7 undervalued semiconductor stocks to consider now

Semiconductors are used in a wide variety of mass market products from smartphones, wearable technology to PCs, gaming consoles and even automobiles. As a key component in advanced electronic devices, semiconductors are also a key driver of technological progress.

During the pandemic, the semiconductor industry experienced a supply crunch due to a sudden surge in demand powered by the growth of cryptocurrency miners, the work-from-home shift, the growing popularity of electric vehicles coupled by global logistical problems. This led to the surge in semiconductor stock prices. We had covered the issue on the shortage of semiconductors previously.

However, prices have corrected since as the sector was hit by the waves of rate hikes, increasing costs and a drop in demand. We reckon that some have overcorrected and are now undervalued.

Here, we share 7 leading semiconductor stocks that are currently undervalued, based on their latest price to earnings ratio.

Do note that these stocks are screened based on their price to earnings ratios and this screen should only be used as a first-pass to find undervalued semiconductor stock ideas. You should do your own due diligence before investing your own money.

7 undervalued semiconductor stocks

Semiconductor Stock	Ticker	P/E	Market Cap (USD)	YTD Performance
NXP Semiconductors	NASDAQ:NXPI	16	$42.73B	9.53%
Intel	NASDAQ:INTC	16	$120.46B	13.36%
Applied Material	NASDAQ:AMAT	15	$93.48B	17.3%
KLA	NASDAQ:KLAC	15	$49.54B	-1.22%
Lam Research	NASDAQ:LRCX	14	$67.31B	24.83%
Taiwan Semiconductor Manufacturing	NYSE: TSM	13	$427.30B	15.32%
Qualcomm	NASDAQ:QCOM	11	$127.17B	9.85%

1) NXP Semiconductors (NXPI): P/E 16

NXP Semiconductors is a leader in the automotive semiconductor market, providing chips and solutions for advanced driver assistance systems (ADAS), secure vehicle access, and infotainment systems. The company is also a major player in the Internet of Things (IoT) market, providing solutions for smart homes, industrial automation, and mobile payment systems.

The company’s product portfolio includes microcontrollers, processors, analog and mixed-signal devices, RF and power management ICs, and sensors. These products are used in a wide range of applications, including automotive, industrial, consumer electronics, and security.

In recent years, NXP Semiconductors has been focused on developing secure and connected solutions for a variety of industries. The company has invested heavily in research and development, particularly in the areas of cybersecurity and secure connectivity. This has helped the company to maintain a leading position in the market and drive growth in emerging industries such as smart homes, smart cities, and autonomous vehicles.

At the point of writing, NXPI has delivered 9.53% year-to-date:

Although there was a significant slowdown in growth in the last quarter of 2022, the company had been growing their revenue and gross profits steadily over the last 7 quarters, beating expectations on both revenues and EPS. 

Its current P/E of 16 is lower than the industry P/E of 24 which suggests that NXPI is undervalued. However, you may want to note that historically, NXPI’s median P/E has been about 16.

2) Intel (INTC): P/E 16

Best known for its microprocessors, Intel also produces other types of semiconductor products, including memory and storage devices, programmable logic devices, and networking components.

Intel has a long history of innovation and technological leadership. Over the years, the company has developed a reputation for producing high-quality, reliable products that are widely used by businesses and consumers around the world.

One of Intel’s key strengths is its manufacturing capability. The company has invested heavily in advanced manufacturing processes, including its 10nm and 7nm processes, which allow it to produce chips with high performance and low power consumption. Intel’s manufacturing expertise has helped it to maintain its leadership position in the microprocessor market and has allowed it to diversify into other areas such as memory and storage.

In recent years, Intel has been focused on expanding its presence in the data center market, where it provides a range of hardware and software solutions for cloud computing, artificial intelligence, and other high-performance computing applications. 

At the point of writing, INTC has delivered 13.36% year-to-date:

Intel has been a giant in the computing space for decades. Although it has been increasing its revenue over the years prior to 2022,  it has been struggling to increase its profits. If we take a look at its quarterly results, you’ll see that the company isn’t doing all that great. 

Its revenue, gross profits and net income has been on a downward trend since mid 2021. It is unclear if Intel can figure out a way to rejuvenate its growth in the coming quarters.

Its current P/E of 16 is lower than the industry P/E of 24 which suggests that INTC is undervalued. Historically, INTC’s PE was about 12.5. You should strive to learn more about their future plans before deciding if Intel deserves a spot in your portfolio.

3) Applied Material (AMAT): P/E: 15

Applied Materials (AMAT) is a global leader in materials engineering solutions for the semiconductor and display industries. The company provides equipment, services, and software to semiconductor chip manufacturers and display manufacturers to help them produce high-performance, low-power chips and displays.

Applied Materials is a key player in the semiconductor equipment market, with a leading position in several product categories. The company’s technology enables the production of advanced chips, such as those used in smartphones, computers, and other electronic devices. In addition, Applied Materials has expanded its product portfolio into new areas, such as advanced packaging and materials engineering for the Internet of Things (IoT) market.

Applied Materials has also been focused on developing sustainable manufacturing practices, including reducing energy and water usage, and minimizing waste. The company has set ambitious environmental targets, including reducing its greenhouse gas emissions and water usage, and increasing the use of renewable energy.

At the point of writing, AMAT has delivered 17.3% year-to-date:

Applied Materials have been growing their revenue and gross profits over the past years, however, their growth rate seems to be slowing down in recent quarters. That said, they have been beating earnings expectations over the past 3 quarters, and may just continue to do so in their upcoming report.

Its current P/E of 15 is lower than the industry P/E of 24 and its historical P/E of 15.9 which suggests that AMAT is undervalued. 

4) KLA Corporation (KLAC): P/E: 15

KLA Corporation doesn’t manufacture semiconductors, but provides process control and yield management for semiconductor manufacturers and other related nano-electronics industries. 

They help manufacturers to produce high-quality semiconductor chips and other electronic products with minimal defects and consistent performance.

KLA has also been focused on expanding its product portfolio into new areas, such as advanced packaging and materials engineering for the Internet of Things (IoT) market. The company has also been investing in emerging technologies, such as artificial intelligence (AI) and machine learning (ML), to further improve the performance of its products and solutions.

While it offers a unique proposition in the semiconductor space, at the point of writing, KLAC hasn’t had a good year and is down -1.22% year to date:

In terms of financial performance, KLA Corporation has been growing their revenue and profits steadily over the past few quarters.

Historically, KLAC’s PE was about 21.7 which suggests that it may be undervalued based on its historical price.

5) Lam Research (LRCX): P/E: 14

Lam Research Corporation (LRCX) is a global leader in wafer fabrication equipment and services for the semiconductor industry. The company provides equipment, services, and software to semiconductor chip manufacturers to help them produce high-performance, low-power chips.

The company’s technology enables the production of advanced chips, such as those used in smartphones, computers, and other electronic devices. In addition, Lam Research has expanded its product portfolio into new areas, such as advanced packaging and materials engineering for the Internet of Things (IoT) market.

Lam Research has also been focused on developing sustainable manufacturing practices, including reducing energy and water usage, and minimizing waste.

At the point of writing, LRCX has delivered 24.83% year-to-date:

Lam Research hasn’t had a good last quarter where it saw negative growth on both revenue and profit fronts, probably brought on due to unfriendly macroeconomy.

News of subsidies in the semiconductor space being announced in the US and EU seem to have given investors an extra boost of confidence.

That said, its current P/E of 14 is lower than the industry P/E of 24 and its historical P/E of 17.6 which suggests that LRCX is undervalued. 

6) Taiwan Semiconductor Manufacturing (TSM): P/E: 13

TSMC provides advanced wafer fabrication processes and manufacturing services to semiconductor companies around the world.

TSMC’s manufacturing processes are among the most advanced in the world, with the ability to produce chips as small as 5 nanometers (nm). The company’s expertise in process technology has enabled it to maintain a leading position in the semiconductor industry and serve as a key supplier to major companies in industries such as mobile, computing, and automotive.

TSMC is also known for its strong focus on research and development, with a significant portion of its revenue invested in developing new manufacturing technologies and processes. This has enabled the company to consistently improve the performance and efficiency of its chips, as well as to develop new products and services.

However, it may find itself in a difficult position if the conflict between the superpowers worsen.

At the point of writing, TSMC has delivered 15.32% year-to-date:

Similar to Lam Research, TSM had also seen a drop in its revenue and gross profit in the last quarter.

TSMC’s current P/E of 13 is lower than the industry P/E of 24 and its historical P/E of 22.1 which suggests that TSMC is undervalued. 

If you’re thinking of buying TSMC, do read our deep dive of TSMC’s business.

7) Qualcomm (QCOM): P/E: 11

QCOM provides wireless communication technologies and products that enable mobile devices, networking equipment, and other electronics to connect and communicate with each other. It is known for its Snapdragon processors that power many mobile devices. QCOM is also the exclusive supplier of 5G modem chips for iPhones, however that may change in 2024.

In addition, Qualcomm has been expanding its product portfolio into new areas, such as automotive and IoT, to further grow its business and diversify its revenue streams.

At the point of writing, QCOM has delivered 9.85% year-to-date:

Likewise, QCOM had also seen a drop in its revenue and gross profit in the last quarter.

QCOM’s current P/E of 11 makes it the most undervalued semiconductor stock on this list. Compared to its historical P/E of 15.6, its current P/E also makes its current price look attractive.

Why invest in Semiconductor Stocks?

There are many reasons why you should consider investing in semiconductor stocks. Here are a few:

1. Growth potential: The demand for semiconductors is expected to continue growing in the coming years, driven by the increasing adoption of technologies such as artificial intelligence, 5G wireless networks, and the Internet of Things. This growth potential could provide significant upside for semiconductor stocks.
2. Innovation: The semiconductor industry is characterized by rapid innovation and technological advances. Companies that are at the forefront of these advances could see significant growth as they develop new products and technologies.
3. Diversification: Semiconductors are used in a wide range of industries, which means that investing in semiconductor stocks can provide diversification benefits to a portfolio.
4. Strong financials: Many semiconductor companies have strong financials, including high profit margins and strong cash flows. This can make them attractive investment opportunities for investors looking for stable, profitable companies.
5. Cyclical industry: The semiconductor industry is cyclical, which means that it can experience periods of both growth and contraction. This can provide opportunities for investors to buy stocks at attractive valuations during downturns and sell them at higher prices during periods of growth.

Risks of investing in Semiconductor stocks

There’s always risks in investing, here’re some specific risks you must note when considering semiconductor stocks:

1. Economic downturns: The semiconductor industry is cyclical and can be heavily influenced by macroeconomic factors. Economic downturns can lead to reduced demand for semiconductors, which can hurt the stock prices of semiconductor companies.
2. Competitive pressure: The semiconductor industry is highly competitive, and companies must continually innovate and develop new products to stay ahead. Strong competition can lead to price pressure and reduced profitability for some companies.
3. Technological changes: The semiconductor industry is characterized by rapid technological changes, and companies that fail to keep up with these changes can quickly become obsolete. This can lead to declines in stock prices and reduced profitability.
4. Supply chain disruptions: The semiconductor industry relies on complex global supply chains, and disruptions to these supply chains can impact the availability of raw materials and production capacity. This can lead to increased costs and reduced profitability for some companies.
5. Regulatory changes: Semiconductor companies must comply with various regulations and standards, which can change over time. Changes in regulations or new compliance requirements can increase costs and reduce profitability for some companies.
6. Intellectual property disputes: The semiconductor industry is characterized by extensive patent portfolios, and companies may become embroiled in intellectual property disputes with competitors. These disputes can be costly and time-consuming and can lead to reduced profitability and stock price declines.

Conclusion

The semiconductor industry is a key driver of technological advancement and the demand for semiconductors will definitely increase with time. 

The rate hikes did a thing to the markets and semiconductor stocks were not spared. However, the correction offers an opportunity to relook at the semiconductor industry for undervalued buys. We shared 7 undervalued semiconductor stocks above. 

That said, you should keep in mind that this industry remains cyclical, being vulnerable to demand and supply cycles.

Competition between major players is stiff too and it may be difficult to pick winners, especially if you are uncomfortable with the cyclical nature of the industry. If that sounds like you, you may want to consider Semiconductor ETFs that give you exposure to the whole industry instead.