2 Semiconductor Stocks You Can Buy Immediately
Market research firm IDC’s report on the semiconductor industry says demand for chips is not going to dry up this year. The company expects the semiconductor market to grow 17.3% in 2021, up from 10.8% last year. IDC points out that the semiconductor boom is driven by smartphones, servers, laptops, smart homes, games, wearable devices, and automobiles, as well as robust pricing of memory chips.
Qualcomm (NASDAQ: QCOM) and Advanced micro-systems (NASDAQ: AMD) are two semiconductor stocks to buy in the wake of the positive market outlook. Each is well positioned to take advantage of the rapidly growing semiconductor niches. Let’s see why.
IDC estimates that the demand for smartphone semiconductors could increase by 28.5% this year, mainly due to the demand for 5G smartphones which is expected to increase by 128% in 2021. Qualcomm is one of the best ways to seize this opportunity as it occupies nearly a quarter of the smartphone application processor market, according to Counterpoint Research.
The company’s strong market share translates into solid growth, as evidenced by its third quarter tax results released in July. Qualcomm’s revenue from handsets grew 57% year-over-year to $ 3.8 billion, accounting for nearly 48% of revenue. More importantly, the company looks set to keep that momentum going thanks to the design wins it is recording in the 5G smartphone space.
Qualcomm had seen a 20% year-over-year increase in design gains for its flagship Snapdragon 888 processor. In addition, demand for its mid-range 7 Series processors is also strong. The company pointed out that there were “nearly 40 new devices shipped or announced” in the last quarter based on the Snapdragon 7 series platform.
Qualcomm estimates that 450-550 million 5G handsets could be sold in 2021. Swiss credit estimates that 5G smartphone shipments could reach 707 million units by next year, representing 50% of the global market. Thus, 5G smartphones are expected to experience multi-year growth. Qualcomm appears poised to leverage the same, as the company has entered into more than 150 5G licensing deals that could ensure continued long-term revenue growth through license fees.
Given such a large tailwind, it’s no surprise why analysts expect Qualcomm’s profits to grow at an annual rate of 32% over the next five years. And, as Qualcomm is trading at just 17 times the trailing earnings, buying this semiconductor stock seems like a no-brainer given the opportunities it finds itself in.
2. Advanced micro devices
IDC predicts that the demand for game consoles is poised to increase by 34% in 2021. AMD is one of the best ways to tap into this booming market as it supplies its chips to both. Microsoft and Sony for their latest game consoles.
AMD is already profiting significantly from the gaming console market, as evidenced by the acceleration of its enterprise, integrated and semi-custom (EESC) business. The launch of new game consoles last year boosted this activity. The chipmaker’s EESC revenue grew 183% year-on-year in the second quarter of 2021 to $ 1.6 billion, outpacing its overall revenue growth of 99% by a nice margin.
Investors can expect this tremendous momentum to continue as the last cycle of gaming consoles is less than a year old, meaning there are still millions of users waiting to be upgraded. . Sony’s PlayStation 5 launched in November last year, and the company shipped 4.5 million units of the console in 2020. Third-party estimates suggest Sony’s PS5 sales are expected to take off and exceed 67 million annual shipments by 2024.
Likewise, Microsoft’s Xbox Series X sales are expected to reach an annual figure of 30 million units by 2023, up from around 3.3 million units last year. So, AMD’s semi-personalized business seems designed for long-term growth, especially as the company is well on its way to entering another lucrative niche in the game console space.
Throw in the tailwinds that AMD is profiting in other areas such as central processing units (CPUs), and it becomes easier to see why the chipmaker’s profits are expected to show an annual growth rate of over 30%. % over the next five years. All of this tells us why AMD is a growth stock to buy right now, especially since its price-to-earnings ratio of 36 is well below the five-year average of 117. Overall, AMD is an ideal bet for investors looking to start a high growth business by taking advantage of key semiconductor trends at an attractive valuation.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.