Dividend Stocks

The 3 Most Undervalued Semiconductor Stocks to Buy in May 2024

With explosive, growing interest in everything tech, including artificial intelligence, machine learning, and self-driving cars, semiconductor demand will only run higher. All of which should fuel upside for undervalued semiconductor stocks.

According to Precedence Research, the global semiconductor market could be worth about $1.137 trillion by 2033. That’s up from $544.78 billion in 2023.  In addition, in February 2023, global sales ramped 16.3% higher year over year to $46.2 billion. That was an increase of 1.3% year over year, according to the Semiconductor Industry Association.

For an idea of how explosive the industry could get, look at Nvidia (NASDAQ:NVDA).  

Since the start of 2023, the tech giant ran from a low of about $150 to a high of $950. From here, Nvidia could push even higher with surging demand for its AI chips.

Plus, according to PYMNTS.com, “The demand for Nvidia’s chips has been soaring, with the company forecasting 233% growth in first-quarter revenue, exceeding market expectations. This growth has been fueled by the robust demand for its graphic processing units from data centers undergoing AI upgrades.”

While Nvidia is certainly one of the top ways to trade the semiconductor boom, investor should also look at other explosive, but currently undervalued semiconductor stocks.

Advanced Micro Devices (AMD)

In this photo illustration, the AMD logo is shown on a smartphone screen.

Source: Pamela Marciano / Shutterstock.com

After running from about $90 to a high of $227, Advanced Micro Devices (NASDAQ:AMD) recently slipped to a low of $150.60 on earnings. Not only is it undervalued here, but it’s also technically oversold on RSI, MACD, and Williams’ %R. From its last traded price of $150.60, I’d like to see it retest $180 a share, especially with earnings negativity priced in.

Analysts at KeyBanc may have lowered their price target on AMD to $230, but they reiterated an overweight rating on the stock. The firm also believes AMD is still on track to capitalize on strong demand for graphics processing units (GPUs) thanks to artificial intelligence.  

Morgan Stanley also says ignoring AMD here would not be wise, citing “significant enthusiasm for the core business,” foreseeing substantial advancements in client, server, and field programmable gate arrays (ICs that customers can reconfigure) in the coming year and a half,” as noted by TipRanks. Morgan Stanley has an overweight rating on the stock with a $176 target.

Taiwan Semiconductor (TSM)

TSMC Taiwan Semiconductor Manufacturing Company (TSM) logo displayed on mobile phone screen

Source: Piotr Swat / Shutterstock.com

We can also look at undervalued semiconductor stocks like Taiwan Semiconductor (NYSE:TSM). After slipping from about $145 to a low of $125,78, TSM is just starting to pivot higher. From its last traded price of $141.56, I’d like to see it retest $157.76 initially.

For one, as I noted in early April, “Demand for AI-optimized chips is outstripping supply, which puts Taiwan Semiconductor Manufacturing into an admirable position and which could justify further valuation gains.” 

Two, analysts at Needham recently said the TSM pullback appears to have been overdone after solid first quarter numbers.

Not long ago, “TSM’s CEO C. C. Wei warned about the overall semiconductor market growth in 2024 during the company’s first-quarter earnings call. TSM lowered its forecast for the 2024 overall semiconductor market, excluding memory, to increase by about 10% year-over-year, while foundry industry growth is now forecast to be mid-to high-teens percent, noting that both are coming off the steep inventory correction and/or base of 2023,” added Seeking Alpha.

At the same time, Wei noted that TSM expects 2024 to be healthy for the company. The company still sees revenue of between $19.6 billion and $20.4 billion for the second quarter, which is higher than expectations for $19.08 billion. TSM also sees profit margins falling into a range of 51% and 53%.

ON Semiconductor (ON)

a machine manufactures semiconductor chips in a factory setting. AI Semiconductor Stocks

Source: Shutterstock

We can also take advantage of the recent weakness in rebounding shares of ON Semiconductor (NASDAQ:ON). After slipping from about $78 to a low of $60, ON is just starting to pivot higher. Last trading at $70.37, I’d like to see it retest $78 again shortly.

Earnings haven’t been too shabby. In its first quarter, the company posted earnings per share of $1.08, which beat by three cents. Revenue of $1.86 billion – down 5.1% year over year – beat by $10 million. In addition, weakness from recent price target downgrades from Deutsche Bank, B. Riley, Truist and TD Cowen have all been priced in, too.

Needham recently reiterated a buy rating on the ON stock with a $90 target.

We also have to consider that “the automotive industry is shifting toward what are known SiC [silicon carbide] modules. ON Semiconductor is a major producer of those modules,” as noted by Investorplace contributor Alex Siriois.  

In addition, as also noted by Cadence Design Systems, “In the coming years, the demand for silicon carbide semiconductor devices is going to spike as most of the automotive industry shifts to electric vehicle manufacturing.”

On the date of publication, Ian Cooper did not hold (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.

Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.