The Zacks Electronics - Semiconductors industry is benefiting from the growing proliferation of Artificial Intelligence (AI), Generative AI (Gen AI), Internet of Things (IoT), Machine Learning (ML) and industrial revolution 4.0 (which focuses on interconnectivity and automation). These have turned out to be boons for industry players like Broadcom AVGO, Lam Research LRCX and Impinj PI. Increasing demand for AI-supportive chips from hyperscalers is a major growth driver. 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. Nevertheless, industry players suffer from macroeconomic challenges, end-market volatility, broad-based inventory correction and growing geopolitical tensions. Tariffs on trade partners, including China, are expected to hurt the industry’s prospects.
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?
AI Demand Driving Prospects: Industry participants are benefiting from growing demand for advanced manufacturing processes and energy-efficient computing power, both of which are needed to develop AI-supportive chips. AI is gaining popularity thanks to multimodal learning and growing context awareness. The emergence of Gen AI and Agentic AI has further enhanced AI’s capabilities, making it a key driver of efficiency, automation and innovation. Significant improvements in computing hardware (GPUs and TPUs) are allowing the development of more complex AI models. The growing number of high-speed data centers worldwide, which require ultra-fast Internet that 5G promises to deliver, is a tailwind. Increased connectivity and use of technology in consumer electronics through IoT, AI, robotics, AR/VR and others further set the momentum for 5G.
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.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Electronics - Semiconductors industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #85, which places it in the top 35% 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 bullish 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 Aug. 31, 2024, the industry’s earnings estimates for the current year have moved up 3.5%.
Given the bullish prospects, there are a number of stocks that you can consider for your portfolio. However, before we present the stocks, 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 appreciated 17.7% over this period compared with the Zacks Computer and Technology sector’s return of 9.2% and the S&P 500’s growth of 10.9%.
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 semiconductor stocks, the industry is currently trading at 28.75X versus the S&P 500 and the sector’s 21.49X and 26.45X, respectively.
Over the past five years, the industry has traded as high as 33.35X and as low as 22.81X, with the median being 29.67X, 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 its strong position in the endpoint IC market, a pipeline of innovative product offerings and a targeted expansion into enterprise applications such as supply chain and logistics. You can see the complete list of today’s Zacks #1 Rank stocks here.
The M800 series, built on Impinj’s next-generation Gen2X technology, is gaining strong traction. The solution delivers enhanced performance and greater efficiency. The M800 series significantly expands Impinge’s addressable market, particularly in enterprise applications. Gen2X technology is proving to be a transformative advancement for Impinj, increasing overhead reading solution area coverage by 44%.
PI shares have dropped 19.5% in the year-to-date (YTD) period. The Zacks Consensus Estimate for Impinj’s 2025 earnings has increased 7.5% to $1.68 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 declined 1.3% YTD. The Zacks Consensus Estimate for AVGO’s fiscal 2025 earnings has been steady at $6.62 per share over the past 30 days.
Price & Consensus: AVGO
Lam Research: Another Zacks Rank #2 stock, Lam Research is riding on its strength across 3D DRAM and advanced packaging technologies. Growing etch and deposition intensity owing to increasing technology inflections in 3D architectures is a plus. A rebound in the System business, owing to improving memory spending, is a positive. Solid demand related to high-bandwidth memory is a plus for Lam Research.
LRCX stock has appreciated 14.7% YTD. The Zacks Consensus Estimate for LRCX’s fiscal 2026 earnings has increased 4.2% to $3.96 per share over the past 30 days.
Price & Consensus: LRCX
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