Do you know how to invest in semiconductor stocks? Stocks like Nvidia and AMD do wonderfully when traded or invested in. We delve into a list of semiconductors you can trade or keep in an investment portfolio.
You’ve likely heard much about semiconductors if you’ve followed stocks. But what are semiconductors, and why are they so darn important?
Semiconductors, or chips as they are also referred to, are integral components of almost every form of technology. In the simplest terms, semiconductors transmit electrical currents in electronic devices. That’s way too basic to describe them, but for this article, we don’t need to dive into the technicals of it all.
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Table of Contents
Semiconductor Stocks Introduction
The point is that semiconductors are a critical part of our technology moving forward, rapidly becoming one of the world’s most important industries. You name the product. It has semiconductors powering them: smartphones, high-definition televisions, supercomputers, 5G technology, and artificial intelligence.
The latest chip technology powers these, so you can see why semiconductor stocks are sought after. Now, learn how to invest in semiconductor stocks.
You’ve also probably encountered different types of chips in your industry research. It’s true. Not all semiconductors are made the same, and not all do the same job. Before you dive head first into buying semiconductor stocks, it’s important to know which company makes which type of chips and what industries it operates in.
If you’re bullish on AI and robotics, buying a company that makes television chips doesn’t make sense, and vice versa. Here’s a quick list of chip companies make when learning to invest in semiconductor stocks.
CPU's
These are probably the most common and universally known processors in the industry. CPUs are the brains of any electronic device you use. Whether smartphones, computers, watches, or tablets, CPUs are necessary for any of these to operate.
These chips have literally billions of different transistors that are microscopic. As time passes, these transistors have been made smaller and smaller, allowing for increased speed in each CPU.
When it comes to CPUs, you’ll often hear about cores. Each CPU has a core, but the more powerful ones have more cores than others. Make sense? The actual speed of the CPUs increases with each core, and the speed itself is measured in GHz or gigahertz.
This is often the number you see in the specs of a laptop or smartphone. Generally speaking, the higher the GHz, the more you’ll pay for the device. Remember these when learning how to invest in semiconductor stocks.
GPU's
When thinking about how to invest in semiconductor stocks, don’t forget about GPUs. GPUs or graphics processing units are exactly as they sound: they render graphics or videos for display. They are also called video or graphics cards primarily used for gaming, video editing, and machine learning.
While CPUs have a few cores built into the chips, GPUs often have thousands or even tens of thousands of cores. This makes them far more powerful than CPUs and more expensive.
DPUs are fairly new to the processor game. These processors are used to help transmit data through data centers. What are data centers? It’s a large building with hundreds or even thousands of network and computer infrastructures that can transfer large amounts of data.
These are crucial for data transmission, especially with the large data used for critical applications and software. So remember this when thinking about how to invest in semiconductor stocks.
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Semiconductor Stocks List
Here are a couple of stocks to consider when thinking about how to invest in semiconductor stocks.
1. ASML (NASDAQ: ASML)
This Dutch company has a near monopoly in the lithographic machine industry. What are lithographic machines? They are the infrastructure behind building the components and parts needed to create and design chips. ASML is the global leader in manufacturing photolithographic systems and is the only producer of EUV or extreme ultraviolet lithography systems globally. What’s even better? ASML stock is trading at more than a 50% discount from its 52-week highs, and although some are expecting a pullback in demand for semiconductors and overall production, this is likely just a short-term lull.
2. Lam Research (NASDAQ: LRCX)
Lam Research is an American supplier of chip-making and wafer fabrication systems. While the two companies compete in slightly different technologies, they share the chip-making machinery and infrastructure market. Lam also produces WLP or wafer-level packaging technology used in other industries. LRCX is another stock trading at about 50% below its 52-week highs. While it doesn’t quite have the same market share ASML has, particularly with EUV equipment, Lam Research is a pillar of the semiconductor industry and a stock that investors often overlook.
3. Taiwan Semiconductor Manufacturing (NYSE: TSM)
Here is a stock to consider when considering how to invest in semiconductor stocks.
TSMC has been called by many as one of the most important companies in the world. It is the primary chip manufacturer and the world’s largest semiconductor foundry. Taiwan Semiconductor uses ASML machinery to create chips that other companies design. Many believe companies like NVIDIA and Apple make their chips, but that’s not exactly true. These companies design chips and then ask foundries like TSMC to produce them. Given that TSM makes most of Apple’s chips, you can see why it is considered an important global company.
Stock Sectors List
Chip Makers
1. NVIDIA (NASDAQ: NVDA)
Now, we get to the companies most people attribute to being chip makers. Sure, they design and sell them as their chips, but as we covered, most chips are made at a foundry company like TSMC. NVIDIA is a global tech leader and one of the main suppliers of GPUs and CPUs. It has an extensive market share of the data center segment and is a key player in gaming and artificial intelligence. On top of that, NVIDIA is gearing up to be a primary part of the Metaverse with its developer toolkit in the Omniverse. It’s the company many believe will be the next trillion-dollar market cap, and NVIDIA belongs in any investor’s portfolio.
2. AMD (NASDAQ: AMD)
A company that emerged as a leader in the global chip sector, AMD competes directly with the likes of NVIDIA. It secured partnerships with major corporations like Microsoft (NASDAQ: MSFT) and Tesla (NASDAQ: TSLA) and is seen as a leader in the CPU sector. The stock is also trading more than 50% lower than last year. AMD has a stranglehold on the gaming sector with its processors in both the next-generation models of the Xbox and PlayStation consoles.
3. Intel (NASDAQ: INTC)
Intel was seen as the clear leader in the chip industry before the rise of AMD and NVIDIA. It’s still a major provider of CPU chips, but you could say it lost a step when Apple stopped using Intel for its MacBook laptops. The company is going through a major rebuild of its company and has revealed that it is planning to restart its foundry business. It will also build the largest US-based foundry in Cleveland, Ohio, for $20 billion. Intel even pays a decent dividend yield of 3.86% currently, which is fairly high for a tech company.
Are Semiconductor Stocks a Good Investment?
It’s easy to be bearish during a correction, especially as most of these stocks have fallen by more than 50%. But take a longer outlook on the industry, and you’ll see how critical these chips are to technology.
Every secular trend for the future revolves around faster and more powerful chips—cloud computing, artificial intelligence, data analytics, autonomous vehicles, 5G networks, and beyond.
So, if you believe these sectors will stick around in the future, ignore the near-term slowdown in chip demand. As with most things in a recessionary environment, it is only temporary.
Production will ramp up one day, and consumer goods demand will rise again. That is when you will see revenues and sales pick back up and, likely, multiple expansions for most of these stocks. So, if you’re thinking about how to invest in semiconductor stocks, don’t sleep on any of these sectors.
Final Thoughts: How to Invest in Semiconductor Stocks
So now you know the difference between all of these semiconductor industries. You can invest in a picks-and-shovels play like ASML or Lam Research. These companies provide the machinery and infrastructure actually to build chips. You can also invest in chip producers, like Taiwan Semiconductor and other foundry companies.
Finally, you can invest in what are likely the companies you are most familiar with. These are the chip designers and business-to-consumer brands like NVIDIA and AMD.
Semiconductors are needed for all of the emerging technologies that you see today. Investing in this industry is an investment in the continued progression of the world of technology. Now you know how to invest in semiconductor stocks.
