Highly Optimistic Returns: Top 3 Semiconductor Stocks for 20233-min read

The semiconductor chip industry is currently navigating a complex landscape with strong headwinds and economic-structural supports buffeting the industry in contradictory directions. Despite the present challenges, investors still have opportunities to make profitable investments. Let’s have a look at some of the most eccentric semiconductor stocks that have recently caught the attention of analysts.

The first one up in discussion is Monolithic Power Systems, Inc. (MPWR), a power semiconductor company based in Kirkland, Washington. In the third quarter of 2022, the company experienced an impressive surge in revenue, with an increase of 53% year-over-year and an even higher 78% year-over-year increase in GAAP net income, amounting to $124.3 million, or $2.57 per share. This success was driven by the company’s diverse product portfolio, which includes power modules, power converters, battery management, motor drivers, sensors, and inductors, often used in automotive, IoT, optoelectronics, biomedical, cloud computing, and telecom applications. Additionally, the company has been increasing its dividend payment for the past 9 years and is currently set at 75 cents per common share, annualizing to $3 per share. Analysts are highly optimistic about the stock, with a Strong Buy consensus rating and an average price target of $454.27, implying an 18% upside potential on the one-year horizon.

The next one, Analog Devices, Inc. (ADI), is a widely-known signal processing and data conversion chip manufacturer. It has a diverse product portfolio that applies to a variety of industries and a customer base of over 100,000. This has enabled the company to generate around $12 billion in annual revenues. In its most recent quarterly report, Analog Devices reported a top line of $3.25 billion, representing a 39% y/y growth, and an adjusted EPS of $2.73, which was up 58% y/y. The company’s gains were driven by strong performance across all four main segments – automotive, communications, consumer, and industrial. Analysts have taken critical note of the company’s impressive performance and are giving it a Positive (Buy) rating. Susquehanna analyst Christopher Rolland believes that the company’s product portfolio and customer base will help maintain industry-leading margins and growth. The Street gave the manufacturer a Moderate Buy consensus rating, with an average price target of $195.84, implying a 20% upside from the current trading price of $166, which is pretty impressive compared to other hotshot chip manufacturers.

The last one up on our list is GlobalFoundries, a California-based chip maker that has seen impressive gains since entering the public markets in 2022. Its 3Q22 report showed a 4% sequential increase in top-line revenue and a record net income of $336 million. Analyst Tristan Gerra believes that GlobalFoundries is well-positioned for future growth, citing its exit from the PC market, its focus on fast-growth markets, and its capacity already being oversubscribed for 2022 and 2023. With its small exposure to China and no impact from U.S. export restrictions, Gerra suggests that GlobalFoundries is a sound investment with an Outperform (Buy) rating with a $100 price target. Analysts have been overwhelmingly in favor of investing in GFS stock, with 10 out of 11 reviews giving it a ‘Strong Buy’ rating. The stock is currently trading for $55.55, yet the average price target of $75.09 suggests that there may be a potential gain of 35% in the next 12 months.

The increased prospects of semiconductor stocks lie behind their increasing demand due to the growth of new technologies such as 5G and AI. Big techs such as Apple, Microsoft & Nvidia have been investing heavily in semiconductor technology, further leading to a surge in demand. Additionally, the post-pandemic economic upheaval has resulted in a rise in the market for consumer electronics, which requires semiconductor components. All of these factors entwined can contribute to the increase in semiconductor stock prices in large part in the coming future.