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S&P 500   3,855.36
DOW   30,960.00
QQQ   328.11
S&P 500   3,855.36
DOW   30,960.00
QQQ   328.11
S&P 500   3,855.36
DOW   30,960.00
QQQ   328.11
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Semiconductor Stocks - Essential Info, Semiconductor ETF, and Should You Invest?

Thursday, November 7, 2019 | MarketBeat Staff
Semiconductor Stocks - Essential Info, Semiconductor ETF, and Should You Invest?

The semiconductor industry is enormous, with global semiconductor revenue reaching $476 billion in 2018. There are many different companies in the global semiconductor industry, and many investors wonder stocks to buy. Here are the top five companies that make semiconductors.

What Companies Make Semiconductors?

In a world dependent on technology, almost every industry uses semiconductors in some form. Semiconductors reside in electronic products used by over a billion people on a daily basis, from computers and smartphones to medical equipment and gaming hardware. Since the use of semiconductors is so prevalent, the health of companies that manufacture and test semiconductors can be an indicator of the health of the overall economy.

Semiconductor Industry

In order to understand the semiconductor industry, it’s important to first understand what semiconductors do and why they are important. A semiconductor is a product that conducts electricity more than an insulator, but less than pure conductor. Semiconductors are typically made out of silicon. The level of conductivity can be altered by adding impurities to it, which is known as doping. Doping can be done to meet the demand of the electrical component that houses the semiconductor.

Semiconductors are also called chips or semis. There are four main types of semiconductors:

  • Memory - Memory chips temporarily store information and then pass that information to and from the “brains” of computer devices.

  • Microprocessors - Microprocessors tell a device how to perform specific tasks.

  • Commodity Integrated Circuit or “standard chips” - These chips are used for routine processing. This area of the semiconductor industry has been dominated by major Asian chip manufacturers. Because the margin on profits incredibly small on commodity integrated circuits, only the largest companies can remain competitive.

  • Complex SOC (System on a Chip) - These integrated circuit chips contain an entire system’s capabilities. This is arguably the only segment left in the semiconductor industry that allows newer companies to enter and compete.

Semiconductor Stocks

In order to understand which semiconductor stocks to buy, it’s important to understand the semiconductor industry. The semiconductor industry is incredibly competitive and fast moving. There is a constant demand for semiconductor companies to create semiconductors that are faster, smaller, and cheaper. The speed of development and new technologies within the industry means that within a matter of months, the price of a chip could drop to half of what it had been.

The speed with which semiconductors must create faster, smaller, and cheaper chips means that semiconductor companies often have much larger research and development departments than companies in other industries. A major impact on semiconductor stocks is the health of the industries that are purchasing the semiconductor equipment for use in the products of that industry. When sales of smartphones or laptops rise and fall, this has a major impact on semiconductor companies.

What Companies Make Semiconductors?

There are several major companies involved in developing semiconductors, including some of the biggest stock gainers as well as some of the best growth stocks. The following corporations are some of the biggest names you should know if you wish to learn about the semiconductor industry.

Intel is best known for its Intel processors that are found in both desktop and laptop computers, mobile devices, and other devices, such as network attached storage (NAS) devices. Intel also produces a variety of components that are used in a wide assortment of products. Intel’s core business is making and selling computer parts, including microprocessors and chipsets. Intel has been a long-term dominator in the microprocessor industry. Intel’s only major competitor is Advanced Micro Devices (AMD).

Though Intel dominates the microprocessor industry, it recently had a weak third quarter report. After the release of the report, Intel stock fell below $45 per share. Even though Intel’s third quarter report was not very promising, the company still remains a major company in the semiconductor industry and is one that investors should make sure to watch.

Intel has announced that it will launch one CPU in the first half of 2020 (the Cooper Lake CPU) and another CPU in the second half of 2020 (Ice Lake CPU), which gives the company potential for a much more positive fourth quarter earnings report. Another reason to consider investing in Intel is that the company pays dividends.

Based in South Korea, Samsung is one of the largest companies in the world. Samsung is responsible for about one-fifth of all South Korean exports. Samsung has many subsidiaries that are in the fields of insurance, advertising, and entertainment, but Samsung’s main business is electronics, construction, and defense. Samsung entered the phone market in 2001 and even developed the first phone capable of speech recognition.

Samsung became an even bigger semiconductor player in the late 2000s and early 2010s, when it began purchasing companies that focused on creating technology for electronic devices. In 2012, Samsung became the largest mobile phone maker. Due to its strong presence in the smartphone industry, Samsung is an important semiconductor company to keep in mind.

Investors interested in Samsung will find it difficult, but not impossible, to purchase Samsung stock. Samsung is a South Korean company and does not participate in trading on any major U.S. exchange. This means that an American investor cannot purchase Samsung stock the same way he or she would purchase stock on a United States stock exchange.

Instead, American investors have two main options for purchasing Samsung stock. First, investors can purchase Samsung stock through a local broker in South Korea or by investing directly. Investing directly requires filing required paperwork. A far simpler way for many American investors to invest in Samsung is through an ETF. With an ETF, an investor will have a basket of companies, which includes Samsung. The good news is that most South Korean ETFs have a heavy weighting of Samsung.

Qualcomm creates, manufactures, and sells computer hardware—primarily Bluetooth and Wi-Fi chips as well as cellular modems. The chips Qualcomm creates allow information to be shared between various electronic devices. Qualcomm is most active in the telecommunications industry. Since the company was founded in 1985, Qualcomm has had a hand in creating much of the technology behind cell phones, but Qualcomm is not limited to mobile phones. Qualcomm’s technology is used in wearable fitness trackers, car entertainment systems, wireless headphones, virtual reality cameras, autonomous vehicles, and more.

One of the reasons that investors may want to invest in Qualcomm is that Qualcomm stock offers a dividend that yields 3.2%, which appeals to investors hoping to improve their dividend investing strategy. Qualcomm’s history of working with smartphone devices and the company’s recent expansion into laptops also make it an attractive semiconductor stock for many investors.

The biggest potential concern of a Qualcomm investment is that the government is currently scrutinizing Qualcomm’s alleged monopoly practices. This scrutiny may or may not end up affecting investors, but depending on the outcome, it could have major repercussions for the company, the stock, and investors.

Broadcom is the company that supplies Apple, one of the most active stocks, with the chips for its iPhones. Due to the popularity of Apple products, this means that Broadcom chips reside in millions of smartphones all over the world. Broadcom’s relationship with Apple also makes it reliant upon the earnings of Apple and Apple smartphones. This means that the long term future of Broadcom is dependent on the continuing success of Apple and Apple’s smartphones.

Broadcom stock saw high volatility in 2018, due to a proposed buyout of Qualcomm. The buyout was blocked by the United States government because of national security concerns. If investors are looking for a semiconductor stock that also pays dividends, Broadcom may be a good option. Broadcom has had dividend growth for the last nine consecutive years. Broadcom’s current dividend yield is 3.8%.

Broadcom’s third quarter earnings call had a more conservative outlook and tone than previous reports, but Broadcom said that customer demand for infrastructure software is stable. Broadcom had seen previous negative impacts from the tariffs that were a product of the trade war between the United States and China. However, in the third quarter, there did not appear to be any further deterioration—but depending on how the trade war continues, further effects may be seen in the fourth quarter. Current forecast is on target for $22.5 billion in revenue for 2019. Due to the semiconductors it produces, demand for faster bandwidth speeds will drive growth.

Texas Instruments is best known for its graphing calculators that were a required tool for many high school and college students. But Texas Instruments is involved with much more than calculators. Texas Instruments is also responsible for the processing technology used in electronics in many different fields. These fields range from smartphones to military defense technology. The two main products that Texas Instruments produces are analog chips and embedded processors. The semiconductors developed by Texas Instruments are used in many different electronic devices. These devices span many different industries and many different types of technologies, including laptops, printers, televisions, power tools, barcode scanners, ATMs, and many more.

Even though Texas Instruments provides semiconductors for technology in a wide range of fields, the two main industries that use its chips are the personal electronics and industrial fields. These two industries are where Texas Instruments gets most of its revenue, but it also has a strong presence in the communications, automotive and enterprise systems industries space. Due to the rise of the personal electronic and industrial fields, Texas Instruments will likely remain a stock that investors should closely watch.

Top Semiconductor ETF

An Exchange Traded Fund (ETF) is a type of security that is made up of other securities. As with any fund, ETFs allow for more diversification and therefore carries less risk than individual stocks. Any time you’re interested in a specific sector or industry, it’s worth considering looking into ETFs. An ETF often tracks an underlying index, but it can also invest in a certain strategy or industry. By investing in a semiconductor ETF, you can invest in multiple semiconductor companies at the same time.

For those who are looking for a semiconductor investment but don’t know much about the industry, a semiconductor ETF may be the perfect choice. Some of the top semiconductor ETFs are:

  • Direxion Daily Semiconductor Bull 3X (SOXL)
  • ProShares Ultra Semiconductors (USD)
  • Invesco Dynamic Semiconductors Portfolio (PSI)
  • VanEck Vectors Semiconductor ETF (SMH)
  • iShares PHLX Semiconductor (SOXX)

Should I Invest in Semiconductor Stocks?

The semiconductor industry in the United States contributes more to the United States economy than any other manufacturing industry. Analyst reports suggest that the size of this industry—combined with the fact that more and more products will use semiconductors as technology continues to grow—makes semiconductor stocks an area that Wall Street investors will watch closely.

As with any industry, however, it can be difficult to foresee how technological advances will affect the prices of semiconductor stocks. Like tech stocks, semiconductor stocks also tend to correlate to the strength of the economy. If the economy continues to grow, this can be good for investors, but if growth slows, it can have a negative impact on earnings. Overall, as part of a diversified portfolio, semiconductor stocks can be great stocks to buy.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Intel (INTC)2.2$55.44-2.2%2.38%10.87Hold$62.70
Samsung Electronics (SSNLF)1.1$44.20flatN/A16.49BuyN/A
QUALCOMM (QCOM)2.3$164.40+1.2%1.58%36.29Buy$152.44
Broadcom (AVGO)2.3$464.790.0%3.10%73.89Buy$420.04
Texas Instruments (TXN)2.3$172.92+0.1%2.36%32.69Hold$154.62
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The Cryptocurrency Market Is About To Boil Over

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