Best semiconductor stocks

With over $600 billion (around £475 billion) in yearly revenue, the semiconductor industry is a cornerstone of our technology-driven world, with its components essential in everything from smartphones to electric vehicles (EVs) and artificial intelligence (AI).

While Nvidia has become a household name, it’s not the only game in town. There are other major players and lesser-known stocks in the semiconductor sector that could seriously energise your investment portfolio.

What are the best semiconductor stocks?

Finding the best semiconductor stocks is a challenge because it’s a quickly evolving space, with companies all jostling for position. To give you some starting inspiration, these are the top semiconductor stocks in the S&P Global Semiconductor Index.

• Taiwan Semiconductor Manufacturing (2330)
• Broadcom (AVGO)
• Nvidia(NVDA)
• ASML Holding (ASML)
• Advanced Micro Devices (AMD)
• Intel Corporation (INTC)
• Texas Instrument (TXN)
• Samsung Electronics (005930)
• Qualcomm (QCOM)
• Applied Materials (AMAT)

How to invest in semiconductor stocks

1. Open a share dealing account. Whether you want to invest directly in semiconductor stocks or use an investment fund, you’ll need to open a share trading account.
2. Fund your account. The next step is to deposit money into your account to buy shares or invest in a fund, either by bank transfer or using a debit card.
3. Choose your semiconductor stocks. Either select a direct or indirect semiconductor investment and research the stock you’re considering. Once you know what you want, find the semiconductor stocks on your platform.
4. Review and hit buy. It’s as simple as that.

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Compare share dealing accounts to find the right platform for you. Make sure to use a platform with access to international markets or a large exchange-traded fund (ETF) selection if you want to invest in top semiconductor stocks from around the world.

What are semiconductor stocks?

Semiconductor stocks represent companies involved in the production and innovation of the nifty materials that make our gadgets tick. Semiconductors are made out of materials that both conduct electricity and block it, depending on the need.

These components are the unsung heroes in everything electronic, from your smartphone to your car. Investing in semiconductor stocks means you’re backing the brains behind our tech-savvy world.

Recently, there’s been a buzz in the industry with government investments like the US’s “CHIPS Act” injecting billions of dollars into semiconductor research, manufacturing and workforce development. This move is a game-changer, making semiconductor stocks not just a part of the tech conversation, but a crucial piece of geopolitical strategy.

Why do people want to invest in semiconductor stocks?

Here are some of the benefits and reasons why people are interested in finding the best semiconductor stocks for their portfolios:

• Connecting the world. The expanding digital landscape in developed and emerging markets means more demand for semiconductors – used in everything from smartphones to data centres.
• Green revolution. The world is shifting gears towards green energy, and semiconductors are at the heart of this transformation.
• Electric vehicles (EVs). The EV market is poised for astronomical growth, driving the need for more semiconductors, which are integral for everything from power management to advanced infotainment systems.
• Renewable energy. Wind turbines and solar panels also need semiconductors for efficient energy conversion and storage. So, renewable energy companies and semiconductor stocks are closely linked.
• Chip wars. Governments, notably the UK and the US, are investing heavily in their semiconductor industries to reduce reliance on China-dominated supply chains.

You could say semiconductor stocks are an investment in a digitalised, greener, and geopolitically secure future. But hang on, it’s not all rainbows and sunshine. Keep reading to learn about the risks.

The risks of investing in semiconductor stocks

If you’re thinking about investing in the best semiconductor stocks you can find, keep in mind the potential risks:

1. High price tags. Nvidia and other US semiconductor stocks experienced a dazzling rally in 2023, but investors are getting jittery about steep valuations, especially after Nvidia’s shares rose over 200% and its market value topped $1.2 trillion. Some analysts are questioning if these stocks, boosted by the AI hype, might be overvalued.
2. Stomach-churning volatility. The semiconductor industry has historically been a rollercoaster ride for investors. For example, the iShares Semiconductor ETF climbed by 45% in 2021, before plummeting by 58% in 2022 and shooting up again by 48% in 2023.
3. Geopolitical risks. Growing tensions between the US and China are affecting how semiconductors are made and sold. For example, the US has created rules limiting what kind of semiconductor tech can be sold to Chinese companies. This situation is tricky because a lot of semiconductor businesses rely on both American technology and Chinese markets. And then there’s Taiwan, a major player in making these chips, caught in the middle.

Alternative ways to invest in semiconductor stocks

With hundreds of billions of dollars swishing around, the semiconductor industry is an ocean that sustains more than just the sharks like Nvidia, Intel, and AMD.

Take Huntsman Corporation, for instance, a chemicals firm which has expanded its offerings in Texas to include specialty amines used to make semiconductors.

Then there’s Merk, best known as a pharma company, pouring about $1 billion into research and development for electronic materials used in semiconductor manufacturing.

And let’s not forget Entegris, which made waves by acquiring CMC Materials for $6.5 billion, a firm which specialises in polishing slurries critical for semiconductor production.

If all this semiconductor stock picking sounds like a high-tech headache, it’s well worth exploring the possibility of investing in ETFs that cover the global semiconductor industry or a region-specific ETF that concentrates on somewhere like the US, for example.

Our expert says: What’s the best semiconductor stock to buy now?

"Nvidia (NVDA) has undoubtedly been the star of the show in the semiconductor scene throughout 2023, with the share price and market cap skyrocketing. Plenty of investors still think this is the stock with the legs to continue to outperform as it appears head and shoulders above most competitors.

However, Nvidia’s explosion in popularity now means that the stock is trading at extremely high growth multiples. In order to justify its current valuation, it can’t miss a step and needs to remain highly profitable. There may be better semiconductor stocks if you’re looking for short-term growth potential, but if you want the current industry flagship stock, Nvidia is worth a look."

George Sweeney, DipFA

Deputy editor

Pros and cons

Bottom line

Semiconductor stocks are a way to invest in the building blocks of all things futuristic like AI, cryptocurrency, and EVs. You have big names like Nvidia, a host of other major players and hidden gems – all contributing to a sector that’s being buoyed by billions of dollars’ worth of government subsidies.

But, just like a delicate electronic circuit, these investments require careful handling. Historically, the prices of semiconductor shares have seen explosive jumps followed by catastrophic collapses. Investors who buy shares in a well-diversified semiconductor ETF, as opposed to picking individual companies, are likely to enjoy a smoother ride.

Frequently asked questions

• Are semiconductors and chips the same thing?

  Semiconductors are materials with specific electrical properties, used to make chips. Chips, or integrated circuits, are complex assemblies of semiconductors and other components designed to perform specific functions in electronics.

• Who is the number one semiconductor manufacturer?

  Taiwan Semiconductor Manufacturing Company (TSMC) is the world's largest and leading semiconductor manufacturer.

• Are semiconductor stocks going to go up?

  In 2024, semiconductor stocks are predicted to enjoy substantial growth. IDC projects a 20% increase in valuations. Meanwhile, consultants at Gartner are more conservative, expecting 16.8% growth. Remember that stock analysts are even more error prone than the weather forecast, so take those cheery numbers with a bucketful of salt.

To make sure you get accurate and helpful information, this guide has been edited by George Sweeney, DipFA as part of our fact-checking process.

Written by

Mark Tovey

Writer

Mark is a freelance journalist whose work has been published in The Motley Fool and The Guardian, among other sites. He's worked as a data journalist and has a BA in Economics from the University of Sussex as well as an NCTJ journalism qualification. See full bio