Semiconductors are used in almost every industry and here’s how to invest in them.

The days of our existence are like sands through the hourglass,” reads the classic introduction to NBC’s Days Of Our Lives.

Before the popular soap opera debuted in 1965, Jack Kilby of Texas Instruments and Intel founder Robert Noyce, then of Fairchild Semiconductor, invented integrated circuits and monolithic silicon chips.

More than six decades later, gadgets are everywhere, and life in the twenty-first century appears to be a series of meetings with an infinite number of semiconductors, rather than sand through an hourglass.

It’s Everywhere

It’s difficult to imagine any industry or aspect of daily life that doesn’t come into contact with chips in some way.

Yes, computers, but also electronic communications, manufacture, design, media, agriculture, government, business, transportation—you name it, semiconductors have been there, done that, and won the t-shirt.

According to Deloitte, the average passenger vehicle had $475 in chips in 2020, while a cellphone had $340.

They are not just in everything, but they are also everywhere, successfully providing diversity through exposure to economic and geographic areas.

Fortunes have been made betting on the semiconductor industry’s future, but it can also be risky. “Investing in the semiconductor business may be volatile, and it’s critical to carefully examine the risks and potential benefits before making any investment decisions,” says Sean August, CEO of the August Wealth Management Group, a fee-only private wealth management organization.

Berkshire Hathaway According to Charlie Munger, it is a “really unusual industry” that is so driven by change that “you have to take all the money you’ve made and with each new generation of chips you toss in all the money you previously made.

There are a few firms that design and produce their own chips, as well as those that manufacture but do not design (foundry companies, abbreviated fabs for fabrication) and those that design but do not manufacture (fabless).

Intel and Texas Instruments have been around for decades, and there are always newcomers.

Here are several semiconductor stocks and exchange-traded funds (ETFs) that may be worth your consideration:

Taiwan Semiconductor Manufacturing Co., Ltd. (TSM)

It’s nearly hard to talk about semiconductors without mentioning Taiwan Semiconductor Manufacturing Corporation, or TSMC.

Since its inception in the late 1980s, TSMC has grown to become one of the world’s largest dedicated semiconductor foundries.

This is a corporation that produces and manufactures semiconductors for a variety of purposes, including AI, graphics, and mobile devices,” August explains. “TSMC is one of the world’s largest semiconductor foundries, with cooperation with several prominent technological companies.

According to data from S&P Global Market Intelligence, TSMC has had a revenue CAGR (compound annual growth) of 20.4% and a net income CAGR (compound annual growth) of 23.7% from its inception as a public company through its fiscal year 2022.

Long-term debt of $27.2 billion is offset by cash and cash equivalents of $50.8 billion.

Lattice Semiconductor (LSCC)

Lattice Semiconductor, a business that specializes in designing and manufacturing low-power, field-programmable gate arrays, is one of our top semiconductor recommendations,” says Sam Boughedda, an equities trader at AskTraders.com.


Field-programmable gate arrays, or FBGAs, are semiconductors that may be tailored to a company’s specific requirements.

Microsoft, for example, tailors FPGAs in data centers that run its Bing search engine and in elements of its Azure cloud computing platform to improve performance. But, the technology is adaptable and powerful enough to perform a wide range of different tasks.

Lattice benefits from its innovative PC design solutions, which operate on low-power FPGAs and provide consumers with enhanced AI experiences, increased battery life, and collaborative conferencing experiences,” Boughedda says. “They also offer versatile sensor connectivity and processing. In a more AI-centric world, the company’s FPGA innovation could benefit.

Revenues ($660.4 million) and net income ($178.9 million) increased 28.1% and 27.1%, respectively, in the fiscal year 2022.

Gross profit margins have increased from 56.1% in 2017 to 68.5% in 2022.

AEHR Testing Equipment (AEHR)

Semiconductor manufacturing cannot function without expensive and specialized tools, and this is the market in which AEHR operates: silicon carbide semiconductor wafer testing.

Silicon carbide is a high-performance semiconductor material that is commonly used in power electronics.

The technology is a particularly suitable match for electric vehicles since it can manage higher levels of power than similar-sized silicon devices.

AEHR has a few of the four largest [semiconductor companies] as customers, with more on the way,” the Inger Letter’s Gene Inger notes. “It is worth noting that Goldman Sachs and Fidelity both recently established big interests in AEHR.

Furthermore, as Inger points out, there is no long-term debt, which gives the company flexibility.

Shares are near all-time highs, and he believes the company is “under-followed.

SkyWater Technologies, Inc. (SKYT)

SkyWater, another Inger recommendation, is a Cypress Semiconductors offshoot.

As Inger points out, the company has “major contracts for ‘rad-hard,’ or radiation hardened, semiconductors for NASA and many military contractors.

The business also operates a fab facility in Minnesota and has taken over the operation of one in Florida through a public-private partnership with the state’s Osceola County.

The company’s positioning is as a DMEA-accredited Trusted Foundry. SkyWater gains an advantage in defense department work as a result of the accreditation. New directives from the Biden White House focusing on government projects utilizing American manufacturing should give additional benefits.

As Inger points out, “they are 100% domestic and will benefit from the Chips Act in the future.”

SkyWater also offers uncommon and customized solutions for automotive, industrial, and medical uses.

The last fiscal year marked a watershed moment for the company, as revenue in the fourth quarter increased 69% over the previous year.

While there was a loss of 3 cents per share, that was an improvement over the 11-cent loss projected by analysts.

There is certainly danger in a company that isn’t profitable, but enterprise value was 2.4 times total revenue at the end of 2022, which is a low multiple, and the consensus analyst target price of $18 is still above current levels in early 2023.

If management can achieve the projected growth, this could be a sleeper or an acquisition candidate at some point.

Nvidia (NVDA)

Nvidia began as a semiconductor firm that manufactured graphics processing units (GPUs).

Nevertheless, the ostensibly specialized gear actually refers to circuits that can perform complex numerical calculations at breakneck speed.

This brings up a slew of new possibilities.

Sean August notes gaming, automobiles, and data centers are three industries in which the organization plays.

Complex design and visual rendering, virtual worlds, and high-performance computation are some of the others.

Another significant area for Nvidia is artificial intelligence, which can be used to detect cyber threats by uniquely identifying users and computers in a network and providing automated services such as voice transcription or virtual assistants.

Except for 2020, revenue and net income growth have been mainly positive in previous years.

NVDA is a solid performer, with a current ratio of 4 to 8 times over the previous five years, a return on capital of 13.6% to 22.9%, a return on equity of 26% to 49.3%, and gross margins of 59.9% to 64.9%.

iShares Semiconductor ETF (SOXX)

An ETF can be an excellent approach to gaining exposure to a specific industry or segment while preserving sector variety that is difficult to replicate with individual investments.

August recommends the iShares PHLX ETF, which “includes companies that design, manufacture, and market semiconductors,” according to August. “The ETF invests in a diverse variety of semiconductor businesses, including those focused on AI, graphics, and mobile devices.

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