Semiconductor Stocks Are a Hot Topic Among Investors This Month.
Semiconductor stocks are gaining much attention among traders as demands continue to soar. According to World Semiconductor Trade Statistics (WSTS), global semiconductor sales increased by 6.5% to $439 billion in 2020. As many of the top semiconductor stocks did not perform well in recent weeks, this presents an opportunity for investors to buy at a lower price to hold in the long run.
If you have not noticed, prices of electronic hardware and mobile devices are going through the roof thanks to the global chip shortage. This has hampered production, with major companies like Nio (NYSE: NIO) and General Motors (NYSE: GM) halting the production of their electric vehicles. Such news is a disaster for automakers. But it highlighted how dependent industries are on semiconductor companies to further technology and digitalization. More importantly, it also has shown the potential for top semiconductor stocks to grow as this dependency continues.
Such global chip shortage dubbed “chippageddon” by some may recover as soon as COVID-related demand is met and chip companies ramp up their production. Investors should also take note of the importance of semiconductors with the buzz going around non-fungible tokens (NFTs) as well as skyrocketing prices of cryptocurrencies. But instead of dabbling into these topics, we are going to focus on the two semiconductor giants, namely Qualcomm Inc. (NASDAQ: QCOM) and NVIDIA Corporation (NASDAQ: NVDA).
Qualcomm, the American-based semiconductor behemoth that rivals fellow chipmaker companies such as Intel (NASDAQ: INTC) and Taiwan Semiconductor (NYSE: TSM) requires no further introduction. Speaking at China Development Forum in Beijing, Qualcomm CEO Steve Mollenkopf has highlighted that he is “seeing improvements” in efforts to reduce chip shortage as demands for older chips are easier to be fulfilled. While this may not mean that the chip shortage predicament is at its nigh, it is seeing much-required improvement.
The company is also reportedly working on a gaming console that could rival Nintendo’s (OTCMKTS: NTDOY) Switch platform. Rumored to be powered by a Qualcomm 800-series chipset, the console is also designed to run Android 12 as a custom launcher. The device could feature many of Switch’s designs – removable joysticks, expandable memory card slot, cellular support, haptic feedback accelerometers, and so on.
But what makes it stand out is the possibility of 5G support thanks to the company’s 800-series chips. Set to release next year, the new Qualcomm console could be a new favorite among gamers. In comparison, the Switch is still running on an already outdated Tegra chipset.
QCOM Stock Underperforming Despite Strong Financials
Numbers from Qualcomm’s recent Q1 2021 financial report for the quarter ended December 2020 showed positive results. Revenue for the quarter was $8.23 billion as sales rose 63% year-over-year and earnings grew 119%. CEO Steve Mollenkopf also announced a 5% increase in the company’s quarterly cash dividend, effective after March 25th. The quarterly cash dividend will increase to $0.68 as annualized dividend payout is raised to $2.72 per share of common stock.
Source: TD Ameritrade TOS
The recent earnings release also revealed that chip sales are growing steadily for the company. Revenue from mobile phone chips saw an increase of 79% year-over-year to $4.22 billion. The company’s RF front-end chips which are used in 5G technology as well as Qualcomm’s modem also rose by 157% from the previous year. Despite having an increased sales and revenue, Qualcomm’s stock performance tells a different story.
As mentioned earlier, QCOM stock is among semiconductor shares that did not perform well this month. QCOM stock saw an over 17% dip since February, making some investors nervous. That said, this presents an opportunity for traders to buy QCOM stock at a bargain. This comes as Qualcomm continues to become the primary producer for 5G chipsets in mobile phones. Should the global chip production recover, expect Qualcomm to turnaround to become one of the best semiconductor stocks as chip demands are met.
NVIDIA Corporation (NVDA)
NVIDIA is a primary graphics processing unit (GPU) maker with its products implemented in consoles, computers, the automotive market, and even cryptocurrency miners. For those unfamiliar, NVIDIA is a multinational tech company that designs graphics processing units and systems on a chip (SoCs).
Graphics on games and animation alike have leaped from bit pixels to larger-than-life designs thanks to a continuous improvement of processing architecture and continuous R&D. One thing that’s very prominent in today’s GPU market is the exorbitant street prices on all generations of GPU cards.
Not only has the global chip shortage slowed down GPU production. But a massive demand among cryptocurrency miners has surged GPU prices to an all-time high. While this may be detrimental among end-users, NVIDIA stands to benefit the most. That’s because its GPU stocks sell out the moment they are out of the factory.
A Prized Product Among Crypto-Miners
To satiate demands from crypto-miners while appeasing the wrath of gamers for the shortage of NVIDIA GPUs in the market, NVIDIA has made two major moves. Firstly, the company has released a new product called a cryptocurrency mining processor (CMP). The CMPs are a hit among miners. For instance, Hut 8 Mining Corp (OTCMKTS: HUTMF) invested $30 million to procure CMPs for their crypto-mining endeavors.
Source: TD Ameritrade TOS
Secondly, NVIDIA has released its mid-low range 3060 GPU cards. These have a feature to throttle card performance by half when used for crypto-mining. Such effort became futile, partly due to the company’s mistake when it released a graphics driver that overrides the feature. Moreover, resourceful crypto-miners have found a way to fix the throttle by plugging the HDMI port with a dummy plug.
A never-ending demand has benefited Nvidia, as the company reported record revenue for its Q4 2021 ended January 2021. Quarterly revenue was $5.00 billion, an increase of 61% year over year. Revenue for the fiscal year was also another record for the company at $16.68 billion, up 53% a year earlier. “Demand for GeForce RTX 30 Series GPUs is incredible. NVIDIA RTX has started a major upgrade cycle as gamers jump to ray tracing, DLSS, and AI,” highlighted Jensen Huang, CEO of NVIDIA.
While both company’s production has dampened from chip shortages, they certainly have their own merits and development in their pipeline. Should the global chip shortage continue, NVDA stock could stand to gain the most. That’s because both GPUs and CMPs will continue to sell as fast as the company can make them. However, this is also dependent on current cryptocurrency prices. After all, a major dip in cryptocurrency prices would dampen demand from crypto-miners.
If the chip shortage is relieved, QCOM stock could see its value rising as the company can push production back to its optimal levels. More importantly, the company can continue to maximize the production of chips with 5G implementation. This is crucial not only on mobile phones but on other digital communication devices as well. The question is, which of these semiconductor stocks are you putting your money on, given such a predicament?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.