In this article, we will be taking a look at 11 undervalued semiconductor stocks to buy according to hedge funds. To skip our detailed analysis of the semiconductor sector, you can go directly to see the 5 Undervalued Semiconductor Stocks To Buy According to Hedge Funds.
Semiconductor Industry Outlook
The semiconductor space is now more exciting than it ever has been before. While 2023 was a year of struggle for most industries, including the semiconductor industry, 2024 promises a growth spurt. This March, KPMG released its Global Semiconductor Industry Outlook for 2024, where it noted some of the key things to look forward to when it comes to semiconductors while highlighting significant challenges posing a threat to this space. KPMG surveyed 172 semiconductor executives for its report, 85% of whom stated that they anticipate the industry to see double-digit revenue growth in 2024. The main growth drivers for the semiconductor industry today continue to be the automotive industry, artificial intelligence, and microprocessors. While these trends and developments continue to propel semiconductors upward, a majority of semiconductor executives believe that there is a lack of skilled talent in the industry, which poses a significant risk to its growth.
The Blackwell Chip
Perhaps the most significant recent event in the semiconductor industry was the GTC Conference hosted by semiconductor giant NVIDIA Corporation (NASDAQ:NVDA), this March. The company's CEO, Jensen Huang, made several major announcements in his keynote at the conference, but perhaps the most anticipated and exciting one was the unveiling of the company's latest chip, the Blackwell, named after David Blackwell, who was the first African American inducted into the National Academy of Sciences, and the first African American tenured professor at the University of California, Berkeley. In his announcement during his keynote, Huang compared the Blackwell chip to its predecessor, the Hopper, which had been the most advanced GPU in the world before the Blackwell's creation. Huang highlighted that the Blackwell chip comprises 208 billion transistors, followed by these comments on the chip:
"There's a small line between two dyes. This is the first time two dyes have been abutted like this together, in such a way that the two dyes think it's one chip. There's 10 terabytes of data between it, 10 terabytes per second, so that these two sides of the Blackwell chip have no clue which side they're on. There's no memory locality issues, no cache issues, it's just one giant chip. And so, when we were told that Blackwell's ambitions were beyond the limits of physics, the engineer said 'so what?' And so this is what happened."
With the introduction of this new chip in the semiconductor space, NVIDIA Corporation (NASDAQ:NVDA) has marked itself as the leader in the industry, way ahead of other notable and successful competitors such as Advanced Micro Devices, Inc. (NASDAQ:AMD), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM). NVIDIA Corporation (NASDAQ:NVDA) has been a popular semiconductor stock pick for investors for quite some time now, and this popularity is only continuing to expand and grow exponentially.
This growth is not limited to NVIDIA Corporation (NASDAQ:NVDA) alone either - semiconductor companies across the globe are attracting mass amounts of investor attention because of what they have to offer to investors' portfolios in the age of artificial intelligence and new innovations in tech. The only issue that can arise in this arena is skepticism from analysts and investors who may believe that this boom in the semiconductor industry may not last and may, in fact, be creating a lot of unwarranted hype. However, our research shows that several analysts consider several major semiconductor stocks still undervalued compared to their intrinsic worth. As such, we have compiled a list of the best cheap semiconductor stocks to buy. These include some high-growth semiconductor stocks alongside some of the best semiconductor stocks to buy for the AI boom.
13 Most Advanced Countries in Electronics
A leading semiconductor chip on a computer robot arm, reflecting the technology advances of the company.
Our Methodology
We compiled our list of the best cheap semiconductor stocks to buy by using a stock screener to identify semiconductor companies with P/E ratios below 25 as of March 27. The stocks were then shortlisted based on the number of hedge funds holding stakes in them, according to Insider Monkey's hedge fund data for the fourth quarter. The stocks are ranked based on this metric, from the lowest to the highest number of hedge funds holding stakes in them. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by over 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Undervalued Semiconductor Stocks To Buy According to Hedge Funds
Allegro MicroSystems, Inc. (NASDAQ:ALGM) is among the best cheap semiconductor stocks on our list. It designs, develops, manufactures, and markets sensor integrated circuits and application-specific analog power integrated circuits for motion control and energy-efficient systems
On February 2, Needham analysts maintained a Buy rating and $40 price target on Allegro MicroSystems, Inc. (NASDAQ:ALGM).
There were 27 hedge funds long Allegro MicroSystems, Inc. (NASDAQ:ALGM) in the fourth quarter, with a total stake value of $189.7 million.
“Among the wide variety of Information Technology companies, we prefer critical system providers, specialized component designers, and systems that improve productivity or efficiency for their clients. One blemish in the sector was Allegro MicroSystems, Inc. (NASDAQ:ALGM), which develops semiconductor magnetic sensors and power management chips. In July, we trimmed our position as its shares rallied ahead of its quarterly report. Then in August, Allegro reported better-than-anticipated results and increased its near-term guidance. However, on the earnings call its management seemed more cautious with the outlook, especially related to volatility for its sales in China, and Allegro’s shares pulled back by -30%. Speaking with management later, we gained a better sense of short-term concerns with China—that comprise less than a quarter of Allegro’s business—and the expected rebound, so we added back to our position.”
Allegro MicroSystems, Inc. (NASDAQ:ALGM) is among the top names on our list of cheap semiconductor stocks and is highly popular among hedge funds, just like NVIDIA Corporation (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).
Millennium Management was the most prominent shareholder in Axcelis Technologies Inc. (NASDAQ:ACLS) at the end of the fourth quarter, holding 509,824 shares in the company.
Axcelis Technologies Inc. (NASDAQ:ACLS) is a semiconductor materials and equipment company on our list of cheap semiconductor stocks. It manufactures and services ion implantation and other processing equipment used in fabricating semiconductor chips.
A Buy rating and $165 price target were maintained on Axcelis Technologies Inc. (NASDAQ:ACLS) on February 9 by B. Riley Securities analysts.
We saw 28 hedge funds long Axcelis Technologies Inc. (NASDAQ:ACLS) in the fourth quarter, with a total stake value of $218.9 million.
Our hedge fund data for the fourth quarter shows 28 hedge funds long Tower Semiconductor Ltd. (NASDAQ:TSEM), with a total stake value of $620.4 million.
Tower Semiconductor Ltd. (NASDAQ:TSEM) is an independent semiconductor foundry based in Israel. It focuses on specialty process technologies to manufacture analog intensive mixed-signal semiconductor devices, and is among the best cheap semiconductor stocks to buy.
Susquehanna analysts initiated coverage on Tower Semiconductor Ltd. (NASDAQ:TSEM) with a Neutral rating and a $36 price target on February 29.
Holding 1.8 million shares in the company, Millennium Management was the largest shareholder in Rambus, Inc. (NASDAQ:RMBS) at the end of the fourth quarter.
As of March 13, Rosenblatt analysts hold a Buy rating and an $85 price target on Rambus, Inc. (NASDAQ:RMBS).
Rambus, Inc. (NASDAQ:RMBS) is a provider of semiconductor products in the US, and is among the top cheap semiconductor stocks. Based in San Jose, California, the company offers DDR memory interface chips, including DDR5 and DDR4 memory interface chips to module manufacturers, hyperscalers, and others.
In total, 29 hedge funds were long Rambus, Inc. (NASDAQ:RMBS), with a total stake value of $406.9 million.
Based in Irvine, California, Skyworks Solutions, Inc. (NASDAQ:SWKS) develops proprietary semiconductor products in the US and internationally. It offers amplifiers, antenna tuners, attenuators, automotive tuners, and digital radios, among more, and is among the top cheap semiconductor stocks to invest in now.
Rosenblatt analysts reiterated a Buy rating and $130 price target on Skyworks Solutions, Inc. (NASDAQ:SWKS) on January 31.
A total of 31 hedge funds were long Skyworks Solutions, Inc. (NASDAQ:SWKS) in the fourth quarter, with a total stake value of $734 million.
Here's what The London Company said about Skyworks Solutions, Inc. (NASDAQ:SWKS) in its second-quarter 2023 investor letter:
“Skyworks Solutions, Inc. (NASDAQ:SWKS) – SWKS underperformed during 02 reflecting slowing growth at smartphone manufacturers. In the most recent quarter, gross margins were temporarily impacted by a cut in fab utilization and the rightsizing of higher inventories. Looking longer-term, we believe SWKS’s expertise in RF semiconductor design and manufacturing, coupled with its broadening product portfolio are enduring competitive advantages.”
Millennium Management was the most prominent shareholder in NXP Semiconductors N.V. (NASDAQ:NXPI) at the end of the fourth quarter, holding 1.2 million shares in the company.
NXP Semiconductors N.V. (NASDAQ:NXPI) provides microcontrollers, application processing, communication processors, wireless connectivity solutions, analog and interface devices, and more in the semiconductor industry. It is based in the Netherlands and is among the best cheap semiconductor stocks.
An Outperform rating and a $300 price target were maintained on NXP Semiconductors N.V. (NASDAQ:NXPI) on March 12 by TD Cowen analysts.
There were 41 hedge funds long NXP Semiconductors N.V. (NASDAQ:NXPI) in the fourth quarter, with a total stake value of $1.2 billion.
“We sold NXP Semiconductors N.V. (NASDAQ:NXPI) to reduce our exposure to the automotive sector in semiconductors following the strong returns over the past 3 years. We are seeing early data of slowing global auto sales due to macroeconomic conditions and higher interest rates. While we think this may be a shorter-term slowdown, the risk is increasing of elevated inventory levels and pricing headwinds.”
NXP Semiconductors N.V. (NASDAQ:NXPI) is among the best cheap semiconductor stocks to buy, and is highly popular among investors today, alongside others such as NVIDIA Corporation (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).
