New Factories on the Way: The 3 Best Semiconductor Stocks to Buy
Each year, the world grows increasingly reliant on semiconductor chips. This is because just about every electronic in the world relies on chips. This includes your phone, laptop, TV, headphones, Alexa, camera, Xbox, etc. Even your car, if it’s a newer model, could easily use over 2,000 chips. It’s hard to imagine a future where chip consumption slows down over the next five to ten years. Due to this, many investors are on the hunt for the best semiconductor stocks to buy. However, investors also have to consider the current global chip shortage. Depending on how companies handle this chip shortage, it could result in massive gains or massive losses.
Right now, almost all semiconductor companies are struggling to meet demand. To make up for this, a few companies are investing billions into new factories. In 2-3 years, these new factories will greatly enhance chip output. This increased production should subsequently lead to an increase in the bottom line. With that said, let’s take a look at the different companies that have new factories on the way. These could very well be the three best semiconductor stocks to buy.
Semiconductor Stocks to Buy
No. 3 Intel (Nasdaq: INTC)
Intel is a multinational company that mainly operates in data center solutions, IoT and PC solutions. On February 22, 2022, Intel announced plans to acquire Tower Semiconductor. This acquisition will accelerate Intel’s path to becoming a leading provider of foundry services. The addressable foundry market is currently valued at $100 billion. This could open up a huge new market for Intel and is just one reason that it is one of the top semiconductor stocks to buy.
On top of that, Intel also has plans to open up two new factories in Ohio. It plans to invest $20 billion to develop over 1,000 acres. Construction should begin in late 2022 and end at the end of 2025. This will be the single largest private investment in Ohio history.
Intel is also going one step further than just building new factories. It will be committing $100 million to partnerships with educational institutions. This money will help bolster research programs in the area. It should also help create a pipeline of talent in the area. Intel is not only providing jobs, but also educational resources for upcoming generations. Ohio Governor called the announcement “monumental” for the state of Ohio.
Intel’s stock was down about 7% in 2021. However, it is up over 20% over the past five years.
No. 2 Taiwan Semiconductor Manufacturing Co. (NYSE: TSM)
When it comes to investing, it’s generally risky to make broad, sweeping assumptions. With that in mind, I’m about to make one. Here it is: global semiconductor use is definitely going to increase over the next five, 10 and 15+ years. As the world’s biggest foundry, this makes TSMC an easy choice for one of the best semiconductor stocks to buy.
Taiwan Semiconductor Manufacturing Co. is the world’s largest independent semiconductor foundries. In 2020, it was responsible for 24% of the world’s semiconductor output. Despite not being a household name, it’s one of the most valuable companies in the world. However, TSMC is not satisfied with its current levels of production.
TSMC is investing $100 billion over 3 years to enhance its production. Part of this investment will be a brand new $12 billion factory in Pheonix, Arizona. At first, a company called Taiwan Semiconductor building a factory in Pheonix might seem random. But, when you get more background info, it actually makes a lot of sense. Here are a few of the incentives for TSMC to build in Arizona:
- Arizona and The U.S. government have lots of incentives in place for semiconductor companies. This will greatly reduce the cost of building.
- Most of TSMC’s 12 factories are in Taiwan and China. Building in the U.S. is good for geographical and political diversification.
- Some of TSMC’s biggest clients are in the U.S. Notably, TSMC is the main chip provider for Apple iPhones.
TSMC should be set to start producing more chips in Arizona as early as 2024.
TSMC’s stock was up about 4% in 2021. However, it is up over 260% over the past five years.
If you want to read more about TSMC, check out my TSM stock forecast here.
Best Semiconductor Stocks to Buy No. 1 Samsung (KRX)
Last up on this list of semiconductor stocks to buy is Samsung. Samsung recently announced plans to build a $17 billion factory in Austin, Texas. This project is actually fairly similar to the other two on this list. Just like TSM, Samsung chose Austin due to incentives offered by the U.S. government. According to Texas Gov. Greg Abbott, this will be the single largest foreign investment in Texas ever. This project should bring in about 2,000 jobs to the area.
Samsung will start building this plant in 2022. It hopes to begin operations in the second half of 2022. Again similar to TSM, this new plant will help Samsung diversify its foundry locations. This will protect the company from geopolitical risk, natural disaster risk, and concentration risk.
Unfortunately, buying Samsung stock isn’t easy for U.S. investors. This is because it doesn’t trade directly on any U.S. exchanges. However, there are still two ways that you can invest. First, you can open an international account that allows you to buy stocks on the Korea Exchange (KRX). Most of the major brokerages will offer an international account option. If this is too much trouble, you can always buy an exchange-traded fund (ETF). In this case, you’ll want to buy an ETF that focuses on South Korean stocks.
Before buying an ETF, be sure to check its major holdings. Also, keep in mind that Korean ETFs may not be as watered down as U.S. ones. In some cases, a company like Samsung can make up over 20% of Korean ETFs’ holdings.
I hope that you’ve found this article valuable! As usual, please base all investment decisions on your own risk tolerance and research.
About Teddy Stavetski
A University of Miami grad, Teddy studied marketing and finance while also playing four years on the football team. He’s always had a passion for business and used his experience from a few personal projects to become one of the top-rated business writers on Fiverr.com. When he’s not hammering words onto paper, you can find him hammering notes on the piano or traveling to some place random.