The Zacks Electronics - Semiconductors industry is benefiting from the solid adoption of laptops, notebooks, office equipment and network peripherals worldwide. The growing proliferation of Artificial Intelligence (AI), Generative AI, Internet of Things (IoT), Machine Learning (ML) and industrial revolution 4.0 (which focuses on interconnectivity and automation) have turned out to be boons for industry players like Broadcom AVGO, Marvell Technology MRVL and Impinj PI. The growing demand for high-volume consumer electronic devices, including digital media players, smartphones, tablets, efficient packaging, machine vision solutions and robotics, should continue to drive the industry’s growth. However, end-market volatility, persistent inflation, broad-based inventory correction and growing geo-political tensions are concerning for the industry.
Industry Description
The Zacks Electronics – Semiconductors industry comprises companies that provide a wide range of semiconductor technologies. Their offerings include packaging and test services, wafer cleaning, factory automation, face detection and image-recognition capabilities to develop smart and connected products. The industry participants primarily cater to end markets that include consumer electronics, communications, computing, industrial and automotive. The companies are increasing their spending on research and development to stay afloat in an era of technological advancements and changing industry standards. The industry is experiencing solid demand for advanced electronic equipment, which is helping its participants increase their investments in cost-effective process technologies.
What's Shaping the Future of the Electronics ??? Semiconductors Industry?
5G Prospects Are Key Catalysts: The growing deployment of 5G will expose industry players to near-term prospects. An uptick in the demand for 5G test solutions required for 5G deployment is another major positive. The growing number of high-speed data centers worldwide, which require ultra-fast Internet that 5G promises to deliver, is another tailwind. Increased connectivity and use of technology in consumer electronics through IoT, AI, robotics, AR/VR and others further set the momentum for 5G. Given the upbeat scenario, the industry is anticipated to remain on a growth trajectory, backed by efforts to strengthen 5G infrastructure.
Smart Devices Aiding Computing Demand: Smart devices need computing and learning capabilities to perform functions like face detection, image recognition and video analytics capabilities. These require high levels of processing power, speed and memory and low power consumption, as well as better graphic processors and solutions, which bode well for the industry. Graphic solutions help increase the speed of rendering images and improve image resolution and color definition.
Prospects Around Advanced Packaging Robust: The increasing demand for miniaturization, greater functionality, lower power consumption, and improved thermal and electrical performance are driving the demand for semiconductor packaging and test technologies. The growing requirement for advanced packaging is gaining traction in the semiconductor industry, which is a key catalyst for industry participants.
Complex Process Drives Demand: The requirement for faster, more powerful and energy-efficient semiconductors is expected to increase rapidly with the robust adoption of cloud computing, IoT and AI. Semiconductor manufacturers are primarily looking to maximize manufacturing yields at lower costs, making semiconductor manufacturing processes more complex and driving the demand for solutions offered by industry participants. The rapid adoption of IoT-supported factory automation solutions is another contributing factor. The increasing deployment of 5G is a key catalyst.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Electronics - Semiconductors industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #126, which places it in the top 50% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since April 30, 2024, the industry’s earnings estimates for the current year have moved up 2.7%.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 & Sector
The Zacks Electronics - Semiconductors industry has outperformed the Zacks S&P 500 composite and surpassed the broader Zacks Computer and Technology sector in the past year.
The industry has gained 25% over this period compared with the Zacks Computer and Technology sector’s return of 45.9% and the S&P 500’s growth of 27.9%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing electronics semiconductors stocks, the industry is currently trading at 28.4X versus the S&P 500 and the sector’s 22.62X and 25.6X, respectively.
Over the past five years, the industry has traded as high as 32.28X and as low as 10.61X, with the median being 17.76X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Electronics Semiconductor Stocks to Buy
Impinj: This Zacks Rank #1 (Strong Buy) company is benefiting from strength in the end-point IC product line, which is driving its momentum in retail apparel and general merchandise applications. You can see the complete list of today’s Zacks #1 Rank stocks here.
Impinj has been expanding into the food tagging sector, focusing on quick-service restaurants and grocery pilot programs. This new market is anticipated to be much larger than its current business segments, offering significant growth potential.
Impinj shares have appreciated 109% in the year-to-date (YTD) period. The Zacks Consensus Estimate for PI’s 2024 earnings was unchanged at $2.05 per share over the past 30 days.
Price & Consensus : PI
Broadcom: Strong demand for custom AI accelerators, AI networking solutions, Ethernet switching, optical lasers, thin dies, PCI Express switches and Network Interface Cards from hyperscale customers is driving Broadcom’s top-line growth.
AVGO’s solutions are suitable for addressing the needs of an increasing AI workload and the growing need for fast networking in data centers. The acquisition of VMware has benefited Infrastructure software solutions. This Zacks Rank #2 (Buy) company’s expanding clientele, which includes the likes of Alphabet and Meta Platforms, is noteworthy.
Broadcom stock has gained 52.6% YTD. The Zacks Consensus Estimate for AVGO’s fiscal 2024 earnings has been steady at $4.82 per share over the past 30 days.
Price & Consensus : AVGO
Marvell Technology: Another Zacks Rank #2 stock, Marvell is benefiting from the strong demand environment across the data center end market. Completion of inventory digestions is likely to aid growth across the enterprise networking and carrier infrastructure end markets.
Marvell is a promising player in the solid state drive (SSD) controllers market. The storage market is seeing a steady increase in demand, given the fast-growing data volume, especially the exponential growth in unstructured data.
MRVL stock has gained 59% YTD. The Zacks Consensus Estimate for MRVL’s 2024 earnings has been unchanged at $1.46 per share over the past 30 days.
Price & Consensus : MRVL
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