Jump straight to the top chip stocks to watch or read on to learn more about the industry:
- What are semiconductors?
- What are chip companies?
- Semiconductor industry performance
- Who are the top semiconductor manufacturers?
- 6 chip company stocks to watch
What are semiconductors?
Semiconductors, also known as chips, are used in electronic circuits to conduct current – but only partially, as the name implies. Most semiconductors are made out of silicon and are a vital part of all electronics. Without them, there would be no smartphones, radios, TVs or computers.
What are chip companies?
Chip companies are the businesses involved in the design and/or manufacture of semiconductor chips and related parts. They are thought of as part of the technology sector but are also manufacturers – as like any manufacturing business, a chip company’s supply chain is reliant on commodities.
Chip companies are the driving force behind a lot of trends thanks to their use in pretty much every type of electrical device. Some of the most prominent trends are:
- Connectivity – including 5G mobile networks
- Computing – such as graphics processing units (GPUs) for gaming
- Healthcare – for example in the automation of surgeries through robotic assistance
- Military systems – such as computers, sensors, switches and amplifiers
- Transportation – most notably the rise of electronic vehicles (EV)
Semiconductor industry performance
Semiconductor stocks generally performed extremely well in 2020 as they were protected from the ongoing health crisis by a boom in consumer electronic sales, as well as cloud computing and online gaming.
And as demand for chips reached new highs, supplies ran low, causing a global shortage of semiconductors. Demand for mobile-device chips was expected in 2020 with the shift to 5G but increasing demand for PC chips amid Covid-19, caused massive issues with supply chains. The chip shortage didn’t really hit the wider market until car manufacturers – including General Motors Co and Ford Motor Co – announced they’d have to halt production on some models due to the lack of semiconductors.
If the shortage continues, it’s expected that this will only push chip stocks into higher valuations. In fact, most chip companies have been reporting higher than expected earnings for 2020, surprising markets and pushing share prices even higher.
As a result, the PHLX Semiconductor index was performing well above benchmark indices the S&P 500 and Nasdaq composite in February 2021. It had gained 433% in the past five years, compared to just 104% and 208% for each benchmark respectively.
The semiconductor industry is still extremely volatile, which can present opportunities for going both long and short.
Who are the top semiconductor manufacturers?
The top 10 chip companies in the world by revenue are:
- Intel - $77.9 billion1
- Samsung - $60.39 billion2
- TSMC - $45.05 billion3
- Broadcom – $23.88 billion4
- Qualcomm - $23.53 billion5
- Micron - $21.44 billion6
- ASE Technology Holding - $17.12 billion7
- NVIDIA - $16.68 billion8
- Texas Instruments - $14.46 billion9
- STMicroelectronics NV - $10.22 billion10
In terms of countries, South Korea currently leads with a 25% share of the world’s advanced chipmaking capacity, followed by Taiwan, Japan and China. The dominance of these countries, particularly China, caused concern for US politicians who believed it was a threat to US commercial and military developments. US chipmaking capacity has plunged from a third of the market in 1990 to just 11% in 2021.
Chip company stocks to watch
There are more than 750 companies in the semiconductor industry, all competing to build the next hot device or power future tech. So, with plenty to choose from, your decision about whether to trade a large cap, mid cap or small cap conductor chip will depend on your strategy and the research you’ve done. Remember, past performance is no guarantee of future results.
We’ve compiled a list of six popular chip companies to watch. While some of these stocks are also on the list of largest semiconductor producers, there are some smaller companies that have also caught a lot of market attention.
1. Taiwan Semiconductor Manufacturing Co (TSM) shares
Taiwan Semiconductor Manufacturing (TSM) is one of the largest independent pure-play foundries – businesses that only create chips and don’t have any design capabilities themselves. This leads most other semiconductor companies to outsource their manufacturing to TSM.
Taiwan Semiconductor has been one of the top performing stocks in the industry but was a surprise star for many. TSM stock gained over 25.2% in January 2021 alone after Intel discussed outsourcing some of its processor production to the company.
When the global chip shortage occurred, TSM took matters into its own hands and has already looked at expansion opportunities in Japan and has secured a deal with Apple (APPL) to develop an advanced display technology.
2. Broadcom (AVGO) shares
Broadcom is a global designer, developer and supplier of semiconductor devices. In its Q4 2020 earnings, it reported a 11.9% revenue growth and 56.3% net income growth. Semiconductor solutions’ revenues (75% of Broadcom’s total net revenues) totalled $4.83 billion, which was an increase of 6% from Q4 2019.
This boost was thanks to 5G sales coming in above expectations, which was thanks to increasing spending by telecommunications companies, as well as higher cloud spending by data centres. Broadcom’s business model also includes a sizable enterprise software unit, a rarity in the semiconductor sector.
For the fiscal year ending October 2021, the chipmaker is expected to earn $26.28 per share, which is an increase of 18.6% from the previous year.
3. Qualcomm (QCOM) shares
Qualcomm (QCOM) is a semiconductor and telecommunications company that designs and sells wireless communications goods. Most telecommunications companies use its code division multiple access technology (CDMA) which is a core component of wireless developments.
Qualcomm also creates Snapdragon chipsets for mobile platforms, which are designed to be extremely fast and efficient – they’re expected to be one of the main beneficiaries of the move to 5G connectivity. In fact, Qualcomm noted on its Q4 earnings call that its chips for 5G handsets were one of the core drivers of growth.
4. Advanced Micro Devices (AMD)
Advanced Micro Devices surprised the market in January 2021 with its record Q4 earnings report – smashing all expectations for revenue growth and earnings. This was largely thanks to demand for the company's higher-end processors – approximately 1 million units of its latest Ryzen 5000 processors were shipped during the quarter.
The company’s earnings were also boosted by the booming demand for semiconductors from cloud computing giants Microsoft and Google.
AMD was significantly underperforming compared to competitors about six years ago, with massive failures in its processing units. But now it’s dominating gaming computer processing units (CPUs), leaving competitors like Intel to scramble for market share. It still has a way to go before its market share rivals that of our top ten, but its growth so far has put it on the radar of Wall Street.
5. NVIDIA (NVDA) shares
NVIDIA reported a record revenue of $5 billion for its Q4 2020 – which is a massive 61% rise from the previous year. The company dedicated this achievement to its gaming and data centre platforms. NVIDIA has seen a huge uptick in demand for its GeForce RTX 300 series GPUs, which enable gamers access to realistic graphics and cutting-edge artificial intelligence.
As NVIDIA has always been a GPU manufacturer, it’s still miles ahead of most other companies in this area – with spending on the tech expected to around $110 billion by 2024. But it has other areas of revenue intake too, such as its data-centre networking acquisitions and connectivity hardware acquisitions.
6. Ambarella Inc (AMBA) shares
Video chip developer Ambarella (AMBA) has burst onto most semiconductor stocks to watch lists after strengthening its position in the artificial intelligence (AI) space. The company is creating a range of imaging solutions to make cameras smarter, in that they can extract data from live video streams.
Ambarella’s products are used in a wide variety of human and computer vision applications, including security, advanced driver assistance systems (ADAS), drive recorder, autonomous driving, and robotic applications. There is significant optimism that this computer vision (CV) will continue to play a role in industrial automation.
Currently, Ambarella earns most of its revenue from Taiwan.
Texas Instruments, 2021
ASE Technology Holding, 2021