The semiconductor industry is poised for explosive growth in 2024 on the back of surging demand for electronics, the ascent of artificial intelligence (AI), and the ballooning Internet of Things (IoT) ecosystem.
As per projections by Statista, the global semiconductor market will reach a staggering $613 billion in 2024. This paints an extremely promising picture for investors exploring potential opportunities in semiconductor stocks next year. Moreover, the integral role of semiconductors in spurring innovations in electric vehicles (EVs) and energy storage will likely stimulate more upside.
Although the industry has already gained tremendous traction over the last few years, the following three semiconductor stocks have largely flown under the radar and offer mouthwatering value for investors in 2024.
Applied Materials Stock Provides Robust Upside Potential
Applied Materials (NASDAQ: AMAT), headquartered in Santa Clara, California, manufactures equipment, services, and software for the semiconductor industry across the globe. Despite battling challenging industry headwinds like declining investments in wafer fabs in fiscal 2023, the company delivered modest 3% year-over-year revenue growth. More importantly, its earnings per share surged 9% alongside a 65% free cash flow spike to $7.6 billion, highlighting its operational resilience.
While near-term revenue and earnings may continue feeling the pinch of broader industry pressures, Applied Materials seems well-positioned to capitalize on an eventual rebound. Furthermore, with a reasonable forward price-to-earnings multiple of 22x and price-to-sales ratio of 6x, it offers far more attractive valuations than its semiconductor equipment manufacturing peers.
As inventory corrections likely persist through the first half of 2024, semiconductor equipment demand will probably remain somewhat muted before growth reaccelerates later. However, Applied Materials boasts nearly $9.5 billion in cash reserves to comfortably navigate any temporary industry softness while concentrating on initiatives that drive long-term shareholder value.
Microchip Technology Presents Compelling Value
Microchip Technology (NASDAQ: MCHP), founded in 1989 and headquartered in Chandler, Arizona, manufactures microcontroller, mixed-signal, analog, and flash memory integrated circuits. It serves over 120,000 customers across industrial, automotive, consumer, aerospace, defense, communications, and computing end markets worldwide.
Despite navigating a challenging macroeconomic environment lately, MCHP continues investing heavily in next-generation research and development, including expanding its silicon carbide and gallium nitride capabilities. It aims to reduce short-term inventory excesses over upcoming quarters, which may pressure near-term earnings. However, with secular growth tailwinds firmly intact, Microchip seems attractively valued for long-term investors.
Notably, in the fiscal 2023 third quarter, MCHP trimmed $392 million of long-term debt while growing its quarterly dividend by a staggering 26% year-over-year to $0.45 per share. Its focus on deleveraging its balance sheet and returning excess cash flows to shareholders via a rapidly growing dividend signals tremendous financial strength.
As inventory corrections likely wrap up by mid-2024, expect vigorous growth to return alongside recovering semiconductor end-market demand. Given MCHP’s solid underlying financials and leading industry positioning, the current weakness offers a compelling long-term buying opportunity.
ON Semiconductor Stock Warrants Close Attention
ON Semiconductor Corporation (NASDAQ: ON) is a leading supplier of silicon carbide (SiC) power semiconductors and sensors out of Phoenix, Arizona. Despite facing economic challenges lately that dented demand for SiC devices from the solar, EV, and energy storage sectors, ON Semiconductor notched record fiscal 2023 automotive revenues of $4.3 billion, rising 29% year-over-year.
The company is actively developing innovative products and expanding production capacity to extend its SiC leadership position. For instance, it is on track to manufacture approximately 1 million SiC wafers annually upon completing its facility expansion in South Korea next year. Furthermore, ON Semiconductor continues working diligently toward more balanced sales exposure beyond a heavy reliance on SiC devices currently.
Strengthening analog and mixed-signal capabilities will likely prove a game-changer in elevating its competitive positioning within the rapidly evolving semiconductor sphere. Given durable long-term industry tailwinds with penetration rates still quite low and ON’s reasonable valuation at circa 16x forward earnings, the current weakness offers a highly attractive entry point.
Bottom Line
Despite recent industry pressures, the long-term semiconductor growth narrative remains robust, with volumes likely climbing higher over the next decade. While the stocks mentioned above have stumbled lately, their innovative capabilities and strong competitive positions signal considerably more upside on the horizon.
Therefore, the recent sell-off provides opportunistic investors a chance to grab stakes in these semiconductor leaders at attractive valuations before anticipated growth runways reignite analyst and investor optimism over 2024.
