Expect big things for 2024 as global semiconductor trends accelerate. Analysts forecast that, broadly, 2024 will mark a record year for revenue while the industry prepares to double within the next decade, generating a trillion dollars in revenue between now and then.
That means, of course, that you don’t have to be the Warren Buffett of semiconductor stocks to ride the wave upward. If you find reliable, well-known, stable semiconductor stocks and hold them for the long haul, you’ll likely do just fine. But there are hundreds of hidden semiconductor stocks out there. If you can effectively forecast some of the less-recognized trends and then pin down the best stocks in the sector to capitalize on the trend, you could easily outperform the broader sector.
Recovery and Rebound in 2024
Though semiconductors remained top-of-mind for many investors, the sector itself struggled this year. Widespread demand for the most advanced semiconductors isn’t there yet, while middle-market products aren’t sufficiently profitable to drive solid margins. Expect 2023 to mark a sector-wide 12% sales decline once the dust settles.
But winds could be shifting. On the heels of slackened demand, many companies cut production and exhausted existing inventory. That series of strategies seems as though it’ll cause a bullwhip effect as increased demand outpaces inventory and production capability.
Analysts expect that continued AI developments and renewed consumer confidence leading to more tech purchasing will spark a 20% annual growth rate in 2024. Ultimately, that will benefit semiconductor stocks globally, so investing in a solid manufacturer with this in mind could prove profitable, even if you don’t have the expertise to truly pick the best-in-class semiconductor stock.
Stock to watch: Onto Innovation (NYSE:ONTO), which offers testing and quality control solutions for semiconductor stocks – meaning it benefits no matter which company comes out on top.
Driver Assistance and Infotainment
Though not the largest semiconductor market segment (edged out by data processing, of course), the automotive sector’s semiconductor demand is growing the fastest. That segment is set to hit 10.3% CAGR by 2025. And, within the rapidly growing segment, driver assistance, safety and infotainment systems are the most chip-hungry subcomponents.
Semiconductors power most vehicular functions today, but increased vehicle “smartness” across legacy and electric segments demands greater semiconductor sourcing. Anti-lock brake systems, airbag management, air conditioning and more all rely on semiconductors like never before. That’s part of what drove the record used car sales throughout the pandemic. New manufacturers, reliant on semiconductors, got hamstrung by global supply chain slowdowns and drove astronomic used car pricing. And that’s without addressing self-driving vehicles. Those systems have a suite of safety features and detection systems that — you guessed it — need a slew of semiconductors.
But semiconductors benefit even the most basic makes and models, as advances in dashboard infotainment (think CarPlay) are prevalent in even economy models. Infotainment expansion could hit 38% growth through 2023, making it a top semiconductor trend to watch.
Stock to watch: Infineon (OTCMKTS:IFNNY), which specializes in EV and infotainment semiconductor manufacturing.
AI in Your Pocket
AI runs on massive amounts of data processing demands, which rely on massive data centers driven by semiconductors. But just as the earliest computers took up entire university halls before shrinking to pocket size, advanced AI applications will shrink to accommodate smaller and more efficient hardware.
Most of that push towards personal AI will be driven by advances in semiconductors and similar tech more than coding or software. The best AI assistant is useless if the hardware won’t support its mobility and lifestyle integration, so stocks pushing to make better chips smaller will be at the forefront of personal AI. Just like today’s mega-stocks were at the fore of personal computing trends, companies able to adapt hardware to suit personal AI applications will be tomorrow’s Magnificent 7 — or bigger.
At the same time, there is an increased preference for even “dumb(ish)” wearables and fitness tracking tech. These, too, need shrunken semiconductors to effectively integrate wearables with peripheral tech like phones and monitoring systems.
Stock to watch: Skyworks Solutions (NASDAQ:SWKS), whose partnership with Apple (NASDAQ:AAPL) puts it at the leading edge of pocket-sized semiconductor applications.
Sustainability
There’s no doubt that, like many emergent tech trends, semiconductor development isn’t environmentally friendly. Semiconductor production demands energy and water in spades while offloading significant greenhouse gasses. A growing environmental impact, alongside indications that tech is hurting the environment through energy usage more than it’s helping through innovation, is kickstarting calls for transparency and climate action within semiconductor companies.
Looking ahead, 2024 and beyond will likely mark a turning point where more semiconductor companies embrace comprehensive sustainability strategies to keep regulatory bodies and consumers happy. But shifting towards sustainability makes business sense, too. Implementing water recycling and renewable energy use helps address direct and supply chain emissions and leads to reduced operating costs. This dual benefit of environmental responsibility and improved financial positioning makes sustainability another top semiconductor trend.
Stock to watch: ASM International (OTCMKTS:ASMIY), a Dutch firm recognized as the first semiconductor stock to validate a net-zero path.
Megaplant and Foundry Industry Expansion
As countries realize the advantage of geographically centralized manufacturing when supply chains slow, expect greater demand for in-house semiconductor plants and foundry development. Though little has come to fruition yet, we’re already seeing the US CHIPS and Science Act push toward semiconductor independence at home.
At the same time, Japan acts as a model of what prudent positioning looks like. The country is allocating $10 billion toward semiconductor projects, including a second massive Taiwan Semiconductor (NYSE:TSMC) plant. At the same time, Japan ensures that TSMC’s expert teams educate internal scientists and researchers to diversify its knowledge base. That’s evident from the collaboration between TSMC and Japan’s own private semiconductor company, Rapidus Corp.
Ultimately, Japan stands as a model for national semiconductor industrial expansion by ensuring facility growth remains matched with growing the knowledge base and national brainpower. Hopefully, the US CHIPS Act’s lofty promises will come to fruition, and we, too, can stake a future on independent semiconductor development.
Stock to watch: Taiwan Semiconductor (NYSE:TSMC).
China Fights for Dominance
Of course, a major geopolitical sticking point within the semiconductor industry is China. Not only does tension put pressure on the Taiwanese top semiconductor stock, TSMC, but the nation is offering cut-rate price competition in a bid to squeeze other national competitors from the market. Most of that price push comes amid US sanctions that prevent sales to major Western powers, forcing China to make ends meet where it can.
But, internally, China’s 5G proliferation and Huawei expansion mean the country is increasingly competitive as market forces push for greater innovation. Sanctions mean China’s AI capabilities lag ours as they’re cut off from business with the most advanced manufacturer, Nvidia (NASDAQ:NVDA). Still, internal advancements continue unabated, and it might be a matter of time until China is as competitive as Nvidia on the national front — especially if they squeeze out competition through cost leadership plays.
Tech Talent
Talent management remains top-of-mind within the industry, making companies able to snag the best performers more competitive than their peers. Expect semiconductor companies to dip into global markets more often as at-home talent becomes exhausted. This, of course, presents a double-edged sword. While snagging top talent improves operational outcomes, it comes at a cost — both in compensation and continued training — so fierce competition for a shrinking talent pool could just as likely cause share price troubles.
Expect to see top semiconductor stocks start fostering community development to nurture future talent pools. That could include sponsoring STEM competitions or offering scholarships to talented students. In any case, competition is fierce within the semiconductor sector, and talent acquisition isn’t an exception.
Stock to watch: Nvidia (NASDAQ:NVDA), because name recognition and the top-performing semiconductor spot both go a long way toward attracting top talent.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
