Semiconductor stocks have had an interesting 2023. There have been some major bright spots for the industry, such as the rise of artificial intelligence (AI) applications requiring massive amounts of computing power.
On the other hand, there’s been a lot of negatives for semiconductor stocks. Consumer electronics demand has slumped following the 2021 and 2022 boom. We’ve seen sizable declines in the sales of PCs, smartphones, TVs and other semiconductor-intensive products. Memory chips have seen a slump.
And now, broader economic weakness is hitting the chips sector. Smart cars and Internet of Things applications have risen recently, but demand has weakened in recent quarters as the vehicle and industrial markets have lagged.
All these crosscurrents make it a good time to pick individual semiconductor stocks to buy rather than betting on the sector as a whole. These are three to own today.
Texas Instruments (TXN)
Texas Instruments (NASDAQ:TXN) is the world’s largest analog semiconductor company.
This is a vital part of the chip ecosystem, as these chips help turn real-world information, such as weather conditions, into data that computers can understand. Texas Instruments is vital in producing thousands of different chip designs for various industrial applications.
Texas Instruments has enjoyed tremendous growth in recent years thanks to the automotive market. Smart cars require an order of magnitude more electronic equipment, and Texas Instruments is a leading vendor.
TXN stock has sold off thanks to the dip in the auto and industrial markets this year. However, the company is laser-focused on long-term shareholder returns, and investors are getting a bargain on TXN stock at this entry point.
Taiwan Semiconductor Manufacturing (TSM)
Taiwan Semiconductor Manufacturing (NYSE:TSM) is the world’s dominant semiconductor foundry, surpassing 50% total market share in recent years.
Simply put, companies that don’t want to build their own chips internally outsource the production to a foundry. Various companies in this field, such as TSM, Samsung and—more recently—Intel (NASDAQ:INTC). However, TSM has developed a dominant market position and has unmatched technical prowess.
Some investors fear geopolitics could disrupt the company, as tensions with China have been high recently. However, TSM is investing heavily in manufacturing capabilities outside of Taiwan—such as in Arizona—to make the firm more resilient.
As new semiconductor applications spring up, the world will need ever-increasing amounts of foundry capacity. TSM stock is the best way to ride that trend.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) is a chip company focused on telecom and communications. And right now, it offers the best of everything.
Shares are undervalued on a P/E basis, offer a solid dividend yield and are poised to rebound when the smartphone market recovers. In addition, Qualcomm is developing cutting-edge AI-enable chips that can bring the power of artificial intelligence to phones and other mobile devices.
QCOM stock did slide earlier this year on weak phone sales and a slowdown in 5G telecom spending. However, the company is back on track as a strong earnings report suggests its end markets are firming up. And the AI chips offer solid upside optionality for Qualcomm heading into 2024.
On the date of publication, Ian Bezek held a long position in QCOM, INTC, and TXN stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
