beating estimates by $20 million. The firm guided full year revenue to more than $100 million above consensus estimates of $26.1 billion.
On July 19, Wells Fargo analyst Aaron Rakers maintained an Overweight rating on Advanced Micro Devices, Inc. stock and lowered the price target to $130 from $140, backing the shares to return to a 25+ forward price to earnings multiple.
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., with 24 million shares worth more than $2.6 billion.
Here is what Carillon Tower Advisers had to say about Advanced Micro Devices, Inc. in its fourth-quarter 2021 investor letter:
“Advanced Micro Devices, Inc. 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.”
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 102
NVIDIA Corporation operates as a visual computing firm. On July 21, reports indicated that electronics giant Samsung, which makes chips for companies like NVIDIA, was planning to spend $200 billion to set up eleven new chipmaking plants in Texas. The investment will create over 10,000 jobs in the state. The report comes just as lawmakers in the US approved a new plan to boost chip manufacturing in the US to compete with Chinese firms in chip exports around the world. NVIDIA Corporation will potentially overcome supply constraints by this move.
On July 25, Barclays analyst Blayne Curtis maintained an Overweight rating on NVIDIA Corporation stock and lowered the price target to $200 from $295, noting that it was too early to buy the dip in semi stocks.
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, 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 was one of them. Here is what the fund said:
“NVIDIA Corporation 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 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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This article is originally published at Insider Monkey.
