Best & Worst Semiconductor Stocks to Buy in 2022 (Based on News Sentiment) 📰
We synthesized 10,000 finance articles written about the semiconductor industry to find out which chip stocks have the most bullish & bearish sentiment to end the year...
Welcome to a special edition of our weekly stock market news sentiment review — I am your host Ramsey Shaffer (@babbldev on Twitter), thank you for being here, and a huge shoutout to our 5 new subscribers this week!! If you enjoy this report, consider subscribing below to access exclusively free insight into the world of stock market news:
1. Semiconductors: Are The Chips Stacked Against Us? 🃏
As we close out 2021 and head into the wild blue yonder of 2022, the world continues to grapple with one major economic concern — the global semiconductor shortage. It has been perhaps the biggest topic in news conversation over the past six months, with roughly 12% of stock market news articles mentioning chip stocks in some form or the other over the period — headline volumes for the top semiconductor stocks over the past quarter are visualized above. The question: how bad does Wall Street think it is, and how bad is it really? More specifically, which companies are prepared to capitalize on the evolving semiconductor space, and which companies are set to fail?
For those of you who haven’t been paying super close attention, here’s the quick debrief of society’s current situation. Microchips (semiconductors) have become ubiquitous in recent history, controlling everything from phones and laptops to spaceships and smart toasters. When COVID-19 lockdowns stopped the world in its tracks just over a year ago, the microchip landscape drastically changed — at first, demand for chips halted, with manufacturers and institutional customers pausing microchip production and cutting their supplies to reduce costs. But as people began spending more time at home on their phones, computers, and gaming consoles, demand for semiconductors catapulted back up to new all-time high levels, leaving the manufacturers to grapple with an unprecedented production shortage.
In the end, microchip manufacturers were presented with one primary issue — how to allocate their production capacities given the disproportionate changes in demand across products. While some products (cell phones and personal computers) didn’t significantly change relative to their demand forecasts, others like cars and gaming consoles fell far behind. On the whole, global demand for semiconductors across the board reached all-time highs by the end of 2020, and while manufacturers are still working to increase capacity to meet these new levels, it’s been a slow process. Most suppliers — Intel, Nvidia, AMD, and Taiwan Semiconductor — don’t anticipate their production improvements to be ready until mid-to-late 2023. By most estimates, analysts expect supply to take 3-4 quarters in 2022 to catch up, and another 2 quarters for inventories to get back to “normal” levels. In the meantime, how are semiconductor stocks fairing?
Over the past year, semiconductor stocks have reacted to these new demand levels by broadly increasing in price. Measured by the VanEck Semiconductors ETF ($SMH) (shown above), microchip stocks as a whole have climbed roughly 40% in 2021, with the majority of this gain occurring near the middle third of the year. However, over the past quarter, this growth in price has stagnated, with the ETF finishing December relatively flat — leaving many to wonder if the gains will continue into the new year, or if prices will fall back down to earth. By our measurements, news coverage surrounding semiconductor stocks has been wrought with speculation, with some stocks fairing much better than others in their respective outlooks. Below, we analyze the sentiment of this news coverage to identify which stocks are most bullish and which stocks are most bearish heading into 2022:
2. Most Bullish & Bearish Tickers 🏆
Most Bullish Chip Stocks in News Coverage 😀
👍 #1. Enphase Energy Inc. ($ENPH) stock rollercoasters into “buy” territory behind strong fundamentals:
While Enphase considers itself to be a solar energy company, we’ve included it in our subset of microchip stocks because its primary products — microinverters — are really solar-specific semiconductors. This year’s meteoric rise in the popularity of sustainability-related companies (coupled with the subsequent chip shortage we’ve seen) has sent $ENPH stock on a whirlwind tour; it climbed an impressive 50%+ from January through the better part of November before dropping 26% back towards the $188 per share to end the year. Yet even with this tumble back down to Earth, Enphase Energy has seen the most bullish sentiment in market news coverage over the past quarter, signaling that the stock is perhaps primed to climb again into the new year, and that now may be a strong time to buy. But why is the news so bullish on $ENPH?
To start, Enphase is extremely well-positioned within the semiconductor field as a comparatively small and agile business operating in the niche and blossoming solar energy capture market. Relative to its more traditional chipmaking peers, Enphase essentially has a 15-year head start in this space, and having proved its ability to consistently produce profits, it’s bound to benefit from the increasing sustainability trends that we’ve seen take shape over the past year. On top of this, it maintains a relatively healthy balance sheet for a company of its size and stature, and has been actively growing its portfolio through the acquisition of complementary businesses in recent months (EV charging company ClipperCreek, and more recently, cleantech marketplace platform 365 Pronto). On top of all this, the stock’s recent dip has set itself up to bounce off nicely off of its bullish trendline, a strong mid-term “buy” indicator.
“Enphase Stock: Trailblazing Into The Future” | Seeking Alpha
👍 #2. Advanced Micro Devices Inc. ($AMD) keeps gaining on Intel, and it’s way cheaper than Nvidia:
Advanced Micro Devices has been one of the most popular semiconductor stocks on the market over the past year, and for good reason. To start, the company currently splits a near-duopoly with Intel ($INTC) in the global CPU manufacturing market (laptops people, laptops). AMD has maintained a growing share of the market over recent quarters, steadily cutting into big brother Intel's 75% share lead via sheer willpower; according to AMD’s most recent earnings report, the company has stolen roughly 6% in CPU market share over the past year, and now accounts for 24.6% of the ~$19B market, ending 2021 at its highest share level since 2006. Thus, any continuance of this growth trend will boost the revenues on AMD’s balance sheet, and its stock price will likely increase as a result.
More on $AMD’s stock: its price per share has increased an impressive 67% and counting throughout 2021 (compared to a measly 11% increase in the share price of $INTC) — so if we’re measuring by investor attention, AMD is clearly winning the popular vote here. But how does $AMD stack up against the likes of other chip giants, say, Nvidia ($NVDA)? Both stocks have finished as perhaps this year’s hottest chip stocks (with $NVDA posting an even more impressive 134% gain through 2021) and are on pace to continue the trend into 2022. However, AMD is without a doubt the cheaper option of the two, trading at a 45x price-to-earnings ratio compared to Nvidia’s 90x. Throw on top AMD’s strong gaming-chip partnerships with console-makers like Sony and Microsoft, along with a recently renewed agreement to supply Tesla’s Model Y chips in China, and $AMD becomes a clear strategic favorite in my mind.
“Better Growth Stock: AMD vs. Nvidia” | The Motley Fool
Most Bearish Chip Stocks in News Coverage 😒
👎 #1. Qorvo Inc. ($QRVO) is a “falling knife” with supply chain woes and insider selling:
On the other end of the bullish / bearish spectrum, Qorvo (a mid-size maker of radio frequency / wireless controllers for mobile phones) has faired the worst of all semiconductor companies in news coverage over the past quarter. Perhaps one reason: the stock’s share price won’t stop going down. After reaching its all-time high price near $200 per share back in July, $QRVO stock has drudged slowly downward -20% over the past 6 months behind stagnating sales and weak guidance from the company’s executives. But should investors really be pulling out of Qorvo in the short term?
If the company’s current intrinsic valuation is any indication, then the short answer is yes — here’s why. First, the company’s current PEG ratio is at 1.1, signaling that it’s trading right in line with its projected earnings growth (ie. it’s not clearly undervalued as some may argue). Second, company insiders have sold a considerable number of shares in recent months, rustling the confidence of would-be individual investors. Third, the company has been plagued worse-than-most by supply chain shortages, missing out on an estimated $135M in revenues in September alone due to supplier-related issues. Though Qorvo touts itself near the higher end of the quality spectrum for wireless controllers, these supply issues have caused consumers (such as the producers of Android phones) to begin looking elsewhere for cheaper alternatives out of sheer necessity. As a result, bigger suppliers like Qualcomm ($QCOM) have been able to buy away business with a lower quality, bundled approach. The verdict? No big hopes for the near future:
“Qorvo’s Market Cap Declines to $18B But Insiders Who Sold $1M Stock Were Able to Hedge Their Losses” | Nasdaq
👎 #2. SkyWorks Solutions Inc. ($SWKS) slides as its main-squeeze Apple moves to produce chips in-house:
Similar to Qorvo, SkyWorks is another rough ‘n tumble manufacturer of RF chips for mobile phones with an eerily similar stock trajectory over the past 6 months. $SWKS stock has fallen roughly 18% to $155 per share since July amidst its own bout of supply chain issues. However, unlike Qorvo, SkyWorks’ primary share price tribulation has been more external than internal: its biggest customer, Apple Inc. ($AAPL), announced last month that it’s building its own team to produce the wireless chips for its new iPhones in house, citing supply chain inefficiencies and chip-quality as reasons to cut out the middleman.
Following Apple’s announcement, $SWKS fell an immediate 7.5% as investors quickly realized that the company could prove to be dispensible in the long-term future. This is only the latest in a trend of large consumer technology companies deciding to consolidate their production components under one roof as a means to avoid the logistical tumults that have been experienced over the past year; Tesla ($TLSA) recently announced that they’ve begun manufacturing their batteries themself, and Amazon’s ($AMZN) self-owned shipping fleet is on track to surpass UPS ($UPS) and FedEx ($FDX) as the nation’s largest delivery service by next year. But does this all mean that company’s like SkyWorks are at a loss for hope? It still seems too early to tell — while in-house production may improve the reliability of lead times, it also increases costs in the short-term by sacrificing the specialized services (and cost efficiencies) of the likes of SkyWorks.
“Apple Is Building A Team To Produce Wireless Chips In-House: Report” | Seeking Alpha
3. Biggest Sentiment Shifts 🔀
🔺Intel Corp. ($INTC) saw the biggest news sentiment increase in Q4: after a disenchanting Q3 of poor performance, Intel (the world’s largest CPU manufacturer) has regained some favor over the past few weeks behind a few really big strategic bets. First, the company announced the construction of a $7B chip-packaging and testing factory in Malaysia, slated to begin production by 2024. Second, Intel also announced plans to increase its employee compensation by more than $2 billion next year as it seeks to gain an edge in an increasingly competitive hiring market.
🔺Nvidia Corp. ($NVDA) saw the 2nd biggest news sentiment increase in Q4: roughly one month ago, the US Federal Trade Commission (FTC) moved to block Nvidia’s long-anticipated $40B acquisition of Arm Holdings, causing a small sell-off of the stock. With the bad news priced into its share price, and with its lowest forward price-to-earnings ratio of the past 6 months (still roughly 92x, which isn’t cheap by most standards), some are saying that now could be a good time to pick up more shares. Considering the stock’s historic upward trend with no signs of slowing down, coupled with its near 80% dominance of the blossoming game console GPU market, and we might agree.
🔻Analog Devices Inc. ($ADI) saw the biggest news sentiment decrease in Q4: following a near-30% climb heading into its full-year earnings report back in mid-November, $ADI has since done nothing but retrace back on its gains, finishing the past month down a net 5%. The company — which specializes in data conversion and power management chips — was highly abuzz heading into the report, but despite posting strong sales ($7.32B in 2021 revenue vs. $5.6B in 2020), has seen a significant decrease in stock price and sentiment since. Why? The company’s operating expenses on the year grew at a much faster pace than its sales growth, leading to a considerable drop in its operating profit margins (27% last year to 22% this year), and causing analysts to react with hesitancy about its prospects heading into 2022.
🔻Texas Instruments Inc. ($TXN) saw the 2nd biggest news sentiment decrease in Q4: while $TXN stock started the year relatively hot, its momentum has since fizzled, finishing the last 6 months of the year about as flat as one could be (-0.92% return over the period). This downward inertial shift was highlighted in the Texas Instrument’s news sentiment over the past weeks, with a significant pessimistic blip coming after KeyCorp released a re-rating of the company on Wednesday, in which they deemed its share price to be “overweight” relative to its financials. Aside from this, the company’s new price level is considered to be fair relative to its intrinsic value, signaling that investors can stand to wait a bit longer for the stocks price to drop further before buying the dip.
4. Semiconductor Industry Outlook 🔭
As of the end of December, the aggregate sentiment surrounding all semiconductor stocks in news coverage is leaning bullish, with an overall score of +33% on our bullish / bearish sentiment scale over the past 3 months. In terms of mood expressed, the average article written about the semiconductor industry this quarter has leaned +25% optimistic, and in terms of tense expressed (past, present, future), the average article leans +44% speculative — indicate that analysts are speaking of the future with uncertainty.
The new levels of semiconductor demand that we’ve seen over the past year do not seem to be going anywhere, and the big question remains as to how quickly supply can catch up. While analysts expect production capacity to truly return to normal by the end of the year, there’s still some uncertainty as to how accurate these predictions will prove to be. For more reading on what to expect over the next few months, I’d recommend reading this piece by IEEE which details some of the topics mentioned in this report. As always, the rest of the story remains to be written — we will plan on circling back with an update on the state of the semiconductor space in a few months.
That’s all for this week’s report — if there’s anything we missed, or any tickers you’d like to see more sentiment analysis for, let us know by replying to this email, commenting below, or sending us a message at email@example.com — we LOVE💜 hearing from you all!