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5 Semiconductor Stocks Poised to Grow Despite Macro Woes

Chandrima Sanyal

The global semiconductor market has faced major ups and downs in 2019. Macro environment uncertainties, including the U.S.-China trade war, Brexit-related headwinds, weak smartphone and server demand, have affected the industry significantly.

Memory prices continue to weaken despite measures taken by chipmakers to contain the impact, including production cut and delayed capital spending. Memory sales, which contribute about 30% of the semiconductor revenues, are expected to plunge 30.6% to $109.5 billion in 2019.

Moreover, the U.S. government’s decision to blacklist Huawei in May this year hurt a number of semiconductor companies like Micron MU, Intel and Broadcom. Notably, the U.S.-based semiconductor companies constitute 36% of Huawei suppliers. Thus, banning such a sizeable customer negatively impacted top-line growth.

Silver Lining

Per a report by Asian Review, the global market for semiconductors is likely to contract 12.1% to $412 billion in 2019 due to growing economic uncertainties, especially from the U.S.-China trade war.

However, the industry is expected to return to growth as IoT, 5G wireless technology and autonomous automobiles take root.

A key factor driving the expected growth of the global semiconductor market is the rising adoption of semiconductor integrated circuits (ICs) in automobiles. Per an Allied Market Research report, the global autonomous vehicle market is expected to reach $556.67 billion by 2026 at a CAGR of 39.47% from 2019 to 2026.

Integration of advanced systems such as collision warning system, smart cameras and autonomous braking system, which are on the rise, should boost the demand for semiconductor ICs. This is likely to result in a CAGR of 9% for the industry between 2019 and 2023, per Technavio.

Moreover, the 5G chipset market and 5G networks go hand in hand. Therefore, technological advancement and growth in commercialization of 5G networks will allow the 5G chipset space to gain immensely.

Per Markets and Markets report, the 5G chipset market is estimated to be worth $22.41 billion by 2026 and is valued at $2.03 billion for 2020. Thus, the 5G chipset market is expected to witness a CAGR of 49.2% between 2020 and 2026.

Further, 5G adoption beyond mobile is likely to foster demand for memory and storage, particularly in IoT devices, wireless infrastructure and data centers. With progress in customer inventory adjustments in most of the end markets, bit demand for DRAM is expected to return to healthy year-over-year growth in second-half 2019. Moreover, demand elasticity is expected to lead to stabilization in the NAND market.

Key Picks

Here we have picked five semiconductor stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy), with strong fundamentals, which are poised to gain from the aforesaid opportunities. Moreover, these five stocks have outperformed the S&P 500 Index year to date.

Year-To-Date Performance

Click to get this free report Cirrus Logic, Inc. (CRUS) : Free Stock Analysis Report Lattice Semiconductor Corporation (LSCC) : Free Stock Analysis Report Ambarella, Inc. (AMBA) : Free Stock Analysis Report MACOM Technology Solutions Holdings, Inc. (MTSI) : Free Stock Analysis Report Micron Technology, Inc. (MU) : Free Stock Analysis Report To read this article on click here. Zacks Investment Research