These three semiconductor stocks have great potential to bounce back after last week’s sell-off.
On Monday, August 5, the stock market crashed after the July employment report was disappointing. The Bank of Japan then decided to raise its short-term policy interest rate target from 0-0.1% to 0.25%. The Bank of Japan also announced that it would significantly reduce its bond purchases.
The Japanese central bank’s decision to unwind carry trades, in which investors borrow in low-interest economies and invest in higher-yielding ones, has seen the stock market show signs of recovery since then.
As the economy recovers, one area to consider investing in is semiconductor stocks. According to a report from the International Data Corporation, the semiconductor sector could achieve an annual growth rate of 20%.
Based on this lucrative long-term forecast, investing in stocks when prices are falling could pay off. Below are three semiconductor stocks you should consider owning for long-term gains.
Taiwan Semiconductor Manufacturing (TSM)
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Taiwan Semiconductor Manufacturing (NYSE:TSM) is a leader in the semiconductor foundry market. This revolution is enabled by the company’s advanced N7+ lithography equipment, which allows it to produce cutting-edge 3-nanometer and 5-nanometer chips.
Taiwan Semiconductor has lower profit margins than other chipmakers but its volume has helped revenue soar in recent years. Its unique business model means it is at the heart of a global technology revolution.
The company experienced a slight revenue decline in 2023 due to the global economic slowdown, but revenue has since recovered. TSMC’s stock price is expected to continue to rise in the coming years as adoption of artificial intelligence expands, which requires the fastest chips.
Rising geopolitical tensions have kept investors away for some time, but TSM recently received billions of dollars in subsidies from the US, which has allowed the company to build a new factory in the US, easing some of the concerns about its future.
TSM is performing well in 2024, up 65% year to date to $168. Shares are up 80% in the past 12 months.
Analysts remain optimistic about the company’s future based on its strong revenue growth and favorable share price performance. Analysts give the company a strong buy rating and forecast an average price increase of 24.41% to $204.71.
Qualcomm (QCOM)
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Qualcomm (NASDAQ:QCOM) is a major chip manufacturer. Like many other semiconductor stocks, the company does not own its own fabs, instead outsourcing manufacturing to Taiwan Semiconductor. The company’s chip designs are best-in-class for wireless communications.
The company’s chip customers include Apple (AAPL), which uses it to power 5G wireless connections in its phones. That business model is fraught with risk, especially because it relies on a few big players for most of its revenue.
Losing even one major customer could jeopardize Qualcomm’s revenue stream, but the model has worked for the company since 1985 and is proven reliable.
The company also has a strong balance sheet that gives it the ability to adjust if market conditions change: For example, the company will have $8.6 billion in cash and cash equivalents as of the end of fiscal 2023, which is plenty of room to support growth and weather any challenges.
Revenue growth has also been impressive. In its third-quarter fiscal 2024 earnings, Qualcomm reported GAAP revenue of $9.4 billion, up 11% from the prior year. The company returned $2.3 billion to investors through dividends and share repurchases during the quarter.
QCOM has been great for investors in 2024. Since the start of the year, investors have gained 16% and over the past 12 months, their investment has grown 43%.
Outlook for the stock is positive, with analysts expecting its share price to hit $213.68 on average over the next 12 months, representing a significant increase of 29.54%.
Microchip Technology (MCHP)
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Microchip Technology (NASDAQ:MCHP) is a well-known name in the microcontroller integrated circuit industry. The company’s stock has been very volatile in recent years, but is steadily rising in 2024.
The company’s revenue is highly cyclical as its microcontrollers are primarily used by industrial end users, but with the Fed signaling it could cut interest rates as early as September, this is definitely one of the stocks to own after the recent financial crisis.
An improving economy could be a boon for Microchip Technology, which has performed well amid current economic headwinds. The company’s ability to hold up in the toughest of circumstances proves it’s a durable stock.
MCHP’s shares have fallen 12% so far this year and 8% over the past 12 months due to the manufacturing downturn, but the economy is expected to recover once the Fed cuts interest rates, and the company’s earnings could start to rise again in the coming quarters.
Analysts are cautiously optimistic about the company’s future, predicting the stock’s price to rise 23.98% to $95.81 over the next 12 months.
If you’re looking to add a bottom-out semiconductor stock to your portfolio, there’s no better choice than MCHP, whose close ties to the industrial manufacturing sector mean it’s likely to experience cyclical changes in value.
However, once the economy fully recovers after 2025, MCHP will undoubtedly be one of the main beneficiaries.
As of the date of publication, Joel Lim did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publication guidelines.
On the date of publication, the editor in charge did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
