5 Microchip Stocks to Buy as Supply Shortage Boosts Demand

The microchip shortage has been hurting carmakers now and they are urging the Fed to intervene. Production is being halted and carmakers are worried that the crisis might persist, which may again become a roadblock for the already ailing auto industry.

That said, the semiconductor shortage once again proves that the microchip industry is thriving on this growing demand. The semiconductor industry already had a great 2020 and is putting up a good show once again with sales skyrocketing in the first quarter and into April.

Automakers Face Semiconductor Shortage

On May 7, U.S. automakers along with the United Auto Workers union approached Congress to help them with billions of dollars in funding to help boost the production of microchips. Chip shortage has compelled carmakers to slash production and the crisis is only growing.

Although new vehicle sales have been on the rise, the shortage of semiconductors is slowing down the pace. According to a Reuters report, the Bureau of Labor Statistics said that as many as 27,000 jobs were lost in April in the U.S. motor vehicle and parts sector.

This is because the U.S. automobile industry lost 330,000 production units because of semiconductor shortage. Carmakers now feel that the crisis could extend well into 2022 and the government should act accordingly to support the industry. Ford Motor Company (F) recently warned that it might have to slash production by half in the second quarter due to the semiconductor crisis.

Semiconductor Demand High

Last year proved to be outstanding for the semiconductor industry despite the pandemic wreaking havoc for most other industries. In fact, the semiconductor industry was one of its rare beneficiaries. The growing demand and shortage in supply prove that the semiconductor industry is thriving.

The Semiconductor Industry Association (SIA) said on Apr30 that global semiconductor sales jumped 3.6% from fourth-quarter 2020to $123.1 billion in the first quarter. On a year-over-year basis, sales grew 17.8% in the first quarter.

Increased sales for electronic goods and videogames coupled with rising demand from carmakers have been helping the microchip industry.

According to the SIA, microchip sales are expected to jump 8.4% in 2021 on a year-over-year basis. The association also predicts that sales will continue to grow as the supply shortage might last through the fourth quarter.

Our Choices

The semiconductor market is likely to continue thriving in 2021.Below are five chip stocks that investors can gain from in the current scenario.

Maxim Integrated Products, Inc. MXIM is an original equipment manufacturer of semiconductor analog and mixed-signal integrated circuits. The company has a broad product portfolio that includes analog-to-digital converters, amplifiers and comparators, communications devices, data converters, and management components, sensors and wireless products.

The company’s expected earnings growth rate for the current year is 38.5%. The Zacks Consensus Estimate for current-year earnings has improved 5% over the past 60 days. Maxim Integrated Products holds a Zacks Rank #2 (Buy).

Silicon Laboratories, Inc. SLAB is a leading provider of silicon, software and solutions for the Internet of Things, Internet infrastructure, industrial automation, and consumer and automotive markets. They solve the electronics industry's toughest problems, providing customers with significant advantages in performance, energy savings, connectivity and design simplicity.

The company’s expected earnings growth rate for next year is 28.9%. The Zacks Consensus Estimate for current-year earnings has improved 12.1% over the past 60 days. Silicon Laboratories sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

MACOM Technology Solutions Holdings, Inc. MTSI is a provider of power analog semiconductor solutions to varied markets. The company develops and produces analog radio frequency, microwave and millimeter-wave semiconductor devices, and components for applications in optical, wireless and satellite networks.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 7.9% over the past 60 days. MACOM Technology Solutions carries a Zacks Rank #2.

NVIDIA Corporation NVDA is the worldwide leader in visual computing technologies and inventor of the graphic processing unit. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that now support high-performance computing, gaming and virtual reality platforms.

The company’s expected earnings growth rate for the current year is 35.6%. The Zacks Consensus Estimate for current-year earnings has improved 2.2% over the past 60 days. NVIDIA has a Zacks Rank #2.

Texas Instruments Incorporated TXN is an original equipment manufacturer of analog, mixed-signal and digital-signal processing integrated circuits.

The company’s expected earnings growth rate for the current year is 23.3%. The Zacks Consensus Estimate for current-year earnings has improved 10% over the past 60 days. Texas Instruments carries a Zacks Rank #2.

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