Stocks to buy

Semiconductor stocks have been a tremendous sector for investors in 2023. In fact, thanks to the rise of artificial intelligence, most have seen a historic rise in demand and interest. Indeed, looking through the first half of the year, many of the market’s highest-return stocks were in the chip space. But is it too late to get into the industry? While some AI-powered semiconductor stocks now seem seriously overvalued, there are still some semiconductor stocks that investors with room to run.

Semiconductor Stocks: Texas Instruments (TXN)

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Texas Instruments (NASDAQ:TXN) is the world’s largest analog semiconductor company. Analog chips are one of the most attractive parts of the industry due to their unique characteristics. They are used primarily in industrial rather than fast-moving consumer electronics applications, meaning they have longer product cycles and higher returns on investment on the initial research and development involved. Texas Instruments management is laser-focused on driving as much free cash flow per share growth as possible. And it uses that free cash flow to buy back prodigious amounts of stock while also paying large dividends.

The next leg of Texas Instruments’ story will come from its new manufacturing facilities. The firm is pumping tens of billions of dollars into new fabs in Texas. This will greatly enhance its long-term competitive positioning. Shares have been flat in recent months as investors fret over a slip in demand for key analog chip markets such as autos; investors can take advantage of that weakness today.

Semiconductor Stocks: Intel (INTC)

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A lot of people have already written off Intel (NASDAQ:INTC). The CPU and data center chip giant has had a terrible couple of years. There’s little disputing that.

But analysts risk missing the bigger picture. Intel is investing to an almost unfathomable degree, putting up to $100 billion to work in new fabrication facilities in Ohio. This is a well-timed move that will make Intel one of the key beneficiaries of the Biden Administration’s CHIPs Act which subsidizes domestic semiconductor manufacturing. It’s also worth considering that Intel’s entire market capitalization is now only around $135 billion. This means that the majority of Intel’s market valuation will be represented by the company’s shiny new manufacturing facilities over the next few years.

Particularly with all the geopolitical concerns around China, domestic chip manufacturing will be a vital national security interest. Intel, with its massive scale, heavy research and development investments, and new U.S. facilities should be set to return to prosperity after its recent downturn. Intel is one of the top semiconductor stocks to consider.

Semiconductor Stocks: Camtek (CAMT)

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Broadly speaking, there are several key pieces of the semiconductor supply chain.

An original equipment manufacturer such as a smartphone or PC maker requests a certain kind of chip. Semiconductor companies design the chips to meet that OEM demand. But the flow of money doesn’t stop there. Among other things, you need a wafer manufacturer, a company that makes packaging and testing equipment, and a final product assembly unit.

An underappreciated way to invest in semiconductor stocks is in those later steps. Camtek (NASDAQ:CAMT), for example, is a leading manufacturer of metrology and inspection equipment. In other words, it builds the products that make sure that the rest of the semiconductor industry functions correctly. The semiconductor industry has grown from just over $100 billion in 2022 to more than $500 billion annually today, and analysts see that growing to more than $1 trillion in 2030.

CAMT stock has risen more than 1,300% over the past decade as it has ridden along with the rising demand for semiconductor manufacturing. With the market continuing to quickly grow, Camtek is bound to enjoy further prosperity. Shares still sell for just 20 times forward earnings.

Semiconductor Stocks: ASML Holdings (ASML)

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ASML Holdings (NASDAQ:ASML) is another one of these great semiconductor supply chain investments.

As the company itself puts it: “ASML gives the world’s leading chipmakers the power to mass produce patterns on silicon, helping to make computer chips smaller, faster, and greener.” As it’s a near-certainty that the overall market will expand in coming years, key equipment vendors like ASML are going to capture a huge piece of that opportunity.

In particular, ASML has unique technology in the EUV lithography space. This allows chip foundries to operate at a smaller scale, making for more powerful chips. As ASML is the only vendor that can supply cutting-edge products in this space, it has a massive moat as all chip foundries essentially have to buy from ASML. The company, which is based in The Netherlands, is currently facing some potential headwinds as the Dutch government is applying new export restrictions on next-gen chip technology. To the extent that this may lead to a correction in ASML stock, investors should take advantage of the opportunity.

Amkor (AMKR)

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Amkor (NASDAQ:AMKR) is another picks-and-shovels sort of supplier to the semiconductor industry. Founded in 1968, Amkor is a leader in packaging and testing solutions for semiconductors, particularly in the automotive space. Packaging and testing might not sound like a glamorous business. But it’s an essential one in terms of making the overall industry hum. Back in 2019, Amkor had annual revenues of $4.1 billion. This surged to $7.1 billion last year, representing remarkable growth in such a short span. It shows the upside here as the semiconductor industry continues to grow.

AMKR stock is only up 10% year-to-date as traders are nervous about a near-term slowdown in parts of the industry. However, that has shares at just 17 times forward earnings and is set for more gains once categories such as memory and GPU chips pick back up.

Qualcomm (QCOM)

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Qualcomm (NASDAQ:QCOM) is a semiconductor company focused on technology for mobile communications. The company initially made its mark with intellectual property for key telecom innovations such as 3G and 4G. Over the years, Qualcomm has made untold billions collecting royalties on phones that used this communications standard. Qualcomm also designs its own chip ecosystems such as the Snapdragon platform for phones and tablets.

QCOM stock slumped amid a major slowdown in the smartphone market. That’s understandable. However, investors are missing out on a key driver — the company is a leader in chips for AI applications. In fact, in some benchmarking tests, Qualcomm chips have proven highly competitive with Nvidia (NASDAQ:NVDA) for AI performance. That adds an appealing upside to QCOM stock, which still trades at only 14 times forward earnings.

Taiwan Semiconductor (TSM)

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Taiwan Semiconductor (NYSE:TSM) is the world’s largest semiconductor foundry company. TSM has more than half of the total market and has more than three times the foundry revenues of its nearest rival Samsung. This makes TSM the almost inevitable winner in securing business from any semiconductor business that doesn’t own its own chip fabs. Given the surge in demand for next-gen designs for applications such as AI, it might seem reasonable to expect that TSM stock would already be at all-time highs.

Instead, TSM stock is still well below peak 2021 levels. That’s thanks to geopolitical uncertainties around Taiwan’s security situation. That’s a fair concern. However, given TSM’s massive market share, it seems likely the company will find a successful path forward — and don’t forget that TSM is also investing in new chip facilities in the U.S. to diversify its geopolitical bases.

On the date of publication, Ian Bezek held a long position in QCOM, TXN, and INTC stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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