The semiconductor industry played a major role in last year’s stock market rally. After experiencing a slowdown, demand for semiconductors began recovering in 2024 and has been steadily increasing. A sharp rise in sales was largely fueled by growing enthusiasm for artificial intelligence (AI), particularly generative AI.
However, investor confidence has been shaken, leading to a decline in semiconductor stocks over the past month. This downturn followed the emergence of DeepSeek, a low-cost AI model from China, which initially raised concerns about its potential to challenge the dominance of U.S. tech giants in the AI space. Despite initial fears, the worries have gradually subsided, restoring a sense of optimism in the market.
Given this scenario, it would be ideal to invest in semiconductor stocks such as Taiwan Semiconductor Manufacturing Company Limited TSM, NVIDIA Corporation NVDA and RF Industries, Ltd. RFIL. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Semiconductor Industry Association (SIA) reported last week that global semiconductor sales reached $56.5 billion in January, a robust 17.9% jump from $47.9 billion in January 2024.
However, on a month-over-month basis, sales dipped by 1.7% in January. This minor decline was largely driven by uncertainty surrounding the future of U.S. tech companies in the AI sector after the highly publicized debut of the more affordable Chinese competitor, DeepSeek. Despite this drop, January still set a record for the highest-ever sales total for the month.
These January figures come after a strong performance in 2024 when global semiconductor sales soared to $627.6 billion, increasing 19.1% from $526.8 billion. The fourth quarter alone saw a solid 17.1% year-over-year jump, totaling $170.9 billion, along with a 3% sequential increase.
The increasing demand for semiconductors in data centers has been a key driver of global sales. Additionally, the memory market has played a major role in this surge, with revenues skyrocketing by 71.8% last year from 2023.
Several tech firms have been making hefty investments in AI development, and businesses incorporating AI into their products have seen impressive expansion in recent years. Experts remain optimistic about AI’s vast untapped possibilities and expect continued growth in demand as more semiconductor companies venture into the AI space. The SIA forecasts double-digit sales growth in 2025, reinforcing confidence in the industry's upward trajectory.
Taiwan Semiconductor Manufacturing Company Limited is the world's largest dedicated integrated circuit foundry. As a foundry, TSM manufactures ICs for its customers based on their proprietary IC designs using its advanced production processes. Taiwan Semiconductor Manufacturing Company Limited’s goal is to establish itself as one of the world's leading semiconductor companies by building upon the strengths that have made it the world's leading IC foundry.
Taiwan Semiconductor Manufacturing Company Limited’s expected earnings growth rate for the current year is 30.7%. The Zacks Consensus Estimate for current-year earnings has improved 4% over the past 90 days. TSM presently carries a Zacks Rank #2.
NVIDIA Corporation is a major player in the semiconductor industry and has been one of the standout success stories of 2023 and 2024. As a leading designer of graphic processing units (GPUs), the value of the NVDA stock tends to surge in a thriving crypto market. This is primarily due to the crucial role that GPUs play in data centers, artificial intelligence and the mining or production of cryptocurrencies.
NVIDIA’s expected earnings growth rate for the current year is 46.8%. The Zacks Consensus Estimate for current-year earnings has improved 5.3% over the past 90 days. Currently, NVIDIA has a Zacks Rank #2.
RF Industries, Ltd. is engaged in the design, manufacture and distribution of coaxial connectors used in radio communications applications as well as in computers, test instruments, PC LANS and antenna devices.
RF Industries’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 40% over the past 90 days. RFIL presently carries a Zacks Rank #2.
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This article originally published on Zacks Investment Research (zacks.com).
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