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2 Semiconductor Stocks That Could Go Parabolic

2 Semiconductor Stocks That Could Go Parabolic

Global semiconductor sales jumped to an all-time high of $556 billion in 2021, up 26% from the same period last year, as a record 1.15 trillion chips were shipped last year despite the industry facing a supply crunch.

It looks like 2022 could be another notable year for the semiconductor industry with sales reaching $52.5 billion in February, up 32.4% from the same month in 2021. The sector generated $50.7 billion in revenue in January 2022, indicating that this market is beginning hot this year.

By 2030, global semiconductor sales are expected to exceed $1 trillion, which is why investors looking to add some long-term winners to their portfolios should take a closer look at this sector.

A person in clean room clothes, a clear protector, and rubber gloves looks at a chip of a semiconductor

Image source: Getty Images.

nvidia (NVDA 3.25% ) And Skyworks Solutions (SWKS 1.69% ) They can make the most of the growing demand for semiconductors as they serve fast-growing areas such as data centers, wireless networks, smartphones, and computers. Let’s look at the reasons why these semiconductor stocks can increase dramatically thanks to the semiconductor boom.

1. Nvidia

Nvidia finished its 2022 fiscal year (which ended Jan. 30) with revenue of $26.9 billion, an increase of 61% over the previous year. That number pales in comparison to the $1 trillion steerable revenue opportunity that Nvidia says it’s sitting on, split between multiple sectors like games, automobiles, chips, systems, artificial intelligence (AI) enterprise software, and what it calls Omniverse (its 3D designs platform).

For example, the data center business creates the need for more graphics processing units (GPUs) that Nvidia sells. Cloud providers have increased their GPU deployments a multiple of nine in four years, a trend that is in place to stay as AI and machine learning workloads accelerate. Third-party estimates forecast that the global market for data center accelerators will generate $53 billion in revenue by 2027, compared to $4.2 billion in 2020.

Nvidia is in a strong position to take advantage of this market. GPUs are expected to account for nearly 40% of accelerator market revenue by 2027, and Nvidia reportedly controls more than 80% of the share of data center GPUs. It’s enhancing its grip even further by using Grace chips to accelerate AI and High Performance Computing (HPC) workloads.

Altogether, data centers, enterprise AI software, and ultra-wide-scale computing present a $450 billion addressable opportunity for Nvidia, and the company appears poised to make the most of it.

The auto market is another reason for Nvidia’s outstanding growth. The company generated only $566 million in revenue from this segment in fiscal 2022, but it sees $300 billion here. It’s already racked up an $11 billion design win (a design win happens when a company’s chips are engineered into a product), a number that could grow exponentially thanks to the massive ecosystem of auto partners and original equipment manufacturers (OEMs) that Nvidia has built.

Throw in the catalysts into Nvidia’s professional gaming and visualization business, and it’s easy to see why earnings are expected to have a compound annual growth rate (CAGR) of close to 31% over the next five years. But the stock can grow faster due to the sheer size of the markets in which the company operates, helping this growing stock transition compatibly in the future.

2. Skyworks solutions

Sales of 5G smartphones increased 117% in 2021, according to market research firm IDC, and are expected to increase at an impressive pace in the long run as well. According to another estimate, global 5G smartphone sales are expected to register a compound annual growth rate of 125% until 2025.

For investors looking to tap into this rapidly growing market, Skyworks solutions can be a solid bet as they provide chips to leading smartphone manufacturers such as applesamsung, vivo, xiaomi, and Oppo – the five largest sellers of 5G smartphones worldwide, according to Strategy Analytics. Thus, Skyworks is a pick and shovel game in the 5G smartphone market.

The company’s mobile business generated 68% of its total revenue in the first quarter of fiscal year 2022, which ended December 31, 2021. Apple was its largest customer in the past fiscal year with 59% of total revenue. This close relationship with Apple helped Skyworks finish fiscal year 2021 (ending October 1, 2021) with 52% revenue growth to a record $5.1 billion, while non-GAAP earnings per share jumped 71% to $10.50 per share.

Apple’s expansion of its 5G smartphone lineup with the addition of the new iPhone SE should give Skyworks a chance in the arm. The new iPhone could boost Apple’s sales significantly by attracting budget-conscious customers. The smartphone maker is expected to sell at least 30 million iPhone SE units this year, although the number could be higher given the pricing of the device – ultimately giving Skyworks a boost.

The rapid growth in the adoption of 5G smartphones could help Skyworks maintain its impressive momentum as these devices are equipped with more radio frequency (RF) content. Skyworks peer qorvo It indicates that 5G smartphones carry $5 to $7 more RF content than their 4G counterparts. So, in addition to the stronger volumes in the 5G era, Skyworks’ revenue per smartphone will also increase with higher content.

All this makes Skyworks Solutions a solid game on 5G smartphones. And investors can consider buying the shares right away as they only trade 15 times the subsequent earnings, which is a great discount for Nasdaq 100Double gain 33.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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