Zacks Electronics – The semiconductor industry is benefiting from the steady adoption of laptops, notebooks, office equipment, and network peripherals around the world. The growing adoption of artificial intelligence (AI), generative AI, the Internet of Things (IoT), machine learning (ML), and Industrial Revolution 4.0 (focused on interconnection and automation) is a key driver for industry players such as Broadcom AVGO. It turned out to be a boon. Marvell Technologies MRVL and Impinj PI. Rising demand for mass consumer electronics such as digital media players, smartphones, tablets, efficient packaging, machine vision solutions, and robotics will continue to drive industry growth. However, end-market volatility, sustained inflation, widespread inventory corrections, and rising geopolitical tensions are concerns for the industry.
Industry description
The Zacks Electronics – Semiconductor industry consists of companies that offer a wide range of semiconductor technologies. The company’s services include packaging and testing services, wafer cleaning, factory automation, and facial detection and image recognition capabilities to develop smart, connected products. Industry participants primarily serve end markets such as consumer electronics, communications, computing, industrial, and automotive. Companies are increasing their spending on research and development to survive in an era of technological advances and changing industry standards. The industry is seeing strong demand for advanced electronics, which is allowing industry players to increase investment in cost-effective process technologies.
What will shape the future of electronics? Semiconductor industry?
5G outlook is a key catalyst: The growing deployment of 5G will expose industry players to near-term prospects. Another big plus is the increasing demand for 5G testing solutions needed for 5G deployments. Another tailwind is the increasing number of high-speed data centers around the world that require the ultra-fast internet that 5G promises to provide. The increasing use of connectivity and technology in consumer electronics through IoT, AI, robotics, AR/VR, etc. will further fuel 5G. Given the positive scenario, the industry is expected to continue on a growth trajectory, supported by efforts to enhance 5G infrastructure.
Smart devices to support computing demands: Smart devices require computing and learning capabilities to perform functions such as face detection, image recognition, and video analytics capabilities. These require higher levels of processing power, speed, memory, and low power consumption, as well as better graphics processors and solutions, which bodes well for the industry. Graphics solutions help improve image rendering speed and improve image resolution and color definition.
Advanced Packaging Perspectives Robust: Increasing demands for smaller size, higher functionality, lower power consumption, and improved thermal and electrical performance are driving demand for semiconductor packaging and test technologies. The increasing demand for advanced packaging is gaining traction in the semiconductor industry, and this is an important trigger for industry players.
Complex processes drive demand: Strong adoption of cloud computing, IoT, and AI is expected to rapidly increase the requirement for faster, more powerful, and energy-efficient semiconductors. Semiconductor manufacturers primarily aim to maximize manufacturing yields at lower costs, which makes semiconductor manufacturing processes more complex and increases the demand for solutions provided by industry players. The rapid adoption of IoT-enabled factory automation solutions is also a factor. Increased adoption of 5G is a key catalyst.
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The Zacks Industry Rank indicates a positive outlook.
The Zacks Electronics – Semiconductor industry is part of the broader Zacks Computer & Technology sector. It currently has a Zacks Industry Rank #126, which puts it in the top 50% of over 250 Zacks industries.
The group’s Zacks Industry Rank is the average of the Zacks Rank of all member stocks, which indicates a positive near-term outlook. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
This industry ranks among the top 50% of Zacks-ranked industries as a result of positive earnings outlooks across its constituent companies. Looking at the total revenue estimate revisions, it appears that analysts are optimistic about the group’s revenue growth potential. Starting April 30, 2024, industry revenue estimates for the current year have increased by 2.7%.
Before we introduce some stocks to consider for your portfolio, let’s take a look at the big picture recent stock market performance and valuations for the industry.
Industry Outperforms S&P 500 and Sectors
The Zacks Electronics – Semiconductor industry outperformed the Zacks S&P 500 Composite Index and the broader Zacks Computer and Technology sector last year.
The industry has grown 25% in this period versus the Zacks Computer & Technology sector’s return of 45.9% and the S&P 500’s growth rate of 27.9%.
Industry current assessment
Based on trailing 12-month price-to-earnings multiples, which are commonly used to value electronics semiconductor stocks, the industry currently trades at 28.4x compared to the S&P 500, and 22.62x and 25.6x for its sector. It is traded at. .
As the chart below shows, over the past five years, the industry’s trading multiple has been as high as 32.28x and as low as 10.61x, with a median of 17.76x.
3 electronics semiconductor stocks to buy
Impinj: This Zacks Rank #1 (Strong Buy) company benefits from strength in its endpoint IC product line, driving momentum in retail apparel and general merchandise applications. You can see the complete list of today’s Zacks #1 Rank stocks here.
Impinj has expanded into the food tagging space with a focus on pilot programs for quick-service restaurants and grocery stores. This new market is much larger than the current business segment and is expected to have significant growth potential.
Impinj stock has increased 109% year-to-date (year-to-date). The Zacks Consensus Estimate for PI’s 2024 earnings has remained unchanged at $2.05 per share over the past 30 days.
Broadcom: Strong demand from hyperscale customers for custom AI accelerators, AI networking solutions, Ethernet switching, optical lasers, thin die, PCI Express switches, and network interface cards is driving Broadcom’s revenue growth.
AVGO’s solutions are well-suited to address the growing needs of AI workloads and the increasing need for high-speed networking in data centers. The acquisition of VMware has been a boon for infrastructure software solutions. This Zacks Rank #2 (Buy) company’s notable customer base includes Alphabet and Meta Platforms, among others.
Broadcom stock has increased 52.6% since the beginning of the year. The Zacks Consensus Estimate for AVGO’s fiscal 2024 earnings has remained steady at $4.82 per share over the past 30 days.
Marvell Technology: Another Zacks Rank #2 stock, Marvell is benefiting from a strong demand environment across the data center end market. Completion of inventory is likely to drive growth across the enterprise networking and carrier infrastructure end market.
Marvell is a promising player in the solid state drive (SSD) controller market. Considering the rapid growth in data volume, especially in unstructured data, the storage market demand is steadily increasing.
MRVL stock has increased 59% since the beginning of the year. The Zacks Consensus Estimate for MRVL’s 2024 earnings has remained unchanged over the past 30 days at $1.46 per share.
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Broadcom Inc. (AVGO): Free Stock Analysis Report
Marvell Technology, Inc. (MRVL): Free Stock Analysis Report
