7 Best Semiconductor Stocks for 2022

Updated: 14th Jan 2022 Written by Sean Graytok
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The U.S. is responsible for just 12% of the global semiconductor manufacturing capacity. As other countries aggressively invested in chip manufacturing incentives, the U.S. sat back and watched.

Now, Congress is playing catch up. The new Infrastructure bill calls for $52 billion in federal investments for the domestic semiconductor research, design, and manufacturing provisions.

In addition to the chip shortage and increasing geopolitical tensions, this economic injection makes for unprecedented times in the semiconductor industry.

Let’s see how the best semiconductor stocks will respond.

What are Semiconductor Stocks?

Semiconductor stocks are companies that design or are involved in manufacturing semiconductors, which are products that conduct electricity within electronics.

Semiconductors conduct electricity more than an insulator but less than a pure conductor. They are in thousands of products such as smartphones, gaming hardware, and autonomous vehicles.

Semiconductors, also known as ‘chips,’ are hard to make. This has caused semiconductor companies to outsource production to others within the industry.

Generally speaking, the companies in this article rely on each other as much as they compete with each other.

Best Semiconductor Stocks

#1. Taiwan Semiconductor Manufacturing Co. (TSM)

Taiwan Semiconductor Manufacturing Company, better known as TSMC, is the world’s largest chipmaker and one of the largest overall companies by market cap.

TSMC makes chips for the leading fabless semiconductor companies such as Nvidia, AMD, Apple, and Broadcom

TSMC controls 55% of the global semiconductor foundry market, followed by Samsung (17%), UMC (7%), and GlobalFoundries (5%).

Evidently, TSMC is the foundation of the semiconductor industry.

The company did $13.29 billion in Q2 revenue, representing a 28% year-over-year increase.

TSMC’s Chief Financial Officer, Wendall Huang, expects strong demand for its industry-leading 5nm and 7nm technologies across its four growth platforms: smartphone, high-performance computing (HPC), Internet of Things (IoT), and automotive-related applications.

However, Morgan Stanley analyst Charlie Chan has some concerns about TSMC’s falling margins, saying, “Moore’s Law is just getting too expensive while TSMC will have to suffer margin erosion to keep the chip scaling trend going.”

Moore’s Law suggests that computing power doubles every two years thanks to increasing the number of transistors a chip can contain.

These unfolding events are on everyone’s radar, given TSMC’s prominent role in the industry.

TSMC’s decisions affect not only semiconductor companies but most companies on the planet.

For example, TSMC’s recent 20% raise in chip prices will be felt on all levels of the value chain.

#2. Nvidia (NVDA)

  • Market Cap: $552 billion
  • TTM Returns: 72%

Nvidia is a leading manufacturer of graphics processing units (GPUs), which enable HPC technologies like cloud and data centers, gaming, automotive, and professional visualization.

Nvidia reported record revenue numbers in Q2 across its three main Gaming, Data Center, and Professional Visualization segments.

Total revenues were up 68% YoY to $6.51 billion, primarily driven by the Gaming segment — its revenues were up 85% YoY and 11% QoQ to a record $3.06 billion.

Nvidia believes we’re entering a Post-Moore’s Law Era, where CPUs will not be able to accommodate the exponential demand increase in computing power.

As more companies bring their AI-enabled technologies to production, they’ll be forced to use GPU-accelerated computing to benefit Nvidia.

This company doubled in size in the last year and is just getting started.

#3. Advanced Micro Devices (AMD)

  • Market Cap: $134 billion
  • TTM Returns: 30%

AMD is similar to Nvidia but has historically focused more on CPUs than GPUs, which fueled its rivalry with Intel over the years.

According to the company, AMD’s primary source of revenue is CPU design for consumer and commercial PCs, a market opportunity of $32 billion.

However, AMD is scaling up its GPU capabilities to compete with Nvidia in the data center and gaming markets.

AMD estimates the aggregate TAM of these markets to be $47 billion. The company’s GPUs currently provide computing power for leading cloud providers like Amazon (AMZN), Microsoft (MSFT), and Google (GOOG).

AMD reported record revenues of $3.85 billion in Q2, up 99% year-over-year and 12% quarter-over-quarter.

Also, the company’s profitability more than tripled year-over-year.

#4. ASML Holdings (ASML)

  • Market Cap: $348 billion
  • TTM Returns: 120%

ASML claims to be “the most important tech company you’ve never heard about.” It is the infrastructure to the infrastructure of the semiconductor industry.

ASML doesn’t make chips, but it designs and manufactures the machines that are required to make chips.

These machines are called lithography or extreme ultraviolet (EUV) systems, and they’re used to print circuit patterns onto silicon wafers.

The Dutch company controls about 90% of this market, with its largest customers being TSMC, Samsung, and Intel.

And they pay well — ASML did $4.72 billion in Q2 revenues, up 21% year-over-year. The company’s CEO expects net sales to grow 35% in 2021 compared to the previous year.

This growth is driven by ASML’s monopoly on lithography and EUV systems, which enable companies like AMD to offer smaller and smaller chips.

ASML is the industry’s bottleneck.

#5. Applied Materials (AMAT)

  • Market Cap: $121 billion
  • TTM Returns: 116%

Applied Materials provides materials engineering solutions to produce virtually every new chip and advanced display in the world.

The company’s manufacturing and process technologies modify materials at the atomic level, enabling technology breakthroughs that drive down costs throughout the value chain.

AMAT’s customers use its products to create larger capacity and faster memory chips, more efficient processors, super-high-resolution displays, and flexible electronics.

The company also operates a venture investing arm called Applied Ventures, which invests $50 million per year in startups around the globe.

Applied Materials generated revenue of $6.2 billion in Q3 2021, representing a record 41% year-over-year increase.

The company’s CEO attributes the record performance to long-term secular trends “fueled by the digital transformation of the economy.”

#6. Qualcomm (QCOM)

  • Market Cap: $163 billion
  • TTM Returns: 23%

Qualcomm creates semiconductors, software, and services related to wireless technology.

Qualcomm’s platforms help Original Equipment Manufacturers (OEMs) and developers transform their ideas into products — essentially taking the ideas out of their heads and putting products into your hands.

Qualcomm technology brings various products to life, such as smartphones, VR, AR, automotive, wearables, audio, networking, industrial IoT, cameras, smart homes, and smart cities.

Leading the 5G transition is another primary objective of Qualcomm. The company’s Snapdragon 888 5G Mobile Platform packs industry-leading mobile innovations in 5G, AI, gaming, and camera technologies.

Qualcomm grew its quarterly revenue 53% year-over-year to $8.1 billion in Q3. The company’s EPS is expected to grow 97% this year, far outpacing the industry average that is projecting 17% EPS growth.

Qualcomm CEO said the company is experiencing “unprecedented demand” for its technologies as the pace of digital transformation accelerates.

#7. Broadcom (AVGO)

  • Market Cap: $203 billion
  • TTM Returns: 44%

Broadcom is an American designer, developer, manufacturer, and global supplier of a wide range of semiconductor and infrastructure software products.

Broadcom’s products enable technologies in markets such as data centers, networking, software, wireless, storage, and industrial.

It’s no surprise that Broadcom’s top competitor is the aforementioned Qualcomm.

Broadcom is pioneering the 6th generation of WiFi in the launch of its WiFi 6E. This product will access the “pristine” 6-GHz band and enable WiFi devices to achieve faster speed, lower latency, and higher capacity.

There are currently no legacy devices operating in the 6-GHz channel, meaning there is plenty of capacity for devices that can access it.

Broadcom generated $6.6 billion in Q2 revenues, up 15% from the prior-year period. The company projects $6.75 billion in Q3 revenues, which is an expected 16% year-over-year increase.

Additionally, net income was up 165% year-over-year to $1.49 billion.

#8. Intel (INTC)

  • Market Cap: $219 billion
  • TTM Returns: 7%

Last but not least, Intel. This company is the world’s largest semiconductor chip manufacturer by revenue. As of 2020, Intel still maintained 16% of the global semiconductor market share.

While Intel has consistently lost market share to AMD and Nvidia over the past few years, current geopolitical tensions might fuel an epic recovery for the company.

Asia currently controls +80% of the world’s chip manufacturing capacity. The previously mentioned Infrastructure bill is desperately trying to bring chip manufacturing capacity back to the States.

And the powers that be have called upon Intel.

Intel recently announced an agreement with the U.S. Department of Defense to establish a domestic, commercial foundry infrastructure.

To become the TSMC of the West, Intel is investing $20 billion in its Arizona facility and another $3.5 billion in its New Mexico one.

As suggested by Neil Rozenbaum, large corporations might start using Intel’s domestic-based fabs to build their products outside of Asia. Amazon’s AWS and Qualcomm are already onboard.

We believe Intel is an “Empire Strikes Back” company similar to that of Ford (F) and Oracle (ORCL).

Alternatives to Semiconductor Stocks

In 2021, Apple (AAPL) broke its 15-year partnership with Intel and began making its own chips for the Mac series. This was a foundational shift for the semiconductor industry.

Bringing silicon production in-house allows Apple to better integrate its products and control more of the supply chain. It’s possible that other FAAMG stocks will follow Apple’s lead.

In fact, Google is building its own chips for the Pixel 6 smartphone, which is expected to launch in October 2021.

Another alternative semiconductor stocks is to buy a semiconductor ETF. Here are the top semiconductor ETFs:

  • iShares Semiconductor ETF (SOXX)
  • VanEck Vectors Semiconductor ETF (SMH)
  • Invesco Dynamic Semiconductors ETF (PSI)
  • SPDR S&P Semiconductor ETF (XSD)
  • Direxion Daily Semiconductor Bull 3x Shares (SOXL)

These thematic ETFs provide narrow diversification within an industry vulnerable to boom and bust cycles.

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Risks with Semiconductor Stocks

Given the global nature of the semiconductor industry, it is more vulnerable to geopolitical issues than the average sector.

Additionally, the complexities of chip manufacturing force these companies to depend on each other, which creates bottlenecks at various points in the production system.

These concerns are currently playing out in the global chip shortage. However, the impacts are multifactorial.

Demand for semiconductors has skyrocketed, and many of these stocks are at all-time highs. But they’re unable to provide the supply to meet the demand, resulting in less revenue and potentially slowing growth in the long term.

Semiconductor Stocks FAQs

What is the best semiconductor stock?

The best semiconductor stocks are TSMC (TSM), Nvidia (NVDA), Advanced Micro Devices (AMD), ASML Holdings (ASML), Applied Materials (AMAT), Qualcomm (QCOM), Intel (INTC), and Apple (AAPL).

Who is leading the semiconductor industry?

The semiconductor industry cannot exist without the companies that provide its infrastructures, like TSMC and ASML. ASML makes the equipment that allows TSMC to make chips, who in turn makes chips for AMD and Nvidia.

What is the best semiconductor ETF?

The best semiconductor ETFs are the iShares Semiconductor ETF (SOXX), VanEck Vectors Semiconductor ETF (SMH), and Invesco Dynamic Semiconductors ETF. Consider the Direxion Daily Semiconductor Bull 3x Shares (SOXL) if you’re looking to day trade the industry’s volatility.

What is the cheapest semiconductor stock?

By valuation, Intel (INTC) is probably the cheapest semiconductor stock. A company’s share price is not indicative of whether or not it is ‘cheap.’ Valuation metrics like price-to-earnings (PE) or price-to-sales (PS) are better tools to use.

Bottom Line: Best Semiconductor Stocks

The companies in this article enabled the first stage of technology’s S-curve. They are now being called on for the next part of the curve.

We expect semiconductor stocks to rise in parallel with each other over the next few decades but to varying degrees.

This article is for informational purposes only. It is not intended to be investment advice. To learn more about how we evaluated the best semiconductor stocks, read our editorial guidelines and research framework for public equities

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and is a recognized expert in investing, cryptocurrency, and financial management. His work has been cited in leading industry publications, such as InvestorsPlace and Business Insider. Sean is interested in the people and companies who are driving financial innovation.