The insatiable appetite for semiconductors will continue to surge.

Semiconductors a Smart Bet
for the Long Haul

The semiconductor industry grabbed headlines in 2021 mostly due to a supply shortage that crippled industries, such as autos, for which chips are a key component. The world awoke to the fact that seemingly everything these days – from garage-door openers to rockets – runs on what’s now dubbed “the new oil.”

The acute supply-demand imbalance, induced largely by pandemic disruptions, should ease as we move through 2022. But the insatiable appetite for semiconductors will continue to surge, notes Andrew Tanzer, Kiplinger's Personal Finance.

Angelo Zino, an analyst for investment research firm CFRA, foresees a “super cycle” for the industry over the next decade as the content per device and sophistication of semiconductors grow. With this inexorable growth in mind, we identified six attractive stocks that range from chip designers to manufacturers to equipment suppliers.

• Applied Materials (Nasdaq: AMAT) is the world’s largest maker of semiconductor equipment, an industry niche that has consolidated in recent years to just five major players. Igor Tishin, a tech analyst at Harding Loevner Funds, likens the leading tool makers to “arms suppliers to a growth industry.” That’s because regardless which chipmaker is up or down, all of them need to buy from the same handful of equipment suppliers.

• Marvell Technology (Nasdaq: MRVL) is a good example of a so-called fabless semiconductor company – a chipmaker that designs semiconductors in-house but outsources manufacturing to third parties, thereby tamping down capital intensity. Business is booming because most of the company’s sales are to high-growth markets, such as cloud data centers and 5G telecommunications infrastructure.

• Nvidia (Nasdaq: NVDA) in 2020 dethroned Intel to become the most valuable semiconductor stock. Nvidia has used its high-speed, leading-edge GPUs to grab market share in sectors including gaming, data centers, cloud computing, machine learning, cryptocurrency mining and robotics.

• The semiconductor content in autos is surging due to the migration to electric vehicles and the addition of increasingly sophisticated features in cars, such as enhanced safety and audio-infotainment systems. NXP Semiconductors is well placed to ride the wave. Autos account for half of NXP’s revenues, a proportion that is growing.

• In the 1980s, Taiwan Semiconductor Manufacturing (NYSE: TSM) pioneered the foundry business – the contract manufacturing of chips for others. With a global foundry market share of more than 50% and a virtual lock on leading-edge chips, Taiwan Semi makes semiconductors for Apple, Qualcomm, Nvidia, Broadcom and Advanced Micro Devices, among others.

• We may be in the digital age, yet the demand for analog chips is still enormous and growing. Venerable Texas Instruments Inc. (Nasdaq:TXN) is the global leader in analog semiconductors, which find their way into pretty much every electronic product to provide power to run devices, for instance, and for tech interface with humans. The unglamorous analog business grows steadily and is highly profitable for TI, which is tightly managed for shareholders. Unlike many competitors, TI manufacturers its own chips, which helps to reduce cost.

Editor’s Note: Andrew Tanzer is a contributing writer at Kiplinger’s Personal Finance magazine, www.Kiplinger.com.