Semiconductor stocks were battered by the recent market sell-off, but tech has made a strong recovery, and with several interesting trends like the Internet of Things and artificial intelligence on the rise, it is still an exciting time to be investing in chip-making corner of the technology sector.
While tech behemoths like Microsoft MSFT and Apple AAPL may hog all the headlines, it has really been the companies powering their technologies—the semiconductor manufacturers—that have been garnering the attention of Wall Street.
Indeed, as our “Computer and Technology” sector has gained nearly 28.9% over the past year, semiconductor companies have been a driving factor behind its growth. The aforementioned emerging tech trends have created new consumer demand, and the semiconductor makers are delivering.
Luckily, the proven Zacks stock picking methods are effective across all industries. Check out these Zacks Rank #1 (Strong Buy) semiconductor stocks right now:
1. Lam Research Corporation (LRCX)
Lam Research is a designer and manufacturer of semiconductor processing equipment used in the fabrication of integrated circuits. The company is recognized as a leading supplier of front-end wafer processing equipment to the worldwide semiconductor industry.
Lam recently crushed estimates on the top and bottom line, posting adjusted earnings of $4.34 per share versus the consensus of $3.69 and revenues of $2.58 billion versus the consensus of $2.57 billion. Management also released guidance that was significantly higher than our prior consensus estimates.
Meanwhile, Lam Research’s valuation remains extremely attractive. The stock now has a P/E of just 13.4 and a PEG of 0.9. The company is also generating a staggering $13.19 in cash per share.
2. Applied Materials, Inc. (AMAT)
Applied Materials is one of the world’s largest suppliers of fabrication equipment to semiconductor, LCD, and solar PV cell manufacturers. When the semiconductor business is booming, Applied benefits as its clients demand new equipment and services.
In its most recent quarter, Applied Materials witnessed adjusted earnings of $1.06 per share, up 59% from the year-ago period. Total quarterly revenues came in at $4.2 billion, improving more than 28% year over year. It is not often that companies with AMAT’s size and legacy see such rapid expansion—and this growth is a testament to the strength of its client base.
On top of its #1 (Strong Buy) designation, AMAT is also presenting some interesting valuation metrics. The stock is trading at just over 14x forward earnings, and with its PEG ratio of 1.2, investors can see that they are getting a decent price for its earnings growth potential.
3. Nvidia Corporation (NVDA)
Nvidia manufactures graphics processing units (GPUs) and system on a chip units (SoCs). The Wall Street darling remains a dominant player in the gaming industry, but its ongoing rise to the top of the technology sector comes on the back of tireless advancements in autonomous driving, machine learning, and artificial intelligence.
At 37x forward earnings, NVDA looks pretty expensive, but that is actually the lowest valuation we have seen for the stock in nearly a year. Meanwhile, the Zacks Consensus Estimate for Nvidia’s full-year earnings has gained a staggering $1.54, indicating that analysts are struggling to keep up with the company’s lightning-fast growth.
Nvidia is now expected to witness EPS growth of 29% and revenue growth of 28.5% in the current fiscal year. Looking further ahead, the company is expected to improve its bottom line at an annualized rate of 10.3% over the next three to five years.
