Connect with us

Stocks

3 Best Semiconductor Stocks to Buy for June 2022

Semiconductor stocks are not to be ignored. We’re not talking about a handful of stocks that make commoditized products and are low-margin producers. Due to evolutions in technology – technology that almost every industry now leans…

Semiconductor stocks are not to be ignored. We’re not talking about a handful of stocks that make commoditized products and are low-margin producers. Due to evolutions in technology – technology that almost every industry now leans on – semiconductors are in a near-constant state of demand. 

We go through ebbs and flows when it comes to shortages in the semiconductor space. However, I believe this industry acts as a bellwether for the economy. When we hit true contraction points in the economy, it’s felt in the semiconductor space. In that way, we can use the VanEck Semiconductor ETF (NASDAQ:SMH) as a sort of guide on the market. 

Advertisement

As cyclical as the semiconductor space is, there are also many trends that are secular in nature. This is not a collection of automakers, a business that does well during strong economies and suffers greatly during recessions. 

Semiconductor companies feed into secular businesses, including smartphones, cloud-computing, artificial intelligence and machine learning, datacenters, gaming, drones, supercomputing and so forth.

Advertisement
  • 7 Stocks to Buy and Hold Forever in This Bear Market

While some areas may feel some pressure – like smartphones or automotive – firms with five- to 10-year outlooks or longer are not going to stop investing in the cloud or datacenters because of a short-term economic contraction. 

Again, it’s not to say these companies are recession proof – they’re not – but there is underlying demand that will remain present in good times and bad.

Ticker
Company
Current Price
AMD
Advanced Micro Devices, Inc.
$108.59
NVDA
Nvidia Corporation
$195.92
TSM
Taiwan Semiconductor Manufacturing Company Limited
$96.34

Advertisement

Semiconductor Stocks to Buy: Advanced Micro Devices (AMD)

Source: JHVEPhoto / Shutterstock.com

Advertisement

I love the second stock on this list, but Advanced Micro Devices (NASDAQ:AMD) is absolutely not a stock to ignore. 

On May 3, the company delivered a top- and bottom-line earnings beat and better-than-expected guidance. CEO Lisa Su said the company is at a “significant inflection point,” after closing its deal for Xilinx and with plans to acquire Pensando.

Advertisement

What made all this possible is the robust improvement we’ve seen in the financials over the years. The company’s revenue continued to climb, but then so did its earnings and free cash flow. While AMD’s margins are not what Nvidia’s are, they have improved enough for AMD to significantly bolster its financial firepower. 

That firepower was used to acquire Xilinx, another free-cash flow positive entity (free cash flow was north of $1 billion in its prior three years as a public company). AMD is on its way to dominance, it just needs time.

Advertisement

Nvidia (NVDA)

Advertisement

Closeup of mobile phone screen with logo lettering of nvidia corporation on computer keyboard. NVDA stock.Source: Shutterstock

Can AMD become another version of Nvidia (NASDAQ:NVDA)? Put another way, is AMD a mini Nvidia now? That’s the hope from investors and it wouldn’t be odd to be long both names. 

But keep in mind: While one is trying to become bigger (AMD), let’s consider that one is already a juggernaut.

Advertisement

Nvidia dominates in the fields listed earlier in the story – gaming, cloud-computing, datacenters, etc. – but it’s also a leader in autonomous driving, cryptocurrency, robotics, the metaverse and more. 

The company commands powerful margins, as it blends hardware and software in its offerings. Specifically, it generates 65% gross profit margin and 32% net profit margin. Keep in mind, AMD generates net margins of just 18%. 

Advertisement

That’s not a dig at AMD, either. Nvidia generates a higher net margin than all of the FAANG stocks. The best part? Despite being criminally conservative when it comes to estimates for Nvidia’s business, consensus expectations currently call for double digit revenue growth in each of the next four years.

Advertisement

Semiconductor Stocks to Buy: Taiwan Semiconductor Manufacturing Company (TSM)

image of TSM semiconductor office buildingSource: Sundry Photography / Shutterstock.com

Taiwan Semiconductor (NYSE:TSM) is interesting, because it’s not one of the semiconductor stocks that first comes to mind for many investors. But with its $490 billion market cap, it’s an absolute behemoth in the industry. 

Advertisement

Investors not only overlook the size of Taiwan Semiconductor, but also the performance. Earlier this year, the company sported a market cap of nearly $650 billion as it was hitting all-time highs in mid-January. 

Most stocks can’t make that claim – not even Nvidia and AMD. Those two were down 23% and 20% from the highs on the same day TSM was hitting new highs, respectively. 

Advertisement

In any regard, this isn’t a company to sleep on. 

Analysts expect 28% revenue growth this year, then 15% growth in 2023, 17% growth in 2024 and 13% growth in 2025. On the earnings front, estimates call for more than 40% growth this year. That’s followed by estimates calling for 10% growth in 2023 and 16.6% growth in both 2024 and 2025. 

Advertisement

Granted, these are just estimates, but it shows just how powerful of a company this is – and we’re not done. 

Remember how we were just gushing about Nvidia’s 32% net profit margin? Well TSM has trailing net margins of 38%. The cherry on top is the valuation, which sits at just 16 times earnings – cheaper than both Nvidia and AMD. 

Advertisement

On the date of publication, Bret Kenwell was long NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

More From InvestorPlace

  • Stock Prodigy Who Found NIO at $2… Says Buy THIS
  • It doesn’t matter if you have $500 in savings or $5 million. Do this now.
  • Get in Now on Tiny $3 ‘Forever Battery’ Stock

The post 3 Best Semiconductor Stocks to Buy for June 2022 appeared first on InvestorPlace.

Advertisement

InvestorPlace| InvestorPlace

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *