Tech Sell-Off: 2 growth semiconductor stocks to buy as the market rebounds
Despite heightened uncertainty right now, one thing is clear: stock market declines don’t last forever. Technology-centric Nasdaq-100 The index plunged past the 20% threshold that technically defines a bear market, at one point losing more than 31% from its all-time high. But as the month draws to a close, it has trimmed that loss by a few percentage points, as some early evidence is emerging that inflation is slowing and, as a result, interest rates may not rise as high as expected. initially.
Despite the possibility that the rally has begun, patient long-term investors still have the opportunity to buy high-quality stocks at a deep discount. And the semiconductor industry could be a great place to look. Advanced computer chips are in high demand thanks to the increasing digitization of consumer products, and producers could be playing for a slice of the $1 trillion annual pie over the next decade.
Here are two semiconductor stocks worth buying as the broader markets begin to rally.
1. MKS Instruments
MKS instruments (MKSI -0.63%) does not produce computer chips itself, but rather provides products and services to the world’s largest manufacturers. In fact, the company claims that virtually every semiconductor produced in the world is made with MKS products. But with a history spanning 60 years, MKS also has a strong presence in other industries like defense, life sciences and industrial technology.
On the semiconductor side, the company helps producers reduce costs and increase production by reducing waste and improving processes. Its suite of tools is designed to tackle the new era challenges chipmakers face as semiconductors continually shrink in size and become more mobile, but need to be even more powerful. MKS covers all process steps, from wafer production to ion implantation to finished product inspection equipment, to ensure manufacturers produce the maximum production level.
Like most chip companies, MKS has had a strong pandemic period. Supplies have been short due to lockdowns, but growing demand has persisted as the digitalization of consumer products continues to expand into new markets like electric vehicles. Although the first quarter of 2021 was incredibly strong, the company managed to increase revenue by another 7% in its last first quarter of 2022, to $742 million, and it would have done even better without the short-term disruptions. of the supply chain.
But profitability is where MKS really shines. It has generated $11.54 in earnings per share over the past 12 months, which puts its stock at a price-to-earnings ratio of just 10.5. It’s a 50% discount on the iShares Semiconductor ETFwhich is trading at a ratio of 21.4, and this implies that MKS stock would need to double just to trade in line with its industry peers.
It can be beneficial to own companies with strong earnings in a volatile market, as they are less likely to require a capital injection. And in the case of MKS, it also offers a quarterly dividend of $0.22 per share, meaning you get paid to own it.
2. Advanced microdevices
As for the semiconductor giants, Advanced micro-systems (AMD 1.10%) fits the description of a T. It’s a household name thanks to its popular computer gaming chips, and the company’s hardware now also powers the world’s two major console platforms – Microsoftis Xbox and sonyof the PlayStation 5.
AMD’s strength as a company stems from its diversity. The company also has an exciting deal with You’re here supply chips for infotainment systems for that company’s electric vehicle suite. They are more powerful than typical systems in most combustion engine cars; Tesla owners can play games, access apps and even browse the internet, in addition to controlling most in-car functions.
AMD also has a strong presence in the data center segment, with a leading position among the world’s leading cloud service providers, such as Amazon, Alphabetis Google, and Ali Baba. This drove a huge 88% revenue growth in AMD’s Enterprise, Embedded and Semi-Custom segment alone in Q1 2022 to $2.5 billion.
The company has an incredibly exciting growth opportunity ahead with its acquisition of Xilinx, a global leader in adaptive computing. This state-of-the-art technology allows computer chips to adapt to user needs in real time, which is a huge leap forward from typical hardware that has to be replaced to adapt to different applications. AMD believes this is the next frontier of high performance computing.
Over the past 12 months, AMD generated $18.8 billion in revenue and $3.41 in earnings per share; it is a financial power. Its year-over-year revenue growth rate of 71% in the first quarter of 2022 marked a slight slowdown from the 93% it delivered a year ago, but the underlying numbers are much higher now, which will make comparables more difficult. to fight to move forward. It’s a natural characteristic of any fast-growing business.
AMD’s stock price fell 37% amid the tech selloff, but given its financial performance, this could be a great opportunity for investors to consider opening a position.