Semiconductor stocks are down big this year. The chip sector surged nearly 10% during a broad market rally on Thursday following lower-than-expected U.S. inflation data. Yet, the S&P Semiconductors Select Industry Index is still down almost 28% year to date. Industry heavyweights remain downtrodden as Nvidia stock trades 53% off its 2021 highs. Market challenger Advanced Micro Devices stock has given up 58% of its market value since peaking last year. While processor giant Intel (NASDAQ: INTC) stock is down 54% off 2021 highs and, noteworthy, trading in value territory.
A strong wave of investor pessimism that ruled the stock market in 2022 played well into legendary investor Warren Buffett’s famous mantra: invest new capital when the market is down. Contrarian investors who seek to build stakes in growing (but temporarily subdued) semiconductor companies have a chance to get “greedy when others are fearful.” But should you buy beaten-up semiconductor stocks today?
Time to buy?
The recent decline in semiconductor stocks is justifiable. And notably, it made high-quality businesses with beautiful balance sheets and attractive cash flow-generating assets more affordable. Investors with a long-term investment horizon may add them to retirement portfolios now. Semiconductor stocks may never be this cheap again.
The industry is undergoing a thrashing owing to weakening computing chip demand, postponed data center investments, and cooled-off gaming activity. Inventory build-ups and accompanying write-downs are a cause for concern. However, obsolescence is a common feature of technology equipment.
Looking closely, some semiconductor industry stocks are viable value plays right now, while others keep investing in new productive capacity and innovating for growth. And to avoid future supply chain crises, they are moving their business ecosystems from China to secure key client segments in North America and Europe.
Investment decisions should always be forward-looking, although investor sentiment, outlooks, and opinions are usually anchored on the most recent events. Yet, we sometimes assign them too large of weightings such that our judgments could be biased towards the recent poor industry performance.
The semiconductor industry may quickly roar back into fashion once the economic headwinds of 2022 subside, and they will.
A tiny Canadian semiconductor stock to check out: POET Technologies
POET Technologies (TSXV: PTK) is a small and upcoming Canadian semiconductor stock that’s developing an integrated electronics and photonics chip. This hybrid chip could cut product assembly and component costs for the data centre, telecommunications, consumer electronics, and automotive LIDAR verticals.
Historical revenue generation has been erratic during the development phase. However, Wall Street analysts forecast that POET Technologies may grow sales from well under half a million in 2022 to nearly US$4 million in 2023.
The company could enter a rapid growth phase during the next five years. Its balance sheet was well funded going into the third quarter with nearly US$14 million in cash, cash equivalence, and marketable securities by June this year.
POET stock has declined 60% year to date. Shares could violently surge when sales meaningfully grow over the next few years, more so if the company’s offerings, which seem to have limited competition, profitably deliver significant cost savings for clients.
Buy Intel stock instead?
Investors looking to boost passive income from dividend stocks may wish to check out Intel’s 5% yielding dividend right now.
The leading chip maker is investing heavily in new foundries and recently partnered with Brookfield Infrastructure Partners. The co-investment deal reduces upfront cash outlays as Intel builds new production capacity in North America. Strong government support from the Biden-led administration could lower operating costs over the next five years. Further, the company’s new platforms will be key in retaining market leadership against aggressive challengers like AMD.
Intel stock enjoys a seven-year history of consecutive dividend growth. Undoubtedly, the PC giant is a good dividend growth stock to add to an investment portfolio while building a retirement plan.
Further, Intel’s new CEO, Pat Gelsinger, and team, are executing a comeback strategy that’s aimed at regaining semiconductor market share from the likes of Nvidia and AMD. Reclaiming lost ground won’t be easy, but who knows?
INTC stock might just be that growth stock you never expected to rise again.
Foolish bottom line
Semiconductor stocks are justifiably down. An investment in semiconductor stocks today should not be made with a “get rich quick” trading mentality. Don’t expect instant gratification on the buy as the industry recovers.
