Global semiconductor sales shot up to an all-time high of $556 billion in 2021, rising 26% over the prior-year period as a record 1.15 trillion chips were shipped last year despite the industry facing a supply crunch.
It looks like 2022 could turn out to be another landmark year for the semiconductor industry as sales hit $52.5 billion in February, rising 32.4% over the same month in 2021. The sector generated $50.7 billion in revenue in January 2022, indicating that this market is off to a hot start this year.
By 2030, global semiconductor sales are expected to exceed $1 trillion, which is why investors looking to add some long-term winners to their portfolios should take a closer look at this sector.
Image source: Getty Images.
Nvidia (NVDA 0.48%) and Skyworks Solutions (SWKS 1.10%) could make the most of the booming demand for semiconductors as they serve fast-growing niches such as data centers, wireless networking, smartphones, and computers. Let's look at the reasons these semiconductor stocks could run up exponentially thanks to the semiconductor boom.
1. Nvidia
Nvidia finished fiscal 2022 (which ended on Jan. 30) with $26.9 billion in revenue, an increase of 61% over the previous year. That figure pales in comparison to the $1 trillion addressable revenue opportunity that Nvidia management says it is sitting on, split among multiple verticals such as gaming, automotive, chips and systems, artificial intelligence (AI) enterprise software, and what it calls the Omniverse (its platform for 3D designs).
NASDAQ: NVDA
Key Data Points
The data center business, for instance, is creating the need for more of the graphics processing units (GPUs) that Nvidia sells. Cloud service providers have increased their GPU deployments by a multiple of nine times in four years, a trend that's here to stay with accelerating AI and machine-learning workloads. A third-party estimate forecasts that the global market for data-center accelerators could hit $53 billion in revenue by 2027 as compared to $4.2 billion in 2020.
Nvidia is in a solid position to tap into this market. GPUs are expected to account for nearly 40% of the accelerator market revenue by 2027, and Nvidia reportedly controls more than an 80% share of data center GPUs. It's working to strengthen its grip further with its Grace chips to accelerate AI and high-performance computing (HPC) workloads.
In all, data centers, AI enterprise software, and hyperscale computing present a $450 billion addressable opportunity for Nvidia, and the company looks ready to make the most of it.
The automotive market is another reason Nvidia's outstanding growth is here to stay. The company generated just $566 million in revenue from this segment in fiscal 2022, but it sees a $300 billion opportunity here. It already has lined up $11 billion worth of design wins (a design win happens when a company's chips get designed into a product), a number that could increase substantially thanks to the huge ecosystem of automotive partners and original equipment manufacturers (OEMs) that Nvidia has built up.
Throw in the catalysts in Nvidia's gaming and professional visualization businesses, and it is easy to see why earnings are expected to clock a compound annual growth rate (CAGR) of nearly 31% for the next five years. But the stock could achieve faster growth given the tremendous size of the markets the company operates in, helping this growth stock go parabolic in the future.
2. Skyworks Solutions
Sales of 5G smartphones increased117% in 2021, according to market research firm IDC, and that's expected to increase at an incredible pace in the long run as well. According to another estimate, global 5G smartphone sales are expected to register a CAGR of 125% through 2025.
For investors looking to benefit from this fast-growing market, Skyworks Solutions could be a solid bet since it supplies chips to leading smartphone OEMs such as Apple, Samsung, Vivo, Xiaomi, and Oppo -- the top five vendors of 5G smartphones across the globe, according to Strategy Analytics. Skyworks, therefore, is a pick-and-shovel play on the 5G smartphone market.
NASDAQ: SWKS
Key Data Points
The company's mobile business produced 68% of its total revenue in the first quarter of fiscal 2022, which ended on Dec. 31, 2021. Apple was its largest customer last fiscal year with 59% of the total revenue. This tight relationship with Apple helped Skyworks finish fiscal 2021 (ended on Oct. 1, 2021) with 52% revenue growth to a record $5.1 billion, while non-GAAP earnings per share jumped 71% to $10.50 per share.
Apple's expansion of its 5G smartphone lineup with the addition of the new iPhone SE should give Skyworks a shot in the arm. The new iPhone could boost Apple's sales substantially by attracting budget-conscious customers. The smartphone maker is expected to sell at least 30 million units of the iPhone SE this year, though the number could be higher given the pricing of the device -- eventually giving Skyworks a boost.
Rapid growth in 5G smartphone adoption can help Skyworks sustain its impressive momentum as these devices are equipped with more radio-frequency (RF) content. Skyworks' peer Qorvo points out that 5G smartphones carry $5 to $7 additional RF content as compared to their 4G counterparts. So besides stronger volumes in the 5G era, Skyworks' revenue per smartphone is also going to increase with the higher content.
All of this makes Skyworks Solutions a solid play on 5G smartphones. And investors can consider buying the stock right away as it trades at just 15 times trailing earnings, a nice discount to the Nasdaq-100's earnings multiple of 33.
