The technology we use every day is powered by increasingly advanced computer chips, formally known as semiconductors, and the industry is on the cusp of a major growth phase.
As our lives transition further into the digital world, the devices we use to access our virtual assets need to be faster, smarter, and more intuitive. That goes for smartphones, computers, and even cars, which, thanks to advanced semiconductors, are capable of driving themselves.
But the industry is broad, and it offers investors a variety of opportunities. By the time we move into the next decade, the sector could be worth over $1 trillion per year. Here are two semiconductor stocks operating at different ends of the industry, and they're prime candidates to join your portfolio forever.
Image source: Getty Images.
The case for Axcelis Technologies
There's more to the semiconductor sector than just making chips. An entire subfield of supporting companies are thriving from supplying advanced equipment to the world's top producers, and Axcelis Technologies (ACLS 1.34%) is one of them. Its ion implanters are critical to the chip fabrication process, and demand for its products is soaring.
The pandemic triggered shortages of chips and related components as manufacturing was shut down for periods of time across Asia and Europe. It drove a race to expand production capacity among top chipmakers to help clear the backlog, and Axcelis' equipment is a key part of that strategy. The company has released a string of announcements since September 2021, highlighting large shipments of its Purion implanters across the Asian and European regions.
It led to the company having its biggest-ever year in 2021, with revenue growing 39% from 2020 to $662 million, and marking the first ever full-year result above $650 million -- two years ahead of Axcelis' estimates. But the company is also highly profitable, with $2.88 in earnings per share in 2021 representing year-over-year growth of 97%.
It's therefore no surprise that Axcelis stock has been one of the best performers in the entire semiconductor sector recently, soaring 477% since hitting its pandemic-low price in March 2020. But it trades at a price-to-earnings multiple of 27, which is still a 21% discount to the broader technology sector represented by the Nasdaq 100 index, which trades at a multiple of 32.
If that's not enticing enough, Axcelis recently launched a $100 million share buyback program to return money to shareholders. That's on top of the $75 million it has already repurchased since 2019, and it highlights the company's growing confidence in its ability to maintain strong operational performance going forward.
With a market valuation of just $2.6 billion right now, Axcelis Technologies has plenty of room to grow alongside what could be a multitrillion-dollar industry annually in the long run.
Image source: Getty Images.
The case for Nvidia
Let's be clear: Nvidia (NVDA 3.71%) is far more than just a semiconductor company, and as a chipmaker, it's best in class. Its graphics cards are the most sought after in the world for gaming applications, data centers, and for creating virtual worlds through the Nvidia Omniverse. The company is often credited for pioneering advancements in artificial intelligence (AI), building the world's first AI supercomputers.
Gaming is Nvidia's largest segment by revenue, generating $12.4 billion of the company's $26.9 billion in fiscal 2022 sales, and it's innovating beyond just hardware components. Its GeForce Now platform is a cloud-based host of over 1,000 leading games, and by accessing them through GeForce Now, users can skip downloads, installations, and patches. It's a seamless gaming experience now enjoyed by more than 14 million people.
But there are two other segments that truly make Nvidia worth owning forever.
First is the professional visualization segment, home to the Omniverse platform, which is being used by 100,000 creators to build virtual worlds for games, the metaverse, and even industrial purposes. Companies use Omniverse to build digital twins of their real-world assets to plan production changes, factory storage, and to model environments for autonomous robots. These digital twins can be millimeter-accurate, making them incredibly powerful for large building and infrastructure work, too.
Full-year fiscal 2022 revenue for the professional visualization segment doubled to $2.11 billion year-over-year.
The second segment is automotive and robotics, with Nvidia leading the charge in advanced technology like full self-driving cars, powered by artificial intelligence, of course. The segment's $566 million in full-year fiscal 2022 revenue made up a tiny 2% of the company's total, but from 2024, Daimler's (MBGY.Y -1.06%)Mercedes-Benz will be rolling out next-generation cars featuring Nvidia's self-driving technology. That's just one of many deals, with Jaguar and Land Rover of Tata Motors (TTM) also joining the fold, and it sets the stage for explosive growth.
If you had to buy just one stock in the semiconductor sector, Nvidia would probably be it.
