What Are the Best Semiconductor Stocks for 2017?

best semiconductor stocks for 2017Take a Look at Our Semiconductor Stocks List

Investors should be paying more attention to the semiconductor stock index. It advanced 50.2% in the past 12 months, a return beyond that of many “growth stocks.” Things are even better for individual chip stocks. As such, we have identified the best semiconductor stocks for 2017.

These stocks led that 50.2% advance. Some of them have appreciated by 200%, 300%, and even 500% in the last year. But don’t be discouraged—there are more gains on the way.

Digital technology is spreading like wildfire. Companies that used to rely on dusty old binders are moving to the cloud. Automakers are embedding self-driving technology in cars. Even grocery stores are going digital in the form of self-checkout machines and loyalty programs.

There’s simply no denying that microchip stocks are essential to modern life.

One way to understand how important they are is to imagine a world in which microchips do not exist. It’s a very different world than the one we live in.

You wouldn’t be reading this report, for instance. More importantly, there would be no Google and Alphabet Inc (NASDAQ:GOOGL), Apple Inc. (NASDAQ:AAPL), Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX), or Tesla Inc (NASDAQ:TSLA).

We rarely think about how smartphones, laptops, and tablets actually work. But the truth is that microchips are responsible for every cool gadget we know and love. They are eternally present, drawing on the power of the Information Age to bring us new experiences.

I see this trend, of ever-expanding digital proliferation, as inevitable.

It’s also just begun. More than half of the world is still unconnected, meaning that they lack an internet connection. Smartphones ownership is low in some areas, as is access to personal computers and laptops. But living standards will rise in these quarters.

Do you see where I’m going with this?

As more wealth floods into the developing world, electronics manufacturers will find themselves in a happy situation—they will have millions of new customers!
Companies like Apple and Samsung will have to build more devices to accommodate the new consumers. Obviously they’ll need more microchips to meet this surge in demand.

Are Semiconductor Stocks Undervalued?

But let’s get down to specifics. As investors, our job is to dig up hidden gems before the rest of market realizes they are valuable. That’s the gig. So are semiconductor stocks undervalued?

Take a look at the industry statistics:

Semiconductor (Broad Line) Industry Statistics

Market Cap

$21.2T

Price / Earnings

22.1

Price / Book

6.2

Net Profit Margin (mrq)

14.2%

Price / Free Cash Flow (mrq)

85.2

Return on Equity

17.1%

Total Debt / Equity

33.3

Dividend Yield

2.7%

(Source: “INDUSTRY CENTER – SEMICONDUCTOR – BROAD LINE,” Yahoo! Finance, last accessed March 6, 2017.)

These statistics expose a massive opportunity for investors. Having a cutting edge industry trade at only 22.1 times earnings betrays a shyness among investors. The market is clearly struggling to break free of the pessimism that clouded 2015 and parts of 2016.

But there is strong evidence that semiconductor stocks have broken free of those shackles. As you will see below, many of them have soared by triple-digits in the past 12 months. This could be the start of a long bullish run for chip stocks, so investors should move quickly.

The Best Semiconductor Stocks for 2017

There are plenty of stocks in the microprocessor space. Some are household names, like Intel Corporation (NASDAQ:INTC), while others are relatively obscure, such as Advanced Micro Devices, Inc. (NASDAQ:AMD) or Broadcom Ltd (NASDAQ:AVGO).

These firms are forced to invest large sums of money in research. So much of their success depends on pushing the boundaries of innovation.

Manufacturers will gravitate to the most advanced chips. Whichever ones makes their smartphones faster, their graphics better, their understanding more advanced.

If automakers want driverless cars roaming the streets, they need chips that can see the landscape around them. If Silicon Valley wants to endow ordinary home devices with WiFi, they need chips that are highly customizable. These are unexploited opportunities.

Investors tend to ignore these chances to get rich. Why? Because microchip stocks aren’t as flashy as the companies that sell directly to customers. But does that really matter?

If the only goal is to make money, then investing in semiconductor stocks should be taken as seriously as investing in Apple or Tesla. Strip away the shiny exteriors. Ask the fundamental investing questions that Warren Buffett would ask.

Or you can just read our semiconductor stocks list. Based on our research, these are the semiconductor stocks to watch in 2017.

1. Advanced Micro Devices, Inc. (NASDAQ:AMD)

It is impressive when a billion-dollar company can double its share price in a year. To see it multiply six times is certainly impossible. Or at least that’s what I thought before watching Advanced Micro Devices, Inc. (NASDAQ:AMD) pull off this amazing feat in 2016.

This magnificent company spent years in Intel’s shadow. It was always considered second-best in the PC market. But the rise of new fields like cloud computing, virtual reality, and image processing allowed AMD to split its focus. The company took on a brave new world.

Those bets are starting to pay off.

AMD stock outperformed its broader industry by an embarrassingly wide margin last year. As such, there may be a slight cool-off period in 2017, but it will likely be short-lived. We still expect more upside from this triple-digit winner, so we’ll be keeping a close eye on it.

amd stock chart

Chart courtesy of StockCharts.com

Dear reader, this looks like a genuine turnaround story.

AMD stock was down in the dumps for years. It lost stunning amounts of market share, dropping from 23% of the desktop and notebook market in 2006 to 8.5%. The drop in server chips was even worse, from 24% to 0.4%. (Source: “This Time, AMD’s Revival Is for Real,” Barron’s, February 4, 2017.)

It was a bona fide bloodbath.

But look at how the tables can turn. AMD stock has joined our top semiconductor stocks list. It has 32% of the market for graphics chips and is growing in other emerging tech areas, such as machine learning. From where I’m sitting, this company seems to be asserting itself as a technology giant.

If I’m right about this (and I think I am), then AMD stock is in for another round of triple-digit returns.

2. NVIDIA Corporation (NASDAQ:NVDA)

Shares of NVIDIA Corporation (NASDAQ:NVDA) tripled during the last 12 months. A move like that from one of the top semiconductor stocks should give you reason alone to love NVDA stock, but those gains are just the beginning.

NVDA stock is riding high on a wave of emerging tech.

The firm makes 62% of its sales in “Gaming,” a sector that includes virtual reality technology. (Source: “CFO Commentary on Fourth Quarter and Fiscal 2017 Results,” NVIDIA Corporation, last accessed March 3, 2017.)

This department was up 66% from the same period one year ago, yet it wasn’t the fastest growing sector of NVIDIA’s business. That award went to NVIDIA’s “Datacenter” division.

Sales jumped 205% year-over-year in that segment. In fact, NVDA stock is soaring in large part due to its “Datacenter” sales push. Just take a look at the 1-year comparison between NVIDIA and the semiconductor stock index.

nvda stock chart

Chart courtesy of StockCharts.com

As you can see, the share price tripled during the past 12 months.

Don’t mistake NVIDIA for one of those tech companies that grows fat on revenue while papering over a corresponding rise in costs. Because it’s not that kind of company.

Just look at the facts:

  • Net income advanced 137% year-over-year
  • Gross margins expanded to 60.0% from 56.5%
  • Operating expenses of six percent were outpaced by operating income growth of 191%

There could be some near-term volatility as expectations shake out over the coming weeks. But I expect NVIDIA stock to resume its upward track soon after. Those who ride out a small correction could experience another round of triple-digit gains.

3. Broadcom Ltd (NASDAQ:AVGO)

Broadcom Ltd (NASDAQ:AVGO) is back on our semiconductor stocks list this year despite a lackluster performance in 2016. By lackluster, I mean that AVGO stock only gained 52% during the year. The stock usually delivers much juicier capital gains.

Fear not, though, because Broadcom stock is on the cusp of another surge.

Last year’s tepid growth was probably due to the merger between Avago Technologies Ltd and Broadcom Ltd (NASDAQ:AVGO). At $37.0 billion, the merger was one of the biggest in living memory.

There were uncertainties caused by the merger, but don’t think that means AVGO stock is down for the count. Uncertainties fade as mergers slip further into the past.

What’s important to understand is that the newly combined entity (which uses Broadcom as its name, but AVGO as its ticker symbol) is now a powerhouse in the semiconductor space.

If history is any indicator, Broadcom will resume its long-term trajectory this year.

AVGO stock chart

Chart courtesy of StockCharts.com

This chart should rattle even the most ardent AVGO stock bear. It shows that without the uncertainty from a merger, AVGO stock is an investor’s dream come true. Triple-digit gains, an emerging tech, and now the market power to negotiate prices.

How could we not add AVGO stock to our list of best semiconductor stocks for 2017?

Conclusion on Semiconductor Stocks

Every electronic device uses semiconductors. This has been true since the dawn of the Computing Age. But we’re in the midst of a revolution.

Half of the Fortune 500 is trying to extend the power of computers into other areas of life, commerce, and art. This raises the demand for microprocessors and, in turn, chip stocks.

As I said before, it’s an airtight case. Everything I know about finance and technology makes me bullish about investing in semiconductor stocks. There is simply no technological future without their products, nor have they achieved their potential.