The stock market has been performing well recently, with the S&P 500 rallying up over 4% in the last month. However, with investors always looking to out-beat the market, technology firms, and especially semiconductor companies, provide potential for explosive growth potential. With their innovation and presence in an expanding artificial intelligence market, semiconductor companies present investors with higher risk and reward opportunities. Other than simply AI, other key drivers for this growth can be attributed to the growing demand from electric vehicle companies, communication and data processing centers, and automotive needs among others.
Although these companies sometimes are more susceptible to interest rate environments and foreign policy relations with China and the U.S., not investing in these would limit high earnings growth potential. Thus, in this article, we aim to present three semiconductor stocks that should be on your radar as we go through this holiday season and approach the new year.
Qualcomm, Inc. (QCOM)
Qualcomm, Inc. (NASDAQ:QCOM) is a company that manufactures products that contribute to the development of technologies like 5G. The stock is doing well and is up over 25% in the past year. The company is making big moves with a deal with Apple (NASDAQ:AAPL) to supply its Snapdragon 5G Modem‑RF Systems for smartphone launches in the coming years.
This deal will allow Qualcomm to stay at the forefront of the industry and maintain a strong demand for its products going forward. Its earnings also reflect this future growth with EPS expected to sustain double-digit growth and hit $10.38 by 2025. The company also appears to be relativity undervalued and offers an upside when compared to its competitors and its own historical values. The stock currently has a P/E ratio of 17.02x compared to the sector median of 21.73x. This indicates an over 20% upside in valuation compared to what semiconductor players usually trade for. With this being the case, the stock is a sure watch for investors in the coming months.
United Microelectronics Corporation (UMC)
United Microelectronics Corporation (NYSE:UMC) is a global leader in the semiconductor foundry business and is currently competitively positioned to break into the automotive segment to expand its client base even further. While the current semiconductors climate has taken a blow on many of UMC’s competitors, its relatively strong valuation and innovative strategy to grow off of trends such as electrification and connectivity keep me optimistic about this company.
With the global semiconductor foundry market expected to reach a $137 billion market cap in 2022 with a continued CAGR of 8% from 2023-2029, UMC’s amazing valuation sets it up as a top pick for any investor. Currently, its P/E ratio sits at a discounted 9.35x, as compared to its sector median of 21.73x. Its financial profile is just as strong, with its cash and equivalents totaling up to a whopping $5.2 billion as compared to its long-term debt of only $1.15 billion. Furthermore, in spite of the current downturn hurting product margins, UMC has continued to put out comfortable margins of around 30%. With plans to continue building up on its 22nm and 28nm semiconductors, as well as its new strategy revolving around EV, 5G, and AI, this stop is a no-brainer that should be on any investor’s radar into the coming year.
Navitas Semiconductor (NVTS)
Navitas Semiconductor (NASDAQ:NVTS) is a pioneering force in next-gen semiconductors, making a revolution through integrated gallium nitride and silicon carbide semiconductors. With the prevailing trends in artificial intelligence requiring cheaper and more effective semiconductors, these next-generation semiconductors could push for exciting breakthroughs and growth in the coming year. Yahoo Finance analysts share similar sentiments with a one-year expected price target between a median of $10.54 and a high of $14.
NVTS’s most recent earnings report has shown continued excellence. This company has already demonstrated a startling 2,129% growth in revenues from 2019 to 2022 as its Silicon carbide and GaN technology has begun replacing older silicon chips. Now its most recent Q3 earnings show an improvement to a gross margin of 43.1% and a revenue growth up 115% YOY. With an additional $177 million of cash on its balance sheet and zero debt, this company will see no issues in continuing its innovations toward more effective semiconductors. If you haven’t already begun jumping on this next-generation semiconductor trend, I highly suggest Navitas Semiconductors as a good place to start the new year.
On the date of publication, Ian Hartana and Vayun Chugh 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 writer, subject to the InvestorPlace.com Publishing Guidelines.
