With patience, undervalued semiconductor stocks could easily race to higher highs.
Just look at Nvidia (NASDAQ:NVDA), for example. Since the start of 2023, the tech giant ran from a low of about $150 to a high of $974. Advanced Micro Devices (NASDAQ:AMD) ran from about $110 to $227.
And now — surprise, surprise — they’re pulling back on stretched valuations, and as ridiculous bouts of greed give way to fear. At the same time, I don’t expect the pullbacks to last long at all. With growing, explosive demand for semiconductors, I still believe Nvidia and Advanced Micro could race to higher highs along with some of the less-crowded, undervalued semiconductor names.
We also have to consider that with growing demand, the global semiconductor market could be worth nearly $1.4 trillion from $527.9 billion in 2021, as noted by Fortune Business Insights. Plus, demand isn’t slowing. Instead, industry giants, like Taiwan Semiconductor (NYSE:TSM) are increasing production as demand grows.
That being said, I’d use weakness as an opportunity for buying the big leaguers as well as some of the most undervalued semiconductor stocks, including:
Aehr Test Systems (AEHR)
One of the most undervalued semiconductor stocks, Aehr Test Systems (NASDAQ:AEHR) is a global provider of test systems for burning-in and testing logic, optical and memory integrated circuits.
For quite some time, AEHR benefited by providing testing equipment and services for the electric vehicle market. And as demand for EVs accelerated, so did AEHR stock. Unfortunately, with slowing EV sales growth, shares plummeted from about $50 to less than $16.22 a share. But don’t count the stock out just yet.
For one, when the Federal Reserve does start to cut interest rates, we could see a resurgence of EV sales. That could benefit AEHR.
Two, according to Bloomberg, the EV market could see about 22% growth this year, noting. “We expect global passenger EV sales — battery-electrics and plug-in hybrids — to increase 21% in 2024 to 16.7 million, with 70% of those being fully electric.”
And last, while the company did reduce guidance earlier this year, “AEHR remains confident about its long-term prospects and about the future demand for its solutions. The company has maintained its long-term growth expectations and sees a huge opportunity ahead of it,” as noted by Seeking Alpha.
Lattice Semiconductor (LSCC)
Next up on this list of undervalued semiconductor stocks is Lattice Semiconductor (NASDAQ:LSCC).
For one, Lattice focuses on field programmable gate arrays, or FPGAs, which are under heavy demand. So much so, that there have been multiple FPGA acquisitions. Among them is AMD’s acquisition of Xilinx back in 2022, as noted by Motley Fool contributors.
Two, while the company has been dealing with oversupply issues, it expects for conditions to improve in the second half of the year as customer inventories return to normal. Three, CEO James Anderson believes LSCC will remain profitable in coming quarters.
Helping, late last year, Deutsche Bank initiated coverage of LSCC with a buy rating, with a $70 price target. “In the near-term, Lattice is unlikely to stave off cyclical headwinds facing the broader industry, but any downside is likely already priced into shares,” said the firm, as noted by Seeking Alpha.
In addition, LSCC authorized a $250 million share buyback program through the end of December 2024. So while LSCC stock recently ran from about $55 to $80, I believe it could retest $98 as it rights the ship.
Direxion Daily Semiconductor Bull 3x Shares (SOXL)
With the latest pullback in semiconductor stocks likely to be short-lived, we can also take advantage of weakness by using an ETF such as the Direxion Daily Semiconductor Bull 3x Shares (NYSEARCA:SOXL). With an expense ratio of 0.94%, SOXL seeks daily investment results of 300% of the performance of the NYSE Semiconductor Index. Some of the index’s top holdings include AMD, Nvidia and Broadcom (NASDAQ:AVGO).
After bottoming out around $15 in early November, the ETF ran to a high of about $57. It’s now trading around $46 with profit-taking in major semiconductor names. But again, I don’t expect the pullback to last long with the artificial intelligence boom fueling demand for semiconductors.
But use extreme caution with triple-levered funds like SOXL. These ETFs are looking for 300% returns on a daily basis. They are constantly rebalancing their portfolios. You need acute precision buying and selling this ETF to make any money. The levered ETFs are designed for day traders. Even Direxion says they are not for everyone. They “should be utilized only by investors who understand leverage risk and who actively manage their investments.” Tread carefully here.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
