Last year, the pandemic sparked a global digital transformation as a large number of businesses and schools went online. Internet traffic in some countries increased by up to 60% shortly after the outbreak. These rapid technological changes resulted in considerable demand for microchips — and a shortage. Semiconductor stocks are set to benefit, as the trend is not likely to end soon.

Semiconductors, also called integrated circuits (ICs) or microchips, play an important role in the fabrication of electronic devices. They enable advances in not just computing, but also healthcare, military systems, transportation and countless other areas.

In 2021, the semiconductor market is expected to grow by 19.7% worldwide, reaching $527 billion. Next year, the market is anticipated to grow an additional 8.8%.

However, high chip demand and supply chain disruptions amid pandemic conditions have sparked a global shortage that could last through late 2022. The shortage is generating both headwinds and tailwinds for numerous companies and could be an opportunity for investors who successfully identify the winners.

With that in mind, here are seven semiconductor stocks to keep on your radar as chip demand remains strong:

• ASML (NASDAQ:ASML)
• Direxion Daily Semiconductor Bull 3X Shares (NYSEARCA:SOXL)
• Invesco Dynamic Semiconductors ETF (NYSEARCA:PSI)
• Microchip Technology (NASDAQ:MCHP)
• Qualcomm (NASDAQ:QCOM)
• Skyworks Solutions (NASDAQ:SWKS)
• Taiwan Semiconductor Manufacturing (NYSE:TSM)

Semiconductor Stocks: ASML (ASML)

52-Week Range: $343.25 to $805.64

Dividend Yield: 0.41%

The Netherlands-based ASML designs and makes chip-manufacturing equipment, including lithography machines. The company was founded in 1984 and operates in more than 60 locations in 16 countries.

According to ASML’s second quarter financial results announced in July, net sales were 4 billion euros with a gross margin of 50.9%. Net income came in at 1 billion euros. ASML saw EPS of 2.52 euros and cash and cash equivalents of 5.4 billion euros.

On the results, President and CEO Peter Wennink commented, “The demand continues to be high across all market segments and our product portfolio. This is a reflection of the market that is focused on increasing capacity to support the build-up of the digital infrastructure. The long-term demand is not only for advanced nodes, but also for legacy and mature nodes in Logic as well as Memory.”

The company raised its 2021 sales growth guidance to 35%. It expects Q3 net sales between 5.2 billion euros and 5.4 billion euros and a gross margin between 51% and 52%.

After these results, ASML stock jumped to a record high in early August. It has so far outperformed the market, returning more than 55% year-to-date (YTD). The shares trade at 49.26x forward price-to-earnings (P/E) and 16.76x current sales. Given the surge in global chip demand, long-term investors should keep ASML stock on their radar and buy on the dips.

Direxion Daily Semiconductor Bull 3X Shares (SOXL)

52-Week Range: $13.89 to $48.19

Expense Ratio: 0.99%

Next we have the Direxion Daily Semiconductor Bull 3X Shares, a leveraged exchange-traded fund (ETF). The fund seeks 300% daily returns on the widely-followed PHLX Semiconductor Sector Index (SOX), which provides exposure to companies in the sector.

Before we discuss the fund, I want to remind readers that such leveraged ETFs are not appropriate for buy-and-hold portfolios. Instead, they are more suitable for experienced short-term traders. Leveraged ETFs are high risk/high return trading vehicles.

SOXL is an actively managed fund that has more than 30 holdings. As far as sector allocations are concerned, semiconductors lead the ETF with 77.66%. The remainder is 20.72% semiconductor equipment, 0.97% electronic manufacturing services and 0.65% electronic components.

The fund started trading in March 2010. The top ten names make up around 60.8% of net assets. Nvidia (NASDAQ:NVDA), Qualcomm and Texas Instruments (NASDAQ:TXN) lead the names in the roster.

Since the beginning of 2021, SOXL has returned close to 27%. By comparison, the PHLX Semiconductor Sector Index is up 15% YTD. However, before making a buy, investors should remember that the fund does not always outperform the index. That being said, seasoned traders who want to participate in SOXL’s daily moves should conduct further research on the fund.

Semiconductor Stocks: Invesco Dynamic Semiconductors ETF (PSI)

52-Week Range: $71.64 to $131.89

Dividend Yield: 0.14%

Expense Ratio: 0.57%

The Invesco Dynamic Semiconductors ETF tracks the Dynamic Semiconductor Intellidex Index and provides exposure to U.S. microchip names. The fund is rebalanced and reconstituted quarterly.

PSI’s market value has reached more than $630 million since its inception in June 2005. The fund mostly holds large-capitalization stocks, which make up 54.8% of it, followed by mid-cap equities at 23.2% and small-cap companies at 21.9%.

The ETF currently has 32 stocks and the top ten holdings are almost 47% of its total net assets. Leading holdings include Advanced Micro Devices (NASDAQ:AMD), Qualcomm and Broadcom (NASDAQ:AVGO).

PSI has returned more than 16% YTD and hit its 52-week high on Aug. 9. Investors who want to hedge their bets in the semiconductor industry could consider buying shares of the fund on the dips, especially below $120.

Microchip Technology (MCHP)

52-Week Range: $95.53 to $148.50

Dividend Yield: 1.16%

Chandler, Arizona-based Microchip Technology provides specialized semiconductor products used by more than 120,000 customers for a range of embedded control applications. Its clients come from aerospace and defense, industrial, automotive, consumer, communications and computing markets.

Microchip Technology issued Q1 fiscal year 2022 financial results on Aug. 3. Net sales came in at a record $1.6 billion, up 19.8% year-over-year (YOY). Non-GAAP net income was a record at $558.8 million, or $1.98 per diluted share. 

Cash flow from operations was a record $629.9 million. The company paid down a debt of $388 million in Q1 and has paid $3.99 billion over the last 12 quarters.

Following the release of the metrics, President and CEO Ganesh Moorthy said, “Our June quarter results continued to be strong leading off our fiscal year 2022 on a positive note.” He added, “Our September 2021 quarter guidance essentially completes our journey towards our long-term operating model of 65% non-GAAP gross margin and 42% non-GAAP operating margin. We expect to update our long-term business model later this year.”

MCHP stock is up nearly 5% YTD. The company’s forward P/E and price-to-sales (P/S) ratios are 17.76x and 7.36x, respectively. These metrics indicate that MCHP stock has significant growth potential. Investors should keep an eye on these shares to buy on the declines.

Semiconductor Stocks: Qualcomm (QCOM)

52-Week Range: $108.30 to $167.94

Dividend Yield: 1.84%

San Diego, California-based Qualcomm is a leading wireless technology innovator. It is well-known for its chips designed for smartphones. The company operates through three segments: Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL) and Qualcomm Strategic Initiatives (QSI).

Qualcomm reported Q3 financial results on July 28. Non-GAAP revenues came in at almost $8 billion, up 63% YOY. Its net income of $2.2 billion implied an increase of 124%. Non-GAAP diluted EPS was $1.92, an increase of 123%. Total cash and equivalents stood at $7.4 billion.

On the results, President and CEO Cristiano Amon remarked, “In addition to leading the 5G transition, we are on pace to deliver $10 billion of annual revenues across RF front-end, IoT and Automotive as our business continues to diversify … Our solutions are fueling the connected intelligent edge that is enabling the cloud economy, and we are seeing unprecedented demand for our technologies as the pace of digital transformation accelerates.”

As part of its growth and diversification strategy, QCOM recently made an offer to acquire the Swedish automotive tech company Veoneer (NYSE:VNE). This topped Magna International’s (NYSE:MGA) offer of $800 million.

QCOM stock is down nearly 6% YTD. The shares trade at 16.23x forward earnings and 5.23x current sales. Given the company’s solid position in the 5G network space and growth plans in other sectors, investors should consider buying the shares for the long-term.

Skyworks Solutions (SWKS)

52-Week Range: $130.72 to $204

Dividend Yield: 1.22%

Irvine, California-based Skyworks Solutions provides high-performance analog semiconductors for wireless handsets and other devices. Its main products include power amplifiers, switches and integrated front-end modules that support wireless transmissions.

Over the years, the company has grown both organically and through acquisitions. In early August, SWKS completed its $2.75 billion acquisition of the Infrastructure & Automotive business of Silicon Laboratories (NASDAQ:SLAB).

On July 29, SWKS released strong Q3 financial results. Revenue grew 52% YOY and came in at nearly $1.12 billion, exceeding consensus estimates. Non-GAAP net income of $358.6 million implied an increase of 70% YOY. Non-GAAP diluted EPS stood at $2.15, up 72%. Cash and equivalents ended the quarter at $2.85 billion and increased nearly 260% compared to the same quarter prior year.

CEO Liam K. Griffin pointed out, “… the recent addition of the Infrastructure and Automotive business of Silicon Labs immediately adds unique technologies as we expand our addressable markets and lead across a wide range of diversified and differentiated solutions.”

Going forward, the company expects revenue between $1.27 billion and $1.33 billion and non-GAAP diluted EPS of $2.53 in the fourth fiscal quarter of 2021. SWKS has declared a cash dividend of 56 cents per share to be paid in early September, up from the prior quarterly dividend of 50 cents per share.

So far this year, the SWKS share price is up 16%. The stock trades at 15.92 times forward earnings and 6.45 times current sales. Bullish investors could consider investing in SWKS stock around these levels.

Semiconductor Stocks: Taiwan Semiconductor Manufacturing (TSM)

52-Week Range: $75.98 to $142.20

Dividend Yield: 1.59%

Taiwan Semiconductor Manufacturing is the world’s largest chip foundry. Set up in 1987, the group manufactures integrated circuits and semiconductor products.

TSM’s Q2 financial results were released in mid-July. Consolidated revenue was 372.15 billion new Taiwan dollars ($13.3 billion) and increased by 19.8% YOY. Net income of 134.36 billion new Taiwan dollars ($4.8 billion) and diluted EPS of 5.18 new Taiwan dollars (19 cents) were both up 11.2% YOY. Diluted earnings per ADR amounted to 93 cents. 

CFO Wendell Huang stated, “Our second quarter business was mainly driven by continued strength in HPC and Automotive-related demand … Moving into third quarter 2021, we expect our business to be supported by strong demand for our industry-leading 5nm and 7nm technologies, driven by all four growth platforms, which are smartphone, HPC, IoT and Automotive-related applications.”

TSM stock trades at 28.49x forward earnings and 11.39x current sales. Potential investors could consider adding shares to their portfolio of semiconductor stocks around $110.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.