JP Morgan analysts’ prediction earlier this year that semiconductors could be the comeback kings of 2023 came through. The sector suffered a severe business reversal in 2022 following the boom in 2020 and 2021. A nearly 50% peak-to-trough decline happened due to geopolitical tensions and excess inventories.
However, recovery is inevitable because semiconductors power everything from consumer durable goods and electric vehicles (EVs) to smartphones. Government policymakers also see the urgency to develop more resilient and secure semiconductor supply chains.
NVIDIA is the hottest stock today in the U.S., with its mind-boggling 209.25% year-to-date gain. The American chipmaker reported a record US$13.51 billion revenue in the second quarter (Q2) of fiscal 2024, representing a 101% increase from Q2 fiscal 2023.
NVIDIA’s founder and chief executive officer (CEO), Jensen Huang, said, “A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI [artificial intelligence].” Canadian domestic stocks 5N Plus (TSX: VNP) and POET Technologies (TSXV: PTK) have picked up momentum and are climbing fast.
Strong demand in end markets
5N Plus is TSX’s future semiconductor king if demand sustains and increases over time. The $314.9 million company from Montreal produces specialty semiconductors and performance materials. While it’s a dwarf compared to NVIDIA, the earnings potential is equally enormous.
Its president and CEO Gervais Jacques said, “As a leader in the production of critical engineered materials and critical metal recovery, as well as a leading supplier of ultra-high purity specialty semiconductor materials outside of China, we are uniquely positioned to continue to benefit from strong demand in our end markets.”
In Q2 fiscal 2023, revenue declined 18.4% to US$59 million versus Q2 fiscal 2022 because 5N Plus halted the manufacture of low-margin, extractive and catalytic products. However, earnings soared 2,196% year over year to US$10.14 million.
Jacques added that the strong financial results are a testament to 5N’s strategy and market leadership. It also reflects the improved product mix and focus on high-growth end-markets. The company will continue to invest in building capacity to meet unprecedented customer demand.
The Specialty Semiconductors segment expects strong demand, particularly in space solar power and terrestrial renewable energy sectors. However, the Performance Materials segment will address the needs in the health and pharmaceutical sectors.
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At $3.56 per share, VNP’s year-to-date gain is 22.34%. Market analysts have a high price target of $5.50 (+54%) in 12 months. This semiconductor stock’s overall return in three years is 95.6%.
Strong upside
POET Technologies is TSX Venture Exchange’s shining star in the semiconductor industry. The $191.97 million company designs and develops POET Optical Interposer, Photonic Integrated Circuits (PICs) and light sources. They are for use in data centres, telecommunication, and artificial intelligence markets.
The Toronto-based firm is still on the road to profitability but should ultimately get there. Its chairman and CEO Dr. Suresh Venkatesan said POET follows a roadmap which should help accelerate certain aspects of the business through increased customer engagements.
Despite the net loss of US$4.4 million in Q2 2023, investors see a substantial upside. At $4.73 per share, POET is ahead 15.65% year to date.
Top choice
The semiconductor surge is happening in Canada, and 5N Plus is the top choice if you anticipate exponential growth in the space.
