The 4 Best Semiconductor Stocks To Buy For The Next Decade

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Semiconductors power a wide range of devices, including PCs, gaming consoles, phones, cars, and industrial machines, and many of these platforms require an increasing number of chips with every upgrade. level.

These upgrades, which boost the processing power or wireless connectivity of devices, are currently causing a global chip shortage that could persist through the remainder of 2021.

The global semiconductor market could then grow at a compound annual growth rate of 10% between 2021 and 2026, according to research firm EMR. This steady demand suggests that most investors should own at least a few chip stocks – but the complex market can be intimidating for newcomers.

So today I’m going to introduce you to four of the world’s largest chipmaking companies and explain why they could be great investments for the next decade.

Image source: Getty Images.

1. Semiconductor manufacturing in Taiwan

In the past, many chipmakers made their chips with their own manufacturing plants, also known as fabs or foundries. But it became increasingly expensive and difficult to manufacture smaller, more powerful chips, measured in nanometers, and many chipmakers eventually adopted a “factory-less” model by outsourcing the manufacturing process to a factory. third-party foundry.

Today, only three foundries – Semiconductor manufacturing in Taiwan (NYSE: TSM), Samsung, and Intel – can make the smallest chips in the world. TSMC is the largest and most technologically advanced of the three, and factory-less chipmakers like AMD, NVIDIA (NASDAQ: NVDA), Qualcomm (NASDAQ: QCOM), and Apple (NASDAQ: AAPL) all rely on its factories to produce their latest 5nm and 7nm chips.

TSMC’s revenue and profits grew 25% and 50%, respectively, last year as these orders poured in. Analysts expect its revenue and profits to grow by 20% and 17% respectively this year, although it increases its investments to 63% to maintain its lead in the “process race” to create chips. always smaller.

2. ASML Holding

TSMC may be the world’s largest contract chip maker, but it cannot manufacture its chips without ASML outfitfrom (NASDAQ: ASML) lithography machines, which print circuit patterns on wafers.

The interior of an EUV machine.

Image source: ASML.

The Dutch company controls around 90% of this market and its newer EUV (Extreme Ultraviolet) lithography systems are used to make 5nm and 7nm chips. Its main client is TSMC, so it should directly benefit from the increase in its capex over the next decade.

ASML will launch even more advanced EUV systems, called High NA systems, over the next few years to manufacture 3nm and 2nm chips between 2022 and 2025. This roadmap aligns directly with that of TSMC and will enable ASML to remain one of the most important equipment manufacturers for the foreseeable future.

ASML’s revenue and profits grew 18% and 38%, respectively, last year. Analysts expect its revenue and profits to grow another 32% and 41%, respectively, this year, thanks to growing demand for new chips.

3. NVIDIA

NVIDIA (NASDAQ: NVDA) is the world’s largest producer of discrete GPUs. GPUs are often associated with games, but they are also used to mine cryptocurrencies and process machine learning tasks in data centers.

But that’s not all. NVIDIA also plans to purchase Arm Holdings from Softbank, which provides the chip designs for most of the world’s mobile chips. If the deal is approved, NVIDIA will receive royalties and license fees from all producers of Arm-based chips around the world – including Apple, Qualcomm, MediaTek, and Huawei.

NVIDIA’s revenue and adjusted profit rose 53% and 73%, respectively, last year, as sales of its gaming and data center chips increased. Wall Street analysts expect NVIDIA’s revenue and profits to grow another 33% and 34%, respectively, this year as it continues to benefit from those secular favorable winds.

Those estimates could also be too low if his planned Arm buyout, which still faces numerous regulatory challenges, was approved ahead of schedule. Regardless of what happens, the demand for NVIDIA GPUs is expected to continue to increase as games become more graphically demanding and AI tasks become more complex.

4. Qualcomm

Finally, Qualcomm is an evergreen chip maker for two simple reasons. First, it is by far the largest manufacturer of mobile chips in the world. Its Snapdragon (system-on-chip) SoCs unite Arm-based processors, GPUs and baseband modems into cost-effective packages for smartphone makers.

Second, Qualcomm has the world’s largest wireless patent portfolio, which entitles it to a share of every smartphone sold globally. Its dominance in both the mobile chip and licensing markets has made it a popular target for antitrust regulators in the past, but it has addressed most of these issues and remains well positioned to profit from the growth of the 5G market.

Qualcomm’s revenue and adjusted profit grew 12% and 18%, respectively, last year. Those growth rates were flat, but analysts expect its revenue and profits to grow 43% and 74% respectively this year as smartphone makers sell more 5G devices. It also expects the expansion of other markets, including automatic telematics chips, to complement this growth.

The bottom line

The semiconductor market may seem confusing at first, but it becomes easier to understand once you break the pieces. TSML, ASML, NVIDIA, and Qualcomm are all solid starting titles in this industry, and they are all expected to continue to rise over the next decade amid growing demand for more powerful chips.

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