The semiconductor industry is very dynamic, with product upgrades happening every year. A semiconductor is one of the most complex and expensive products to make, and only a few companies have mastered the skill. With the pace at which we are heading into artificial intelligence (AI) and Web 3.0, semiconductors have not only become a necessity but a product of national security. Companies that ace the technology could thrive and generate attractive returns.
Two of the safest semiconductor stocks to own in September 2023
Nvidia is the first choice for semiconductor stocks because of its unbeatable graphics processing unit (GPU). But there are other semiconductor stocks that could stand to benefit from AI 2.0 and Internet of Things (IoT) proliferation.
Advanced Micro Devices
My second semiconductor choice is Advanced Micro Devices (NASDAQ:AMD). The company rose to fame during 2015-2020 as its CEO Lisa Su turned around the company. The loss-making near-bankrupt chipmaker that could barely survive competition from Intel, turned into a profitable company that beat its deep pocket rival by making a comeback in the PC and laptop space.
But now, AMD is seeing a fallback as PC shipments are constantly declining. It earned one-third of its revenue from the client computing segment. But weak demand more than halved (54% decline) its second-quarter revenue. A loss of $1.2 billion in PC processor revenue pulled the company’s overall revenue down 18% to $5.4 billion.
The demand for PCs is expected to pick up towards the holiday season. But a material increase is unlikely until the next replacement cycle, probably in 2025, as a majority of people bought laptops and PCs during the 2020 work-from-home trend.
This demand uptick could see some growth toward the end of the year. But AMD is a stock to hold for the long term as it is the only rival that can compete with Nvidia in AI data centre graphic GPUs. Intel’s GPUs fall behind that of AMD and Nvidia. Moreover, AMD is working on embedded computing that will go inside edge devices and benefit from IoT proliferation.
AMD stock is still trading 30% below its 2021 tech bubble peak as its huge dependence on PC shipments pulled it into a net loss. Now is a good time to buy the stock and book your spot in the AI IoT rally.
Qualcomm stock
Qualcomm (NASDAQ:QCOM) is another semiconductor stock I am sure about. It is a market leader in communication chips. Its 5G modem and Snapdragon chips power almost all mobile phones. The company gets a royalty on every device that uses its chip. Today, 5G modems connect mobile phones and wearables to the internet. But this is changing as more edge devices, from drones to cars, are connecting to 5G.
Qualcomm knows that. Hence, it is expanding its product portfolio beyond mobile phone chips to IoT and automotive chips and tapping the AI-at-the-edge trend that needs small-form chips. However, it entered late into the IoT space, which is crowded with too many players. But Qualcomm believes it can convert its US$1.3 billion automotive revenue in fiscal 2021 to over US$9 billion by 2031.
Qualcomm is facing weak earnings, with fiscal third-quarter revenue and earnings per share (EPS) down 23% and 37%, respectively, due to weak handset demand. Macroeconomic weakness has reduced discretionary spending. Since more than 60% of its revenue comes from mobile phones, weak demand has converted into significant declines.
However, Qualcomm is diversifying its portfolio. It has the potential to boost earnings once autonomous cars and IoT proliferation kick in.
Qualcomm stock is moving in tandem with the macro-economic conditions. The stock fell 17.8% in August as the overall market declined. It is now on the path to recovery, up 6% in September. If you buy the stock now, you could lock in a 2.8% dividend yield and double-digit growth.
