The advancement in the field of artificial intelligence (AI) and machine learning (ML) is expected to bring new opportunities for the semiconductor industry. According to Fortune Business Insights, the size of the global semiconductor industry is expected to rise from $573.4 billion in 2022 to $1,380.8 billion in 2029, reflecting a compound annual growth rate of 12.2%. The storage sub-industry in the semiconductor industry will experience the highest tailwinds in terms of top-line and bottom-line increase from the advancements in AI and ML. Meanwhile, the computing, memory, and networking solutions sub-industries will have a favourable outlook as well due to these developments.
According to research by McKinsey and Company, the semiconductor industry generates earnings before interest and taxes (EBIT) of $5 billion to $8 billion from the AI and ML industry. It must be noted that these numbers only reflect 10% of the full potential of EBIT that can be generated from these sub-industries. The New York-based management consulting firm expects the number to reach $35 billion to $40 billion annually in the next two to three years. Moving forward, the value is projected to increase further to a range of $85 billion to $95 billion annually four or more years into the future. This would be equivalent to nearly 17% of the expected 2023 annual revenue of $532 billion for the semiconductor industry, according to Gartner.
Outlook for Recovery and Future Growth
Presently, the semiconductor industry is experiencing weak demand from both consumers and businesses, driven by economic uncertainty. This has led to an oversupply of chips, resulting in an inventory buildup and a decline in average selling prices (ASPs). As a result, the industry is expected to witness an 11.2% year-over-year (YoY) decline in revenue in 2023. The memory sub-industry is expected to be the worst impacted by the weakness of the overall industry as it is anticipated to see its annual revenue decline by 35.5% in 2023 to a sum of $92.3 billion. Despite the current challenges, there is an expectation of a strong recovery in the semiconductor industry. It is expected that the industry will bounce back in 2024 with a remarkable 70% increase in revenue, indicating a significant turnaround. Some of the best semiconductor stocks in the industry include Advanced Micro Devices, Inc. (NASDAQ:AMD), NVIDIA Corporation (NASDAQ:NVDA), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).
A survey by KPMG provides further support to the forecast of oversupply in the semiconductor industry. According to the survey, 24% of the executives believe that the semiconductor industry is already facing the issue of oversupply. Meanwhile, 31% of the respondents believe that the oversupply of chips will take place in 2023. Another 36% of executives believe that the oversupply will take place between 2024 and 2026. The remaining 9% believe that there will be no oversupply in the next four years as demand will be able to keep pace. The automotive, industrial, civil, and military aerospace industries are expected to be demand generators for the semiconductor industry. According to Gartner, the end market demand for semiconductors from the automotive industry is set to experience a YoY growth of 13.8% in 2023 to total revenue of $76.9 billion in 2023. Meanwhile, KPMG anticipates the automotive sector to generate annual revenue of around $200 billion for the semiconductor industry by the middle of the next decade and cross the $250 billion level by 2040.
Shifting Demand Patterns
In the future, experts believe that the demand for semiconductors will become less reliant on the PC, tablet, and smartphone end markets. Demand is expected to come from diverse and fragmented markets that would be less exposed to any change in consumer spending, like the PC, tablet, and smartphone end markets, and would be more driven by capital outlay by organizations. The diversification of demand is likely to benefit some of the best semiconductor stocks in the industry. To support and strengthen the semiconductor industry, significant initiatives have been introduced in both the United States and Europe. The introduction of the CHIPS Act in the US intends to direct investment of $280 billion toward the semiconductor industry in the next decade. Around $200 billion will be diverted toward research and development (R&D) and commercialization. Furthermore, the US government intends to give a tax credit of $24 billion under this program. On the other hand, Europe intends to enhance its competitiveness in the semiconductor industry by introducing the European Chips Act (ECA) to attract $45.8 billion (€43 billion) of public and private investment across the continent by 2030.
10 Semiconductor Stocks Billionaires Are Loading Up On
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Our Methodology
We used Insider Monkey’s exclusive database of billionaire hedge fund managers to shortlist the top 10 semiconductor stocks billionaires are loading up on. We have also included the dollar value of the billionaire holdings and the total number of hedge fund investors in these companies as of Q1 2023. The best semiconductor stocks have been ranked in ascending order of the number of billionaires holding a stake in them during the first quarter of the year.
10 Semiconductor Stocks Billionaires Are Loading Up On
Dollar Value of Billionaire Holdings: $994,690,386
Number of Hedge Fund Holders: 52
Texas Instruments Incorporated (NASDAQ:TXN) is a Dallas, Texas-based technology company founded in 1951 that designs and manufactures semiconductors and various integrated circuits.
During the COMPUTEX 2023 Taipei forum, Sameer Wasson, the VP and General Manager of the Processor business unit at Texas Instruments Incorporated (NASDAQ:TXN), highlighted three key trends in the semiconductor industry. These trends include the integration of sensing capabilities into semiconductor devices, the incorporation of edge AI into systems and the increasing importance of ease of use for customers. Considering these trends, Texas Instruments Incorporated (NASDAQ:TXN) is working on innovative solutions while lowering system costs. Click here to read the company’s earnings call transcript for Q1 2023.
Dollar Value of Billionaire Holdings: $668,366,935
Number of Hedge Fund Holders: 53
NXP Semiconductors N.V. (NASDAQ:NXPI) is an Eindhoven, Netherlands-based semiconductor manufacturer founded in 1953 as a part of Philips. The company became an independent entity in 2006.
In an update issued to investors on May 3, William Stein at Truist increased the price target on NXP Semiconductors N.V. (NASDAQ:NXPI) from $210 to $217 and reiterated a Buy rating on the stock following strong Q1 2023 results. The analyst noted that even though NXP Semiconductors N.V.’s (NASDAQ:NXPI) revenue growth has recently turned negative on an annual basis, the company is still performing better than expected and exceeding consensus estimates. The strong demand from the company’s automotive segment is countering the weak demand from the mobile and industrial end markets.
NXP Semiconductors N.V. (NASDAQ:NXPI) is considered one of the best semiconductor stocks by hedge funds. Of the 943 hedge funds in Insider Monkey's database, 13 funds held a stake in NXP Semiconductors N.V. (NASDAQ:NXPI) as of Q1 2023.
Dollar Value of Billionaire Holdings: $1,350,687,170
Number of Hedge Fund Holders: 72
Broadcom Inc. (NASDAQ:AVGO) is a San Jose, California-based company founded in 1961 and has grown through various mergers and acquisitions over the years. As of Q1 2023, 13 billionaires held a stake worth over $1.3 billion in Broadcom Inc. (NASDAQ:AVGO).
In its Q2 2023 results, analysts anticipate the company to report quarterly revenue of $8.71 billion along with an adjusted EPS of $8.01. On May 26, Rick Schafer at Oppenheimer increased the price target on Broadcom Inc. (NASDAQ:AVGO) from $720 to $800 and maintained an Outperform rating on the stock. The analyst anticipates in-line earnings results for the period, with mobile and networking end markets leading the top line for the company. Broadcom Inc. (NASDAQ:AVGO) is one of the best semiconductor companies due to its strong business fundamentals.
Overall, 72 hedge funds held a stake in Broadcom Inc. (NASDAQ:AVGO) during Q1 2023.
Dollar Value of Billionaire Holdings: $2,081,425,917
Number of Hedge Fund Holders: 68
Intel Corporation (NASDAQ:INTC) is a Santa Clara, California-based technology company specializing in the designing and manufacturing of semiconductor chips and related technologies. The company has secured seventh place on our list of the best semiconductor stocks billionaires are loading up on.
The company received a favourable update after NVIDIA Corporation (NASDAQ:NVDA) CEO Jensen Huang revealed the probability of switching the manufacturing of its graphic processing units (GPUs) to Intel Corporation’s (NASDAQ:INTC) Foundries in an update issued on May 30.
Citadel Investment Group raised its stake in Intel Corporation (NASDAQ:INTC) by over 300% during Q1 2023.
Dollar Value of Billionaire Holdings: $1,028,963,528
Number of Hedge Fund Holders: 73
Micron Technology, Inc. (NASDAQ:MU) is a Boise, Idaho-based company founded in 1978 that specializes in the design, development, and manufacture of memory and storage solutions. On May 26, BMO Capital increased the price target on Micron Technology, Inc. (NASDAQ:MU) from $67 to $80 and reiterated an Outperform rating on the stock. The analyst thinks that Micron Technology, Inc. (NASDAQ:MU) is in a strong position to experience long-term tailwinds of AI in the memory sub-industry due to the expected launch of high bandwidth memory (HBM) 3 later this year.
In addition to Micron Technology, Inc. (NASDAQ:MU), Advanced Micro Devices, Inc. (NASDAQ:AMD), NVIDIA Corporation (NASDAQ:NVDA), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) are also among the best semiconductor stocks billionaires are loading up on.
