Semiconductor industry investors aren’t complaining about portfolio performance – not when chip stocks continue to generate solid returns for investors in the first quarter of 2024.
The benchmark iShares Semiconductor ETF (ticker: SOXX) is up 21.9% year to date as of March 22, compared with 19.5% for the S&P Global Semiconductors Index. Over the past year, SOXX returned 84.1%, and the S&P category index returned 64.4%.
There’s a vibe developing among traders and industry pundits that the semiconductor party is dimming, though. In the first two weeks of March, the SOXX exchange-traded fund fell 3.5%, its largest decline since January. In mid-March, shares of high-riding Nvidia Corp. (NVDA) shaved 4% as analysts debated abnormal market conditions and a looming technology bubble.
Both the SOXX ETF and NVDA shares have recovered, but the talk of deploying defensive measures against a heavily weighted chip stock portfolio hasn’t diminished. Let’s take a closer look at the leading seven semiconductor stocks, their year-to-date performance and where the industry might be headed for the rest of 2024:
NXP Semiconductors NV (NXPI)
NXP is underperforming against the larger semiconductor industry, with a 6.8% return year to date, and it’s also falling short of the S&P 500’s 9.7% return. It has a forward price-to-earnings ratio of 15 and a nice dividend yield of 1.7%, however.
One problem is the automobile industry, which accounts for more than 50% of NXP’s revenues. Consumers aren’t biting on new vehicles, and electric vehicle sales are stuck in the mud, as only 11% of buyers want a plug-in hybrid or an EV in 2024, according to a new Deloitte study. Meanwhile, the same report shows that “pricing” is the biggest concern for auto consumers, who seem to be snapping their wallets shut until vehicle prices and borrowing rates decline.
That isn’t great news for Netherlands-based NXP, which has been counting on so-called smart car sales to take off. But thanks to that solid dividend, NXPI remains a good income play for patient investors waiting for a future payoff.
This San Diego, California-based semiconductor company continues to shine, as it’s up 18.2% on a year-to-date basis and offers a solid dividend yield of 1.9%.
The company also benefits from its perch as one of the largest wireless device makers in the world, and its processors are used by just about every big handset manufacturer in the industry. The wireless market is down, however, as consumer sentiment has soured, and that scenario could take at least a temporary toll on QCOM shares going forward.
That’s led to dampened enthusiasm among Wall Street analysts, with Citi analyst Christopher Danely downgrading QCOM stock in February from “buy” to “neutral” with “more instances of downside as the year progresses” in a recent research report.
Still, QCOM seems to be in good shape, especially for when smart device buyers wade back into the wireless market. Qualcomm reported strong quarterly numbers on Jan. 31, with revenues gaining 5% year over year, to $9.9 billion. That earnings report also signaled that free cash flow was robust.
Monolithic Power Systems Inc. (MPWR)
Kirkland, Washington-based Monolithic Power is another leading light losing some luster in the semiconductor market in the first quarter of 2024.
The stock is down 9.3% over the past month, although the company reported solid fourth-quarter earnings in February. There’s still high customer demand for MPWR’s high-performance power fabless manufacturing model.
The company also excels in critical share-boosting strategies. For example, the company is always innovating in an industry that craves innovation. It boasts more than 1,700 manufacturing and design patents and product applications and has a vast global presence, deriving 87% of its sales from Asia.
The bigger picture suggests MPWR’s current woes will dissipate as the global economy continues to improve through 2024. Analysts seem to concur, with KeyBanc’s John Vinh holding his “buy” rating on MPWR with a price target of $830. The stock closed at $672.31 per share on March 22.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Taiwan Semiconductor has been treading water over the past week or so, but the industry stalwart’s shares have advanced 35.7% year to date nonetheless.
The Taiwan-based semiconductor manufacturer certainly travels in profit circles, with tight partnerships with technology titans like Apple Inc. (AAPL), Advanced Micro Devices Inc. (AMD) and Nvidia Corp. (NVDA). The stock did pop after the Biden administration decided to curb American-made semiconductors in China during the last quarter but allow cheaper Chinese-made chips into the U.S.
TSM endured a rough 2023 as the smartphone and personal computer markets soured. Still, company executives expect a big rebound in 2024, with revenues rising by 23% and earnings-per-share climbing by 19%. An increasingly stable position in the global artificial intelligence chip market and a rebounding PC and smartphone industry should drive growth going forward, company officials say.
With a mammoth $2.4 trillion market cap and a $942.89 share price as of March 22, Nvidia continues to dominate the global semiconductor market. Even three months into the new year, Nvidia shares are up a whopping 90.4% in 2024 after a stellar 2023.
Nvidia continues to shine in the burgeoning artificial intelligence market, with its in-demand Hopper H200 Tensor Core GPUs flying off the shelves as companies use the chip for big AI projects and to power highly complex computations. Take Meta Platforms Inc. (META), parent company of Facebook and Instagram. Earlier this year, Meta announced it would purchase $10.5 billion (350,000 in total chips) worth of NVDA’s H100 GPUs for its AI programs.
With recent quarterly revenues up 265% year over year and robust demand for AI servers powered by Nvidia’s next-gen chips, the company looks poised to keep the successes rolling through 2024.
On Semiconductor Corp. (ON)
On Semiconductor rolled into 2024 on a high note but has fallen back, with its share price down 10.6% on a year-to-date basis, to $74.68 per share as of March 22.
The company should rebound, however, given its rising profile in two areas: power and analog semiconductors and sensors.
The EV auto industry may be struggling, but On (short for Onsemi) remains a chipmaking favorite in the EV market and is seeing high demand for its silicon carbide SiC-class chips. On already holds a 25% market share in SiC chips, and its new South Korean SiC manufacturing center should produce 1 million units annually.
In the long term, autos and industrials are good places for semiconductor makers to prosper. On certainly qualifies there, as the company saw revenues rise in both sectors from 68% of all sales in 2022 to 80% of all sales in 2023 (to $8.25 billion).
Even with a downgraded estimate of SiC chip growth of up to 30% in 2024, On is building a solid foundation in the silicon carbide side of the chips industry and thus deserves investors’ attention for the rest of the year.
Advanced Micro Devices Inc. (AMD)
With a gain of 21.9% year to date as of March 22, AMD remains another semiconductor success story. The company has taken some flak for its second-place position behind Nvidia in the AI chip market. Still, AMD is accustomed to losing out to a single market leader and still delivering excellent returns to investors: It also placed second to Intel Corp. (INTC) in the PC and server chips market for years.
Semiconductor customers need a competitive chip supplier that holds prices down and keeps innovation up, and AMD fits the bill there, especially in the global computing and graphics markets, which are in rebound mode. Credit should be given to CEO Lisa Su, who in 10 years led the company from a $2 billion market capitalization to a whopping $290 billion market cap in March. AMD’s tight ties with Taiwan Semi have also paid off, as the company’s foundry has arguably surpassed one-time industry leader Intel in advanced semiconductor chipmaking.
AMD is also diving deeper into the data center AI chip market with its MI300X accelerator chip, released in June 2023. Some analysts say its AI chips will add approximately $2 billion in sales in 2024, and possibly even more as demand expands. Touted as the “most advanced AI accelerator,” the MI300X chip puts AMD in an advantageous position, as Su projects that the market for data center AI chips will hit $400 billion by 2027.