Picking the best semiconductor stocks can be tricky. They're part of one of the fastest-growing sectors, but all manufacturers are exposed to cyclical fluctuations. Demand for their products is forecast to boom over the long term but remains highly volatile in the short term. The situation is clouded further by the fact that some operators are exposed to potential supply chain problems, and even geopolitical risks need to be considered.
Despite the many variables in play, a decision to buy semiconductor stocks can't be dismissed. It's estimated that by the end of the decade, global annual spending on semiconductors will surge to $1Trn – twice what it is today. Investing in semiconductor stocks might not be for the faint-hearted; however, the relatively high risk-reward profile of the stocks might even be attractive if you're looking to bring a bit more juice into your portfolio.
This article will draw on the most important technical analysis and fundamental analysis factors relating to firms that design and make computer chips and related components. After identifying the top-performing semiconductor stocks to buy now, our team of experienced traders will provide a step-by-step guide on how to get your semiconductor trading off to the best possible start.
iShares Semiconductor ETF 2018 – 2022
Best Semiconductor Stocks To Buy Now
- Best Connectivity Focussed Semiconductor Stock to Buy – Skyworks Solutions (SWKS)
- Best GPU Focussed Semiconductor Stock to Buy – Nvidia (NVD)
- Best High-Growth Semiconductor Stock to Buy – Advanced Micro Devices (AMD)
- Best Safe Bet Semiconductor Stock to Buy – Intel Corp (INTC)
- Best All-Round Semiconductor Stock to Buy – iShares Semiconductor ETF (SOXX)
1. Skyworks Solutions (NASDAQ: SWKS)
Skyworks Solutions is a leading player in the Connectivity and Mobility sub-sector of the semiconductor space. Their business model targets the growth areas of mobile phones, wearable devices, the internet of things, and self-driving cars.
The firm has an impressive operating profit margin of 27.18% and long-running and profitable business relationships with tech giants such as Apple Inc. Its healthy balance sheet means it's in an excellent position to capitalise on the rollout of the 5G mobile network, and the P/E ratio of 15.38 is super-low for a tech stock.
Skyworks Solutions – Share Price Chart 2018 – 2022
The Skyworks share price has, in line with the rest of the sector, suffered a pullback, but the bounce off the 61.8% Fibonacci retracement level ($118.30) has been followed by a price rise which is testing the downward trendline which marked the trading range of Q1 2022.
Skyworks Solutions – Share Price Chart 2019 – 2022 – with Fib Retracement Levels
Skyworks investors are also set to benefit from the firm's recent $2.75bn buyout of Silicon Labs' automotive and infrastructure divisions. That deal will help the firm expand into new areas and move away from overreliance on its chips for mobile phones.
2. Nvidia (NASDAQ: NVD)
The semiconductor market's GPU (Graphics Processing Unit) area contains firms set to prosper from growth in the gaming, cryptocurrency, and AI markets. California based Nvidia was one of the first firms to spot the potential of the GMUS and used that head start to now be the world's leading producer of discrete graphics processors.
Nvidia – Share Price Chart 2016 – 2022 – with trendline break
The good news for Nvidia shareholders is that the firm's prominent position in the gaming world is complemented by a move into AI. Once again, the company appears to have spotted a new trend early, with global spending on AI is expected to increase by around 20% annually and approaching $110 billion by 2024. The moves into cloud-based subscription software and services also look likely to result in promising future revenue streams.
Nvidia – Share Price Chart 2016 – 2022 – Higher Lows
A bullish price pattern of higher highs, and higher lows, dates back to 2019 and has held during the recent sell-off in tech stocks. NVD stock traded as low as $206 in March 2022 but not below the price level of the last major low of $195 printed in October 2021.
3. Advanced Micro Devices (NASDAQ: AMD)
California based Advanced Micro Devices Inc (AMD) manufactures computer processors, motherboard chipsets, and related technologies. It's by no means a penny stock and has a market cap in the region of $180bn, but it is picked for having the potential to grow at above-market rates.
AMD Inc – Share Price Chart 2018 – 2022
The supporting trend line identified on the AMD stock price chart has for several years been a reliable indicator of when to buy the dips. The stock is also supported by solid fundamentals and impressive new projects in the pipeline.
One of the big ideas which is creating so much interest in AMD stock is the move by the firm into ‘fabless' operational processes. That involves outsourcing a lot of the manufacturing of its processors, which lowers capital costs and allows the firm to focus on R&D. It's also good for the bottom line, with revenues up and costs down since the shift to fabless started.
4. Intel Corp (NASDAQ: INTC)
Intel's position as one of the early entrants into the semiconductor space has recently worked against it. Founded in 1968, the firm now has approximately 110,000 employees, with more than half being US-based, and the balance sheet is impressive enough. The ‘slow and steady' approach hasn't encouraged investors to buy Intel shares, and new entrants have attracted more attention. With geopolitical uncertainty increasing, a healthy US-based and well-established firm might be a good option for those looking to gain exposure to the semiconductor sector.
Intel Corp – Share Price Chart 2018 – 2022
The share price chart of INTC will leave existing investors with a severe case of FOMO. However, those looking to buy into chip manufacturers for the first time will find Intel currently offers a P/E ratio of 8.53, Which compares to the sector's average P/E ratio of 25.23.
Significant price support in the region of the $45 share price suggests the downside is limited for those getting into Intel positions at current levels. If the political climate does sour, then the firm's decision to create the largest semiconductor site in the world in Ohio in 2022 could see the firm come firmly back in favour.
Intel Corp – Share Price Chart 2018 – 2022 – Price Support Levels
5. iShares Semiconductor ETF (SOXX)
Investing in tech stocks can be as daunting as it is rewarding. Cutting through the jargon can require devoting time to learning the ins and outs of respective firms and their technological processes.
An alternative approach, which offers exposure to a range of different stocks with the click of one button, is to buy a semiconductor ETF. Exchange Traded Funds can be traded in and out of as easily as buying individual stocks, but they diversify risk by having a fund manager book a basket of different stocks on your behalf.
iShares Semiconductor ETF 2018 – 2022
The price chart for the iShares Semiconductor ETF illustrates how a fund style product can take some of the noise out of trading but still generate a return. That fund has a standard deviation of 26.8% and increased in value by 212% between March 2020 and January 2022.
The iShares Semiconductor ETF typically holds 30 different semiconductor stocks and only targets US-based firms. It provides exposure to the entire life cycle of the chip-making process, with designers, manufacturers and distributors of chips all eligible for a place in the fund.
What You Need to Know About Semiconductor Stocks
Like all the stocks in the sector, these five best semiconductor stocks face potential headwinds that could materialise. Recent price history suggests peaks and troughs in demand and share prices more likely than not. The required response will be determined by whether you're already holding a position and considering trimming risk or you see dip-buying as a way to optimise your trade entry point. If you're in the latter group, it could be worth considering how to make the most of a market sell-off.
Semiconductors, China & Taiwan
Taiwan plays a unique role in the semiconductor industry. Some of the specialist fields, such as “nodes” of 10 nanometres and below, are extremely reliant on Taiwanese manufacturers. A staggering 92% of the world's manufacturing capacity for those nodes is currently located in Taiwan.
Heightened geopolitical risk in the first quarter of 2022 has resulted in some analysts suggesting China's desire to control Taiwan might even scale up to a full-scale military conflict. With global semiconductor supply chains being interlinked, this would seriously impact all manufacturers.
There's no guarantee that those firms which appear at face value to have distanced themselves from overreliance on Taiwan might be able to continue operating. If they can, the challenges facing their rivals would put them in an extremely strong position.
A Shift Away From Tech
Tech stocks were big winners during the Covid pandemic. The rush to online work and socialising caused a spike in demand for IT products, sending tech stock prices soaring. Pre-covid work-life patterns may not end up being completely restored, but the current trend is for moving away from the world's population being so home-based.
Semiconductor Demand Pipeline
The Covid inspired spike in demand for laptops, PCs and handheld devices brought forward a lot of planned purchases of IT products. Given the lifespan of these products is measured in years rather than months, there is a risk that it could be some time before new chip-based products are being bought in high volumes. If someone didn't need a new laptop in March 2020 at the height of the pandemic, then it's unlikely they'll be buying one now.
How to Buy Semiconductor Stocks
The crucial role semiconductors play in the modern economy means that most good brokers offer markets in firms that make them. It's impossible to be sure about the direction price might move, but there are some simple guidelines to follow which help you manage those operational risk factors that are within your control.
1. Choose a Broker
Choosing a legitimate broker is crucial to ensure you aren't caught up in a scam. This list of trusted brokers includes firms that are regulated by Tier-1 regulators such as the Financial Conduct Authority (FCA), the Australian Securities and Investments Commission (ASIC), and the Cyprus Securities and Exchange Commission (CySEC).
There are plenty of brokers to choose from, and one way to test them out is to open a Demo account. These require you to provide little more than an email address, and they typically take less than 10 seconds to set up. Using one, you can practise trading, test strategies, and find a broker with the best functionality for you, all in a free-to-use, risk-free environment.
2. Open and Fund an Account
Online brokers have revolutionised the finance industry. Not only is trading now more cost-effective, but the platforms are designed to be incredibly user-friendly. Beginners can start trading after registering online and wiring funds using a choice of payment methods, including credit cards, debit cards and bank transfers.
3. Begin Trading
When you log in to your online account, you'll be taken to a dashboard of different markets. Simply filter by sector to bring up a list of semiconductor stocks or search your target stock by name. Then it's merely a case of entering the quantity you want to buy into the data field and clicking or tapping ‘Buy'.
At that point, cash in your account will be converted into a stock position which will fluctuate in value in line with market price. When the time comes to sell some or all of your positions, it's simply a case of reversing the process used to buy.
4. Manage Your Position and Risk
Stop Loss instructions and Take Profit orders are risk-management tools provided free of charge. They allow you to build into the trading system instructions to automatically close out some, or all, of a position if the price reaches a certain level.
Other ways of managing risk include trading in small sizes, averaging into positions, and always remembering to invest funds you can afford to lose.
Whether you're new to trading or an experienced investor, the semiconductor sector is hard to ignore. The relatively high price volatility means it can be a bumpy ride, but there are always dips to buy. The keen-eyed will have noticed our list of the top five semiconductor stocks to buy now has focused on US-based firms rather than Taiwanese alternatives. There's enough potential for the sector to boom without having to also bolt on the additional risks that come from the standoff between Taiwan and China.
Navigate to the AskTraders list of trusted brokers to find trading platforms that have been reviewed and checked for their trustworthiness. Those brokers offer a convenient and reliable way to get exposure to one of the boom markets of the coming decade.