5 Semiconductor Stocks to Buy in 2023

In 2020-21, global semiconductor market soared amid a mismatch between supply and demand. Going into 2023, several semiconductor giants have sold off considerably.

 

Some of these stocks could be attractive for investors looking to profit from the continued global demand for chips. Here are five of the strongest semiconductor stocks to look at for 2023 and beyond.

 

Taiwan Semiconductor (NYSE:TSM) is a massive Asian manufacturer that supplies advanced chips to Apple, among other large businesses.

 

Recently, TSM came to worldwide investor attention when Warren Buffett’s Berkshire Hathaway announced a $4.1 billion stake in the company. The move was an unusual one for Buffett both because of the technology focus of the company and because the legendary value investor rarely buys into foreign businesses.

 

In Q3, TSM’s revenues totaled $20.23 billion, roughly in line with management’s guidance. Gross margin exceeded expectations, coming in at 60.4 percent. For the quarter, TSM reported earnings of $1.79 per share, $0.10 above the consensus estimate.

Over the coming year, analysts forecast an upside of nearly 30 percent for TSM. The stock also enjoys a strong majority buy rating, with 31 of the 39 analysts covering it recommending it as a buy. TSM’s returns could be further bolstered by its dividend yield of 1.87 percent.

 

Unsurprisingly for a Buffett stock, TSM appears to be a good value. The stock trades at about 12 times forward earnings and maintains a price-to-earnings-growth ratio of 0.6. While earnings could drop by over 9 percent over the coming year, TSM’s price makes it an attractive long-term prospect.

 

TSM is also expected to maintain a high rate of growth over the next several years. Analysts project that the company will grow at an annualized rate of 21.5 percent in the next five years. Between this growth and its favorable valuation, TSM could be one of the best investment options in the semiconductor market over the next several years.

 

ON Semiconductor (NASDAQ:ON) is a chip manufacturer specializing in silicon carbide semiconductors. The company manufactures power modules, MOSFETs and transformers for a range of applications across multiple industries.

 

In Q3, ON Semiconductor set a revenue record of $2.19 billion, up 26 percent from the previous year. GAAP gross margin was reported at 48.3 percent, while earnings outperformed expectations at $1.45 per share. This represented a massive year-over-year increase from Q3 2021 when earnings were only $0.87 per share.

Like TSM, ON appears to be priced relatively inexpensively. The stock trades at 13.6 times expected earnings and maintains a price-to-earnings-growth ratio of just 0.67.

 

ON has a debt-to-equity ratio of 0.54 and generated over $1.2 billion in free cash flow in Q3. Cumulatively, these factors make ON semiconductor look like a decent value stock.

 

Despite good value prospects, ON’s projected upside over the next year is lower than some of the other stocks listed here at about 21 percent.

 

Earnings are expected to slump 14.2 percent in the coming year, suggesting that ON could be in for a period of slower growth. The 5-year growth forecast, however, shows ON growing by over 18 percent annually. As such, ON could have good long-term potential at today’s prices.

 

Advanced Micro Devices (NASDAQ:AMD) is a PC, data center and gaming chip manufacturer that soared during the pandemic years.

 

Although the company delivered good performance and offered ample room for growth, the stock was inflated well beyond its intrinsic value when it became one of the earliest so-called meme stocks driven to unrealistic prices by inexperienced retail investors.

 

Following a steep decline in share prices, AMD has returned to earth. The company itself has also fared well, with Q3’s revenues reported at $5.57 billion. This is a gain of 29 percent over the previous year.

 

Gross margin fell from 48 percent to 42 percent, but gross profit rose by 13 percent. For the quarter, AMD reported $0.67 in earnings per share, just below the consensus estimate of $0.69.

One of the strongest arguments for AMD is its investment in chips for embedded systems. From vehicles to everyday home appliances, these systems represent a large and lucrative ecosystem of computation. As the internet of things (Iot) continues to become more of a reality, companies like AMD that are leaders in the embedded system space could see large opportunities.

 

Despite strong long-term growth potential, AMD also trades at a fairly modest P/E ratio of 18.2. AMD is projected to have a 31 percent upside in the coming year, though earnings are expected to drop by about 5.7 percent.

 

Long-term growth is projected at about 15 percent annually, giving AMD the potential to deliver steady gains over several years.

 

Well-known gaming chip manufacturer NVIDIA (NASDAQ:NVDA) has fallen off dramatically in the past year, creating a potential buying opportunity for investors. The stock currently trades at $148, down from a 52-week high of $294.

 

NVIDIA saw its total revenues drop by 17 percent in Q3, reporting $5.93 billion. Earnings per share, meanwhile, fell by 72 percent from the same quarter in 2021. Gross margin also fell by 11.6 percent. This drastic decline is largely attributable to a normalization of the semiconductor supply chain and adjustments in inventories.

 

Although the stock still trades at over 65 times forward earnings, NVIDIA could still have ample room for growth left ahead of it. Revenue from data center sales, for example, rose 31 percent in Q3. NVIDIA is also investing in advanced computing technology to circumvent the decreasing growth in the speed of general computing.

The company has an effective moat around it in the high-end gaming, autonomous driving and AI chip market. It also foresees considerable growth from metaverse development. As the next generation of technology calls for faster and more efficient chips, NVIDIA is well-positioned to remain a market leader.

 

Analysts have a mixed view of NVIDIA’s short-term performance. NVDA is expected to reach a target price of $199 over the next 12 months, a gain of nearly 35 percent. The 40 outstanding price targets for NVIDIA, however, range from $110 to $325.

 

NVIDIA earnings are expected to grow by 38.6 percent in the coming year, and the company’s overall 5-year growth rate is projected at 21.3 percent.

 

NVIDIA may also benefit from the widespread adoption of AI and robotics technologies over the next several years. While this stock is ultimately expensive when compared to its present earnings, NVIDIA still has the potential to be a strong growth asset in the coming years.

 

Intel (NASDAQ:INTC) has been a major semiconductor manufacturer for decades. While the company has faced increased pressure from competitors in recent years, early signs suggest that a recovery could be coming for Intel.

 

In Q3, the company actually gained market share against AMD in the CPU market. The company could also make gains in the server chip space next year as it rolls out its next generation of processors. With the stock having sold off nearly 50 percent in 2022, there could be a value opportunity in Intel.

Intel’s revenue was down 20 percent in Q3, reflecting an ongoing trend of softening sales. The company’s earnings, however, considerably beat out the consensus estimate of $0.34, with $0.59 per share reported.

 

While earnings are still expected to slide moderately lower in the coming year, analysts do expect the stock to have a upside of about 5 percent.

 

In addition to its potential upside, Intel also offers a strong source of dividend income. The stock yields 5.46 percent annually, and its payout ratio of about 45 percent suggests that the dividend is fairly safe.

 

With that said, the payout could be in for a period of slower growth ahead. Current projections suggest that Intel’s dividend will grow by only about 1.86 percent annually over the next three years. As such, Intel is likely more suitable as a conservative, long-term investment than as a growth stock.

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