The semiconductor industry has been a reliable segment for long-term investors for many years. Many chipmakers have benefitted from artificial intelligence tailwinds as companies rush to capitalize on the new technology. Semiconductors are also found in everyday devices and appliances, such as computers, cars, and refrigerators.
Investors have to look no further than the iShares Semiconductor ETF (NASDAQ:SOXX) to see how much semiconductor stocks have been outperforming the stock market. This ETF has gained 31% year-to-date and has gained an astonishing 287% over the past five years. The S&P 500 hasn’t generated that same return in more than a decade.
Semiconductor stocks have already produced generational wealth for investors who got started early, but there are more gains in store for people who get started now. Some investors can start positions and pass them on to their grandchildren when the time arrives. These three semiconductor stocks have plenty of long-term promise, especially if you have a long-term horizon.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) has been a juggernaut that has carried the S&P 500 to all-time highs. It’s also the largest holding in the iShares Semiconductor ETF. While that ETF has performed well, Nvidia has been on a historic pace.
The stock has more than doubled year-to-date and has gained more than 2,700% over the past five years. However, there is some short-term weakness. Nvidia is entering a brief breather that has resulted in a 12% decline from its all-time high. There’s a slight cooldown with the stock split finally done, but the company’s financials remain incredible.
Revenue increased by 262% year-over-year in Q1 FY25 while net income surged by 462% year-over-year. Nvidia is still reporting double-digit sequential growth rates. The chipmaker also indicated growth will continue, based on its forecasted revenue of $28.0 billion in Q2 FY25. The stock has many supporters in Wall Street and is currently rated as a Strong Buy. The highest price target of $200 per share suggests that the stock can gain roughly 70% from current levels.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) is a late bloomer in the AI boom. The chipmaker has rallied by 43% year-to-date and has almost tripled over the past five years. Unlike most semiconductor stocks, Qualcomm has a respectable yield that currently comes in at 1.69%. The company has a good history of raising its dividend. Qualcomm hiked its quarterly dividend from $0.80 to $0.85 per share earlier this year. That’s a 6.25% year-over-year increase.
The semiconductor firm recently reported 1% year-over-year revenue growth and 37% year-over-year net income growth in Q2 FY24. Qualcomm has endured headwinds for several quarters, so it’s nice to see the company report positive revenue growth. The company’s upcoming launches of its Snapdragon X platforms are generating more excitement as Qualcomm enables leading on-device AI capabilities across multiple product categories.
Qualcomm is currently rated as a Moderate Buy among 29 analysts. The highest price target of $270 per share suggests a potential 34% upside.
Synopsys (SNPS)
Synopsys (NASDAQ:SNPS) has plenty of supporters on Wall Street. Analysts have rated the stock as a Strong Buy and believe that it has a 9% upside from current levels. The chipmaker has generated a 19% year-to-date gain and is up by 363% over the past five years. The stock trades at a 65 P/E ratio and is approaching a $100 billion market cap.
Synopsys’ chips have been powering innovations for more than 35 years. You’ll find Synopsys playing a role in machine learning technology, self-driving cars, cloud computing, 5G connections, and more areas. Synopsys also has a growing software catalog which includes a pending acquisition of Ansys (NASDAQ:ANSS).
The chipmaker reported 15% year-over-year revenue growth in Q2 FY24 to reach $1.455 billion for the quarter. Net income came in at $292.1 million which represents a 7% year-over-year improvement. Synopsys closed out the quarter with a 20.1% net profit margin.
On this date of publication, Marc Guberti held long positions in NVDA and SNPS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
