In October of last year, the stock market set its low point after a decline of more than 20% in the benchmark S&P 500 index. We are now almost 12 months removed from that moment, and the index has bounced back with a vengeance, gaining 26% (and climbing). 

Some Wall Street experts, including those at Bank of America, have declared the start of a new bull market. Others disagree. Either way, investors should always focus on buying shares in quality companies in growing industries, no matter what the immediate future holds for the overall market. 

The semiconductor sector has earned significant attention in 2023 on the back of artificial intelligence (AI), with shares of chipmaker Nvidia more than tripling, for example. But other semiconductor stocks are also worthy of your portfolio, and here are two that could soar as the broader market revives. 

1. Axcelis: Bolstered by a huge order backlog

While Nvidia has delivered an impressive gain this year, Axcelis Technologies (ACLS 1.86%) is no slouch, either. Its stock is trading near an all-time high with a year-to-date gain of 146%, and for very good reason.

The company doesn't produce any chips itself; instead, it manufactures ion implantation equipment that plays a key role in chip fabrication. Axcelis serves customers that produce a variety of semiconductor hardware, including storage (NAND) chips, memory (DRAM) chips, and advanced logic (CPU) chips.

In the second quarter of 2023, management told investors it was experiencing particularly strong demand in the silicon-carbide power device market. Silicon carbide is a lighter and more efficient alternative to traditional silicon-based electronics, and it's popular in automotive applications, especially for electric vehicles.

Axcelis also said it's experiencing strength in some areas of the AI space from customers producing memory chips.

All of the above factors have resulted in a whopping $1.2 billion order backlog for Axcelis, which is equivalent to more than a full year's worth of revenue. So it's no surprise that the company generated revenue of $274 million in the second quarter, which was above its guidance and a 23.8% increase from the same period last year.

Surging demand is also having a very positive effect on Axcelis' bottom line, especially because the company has carefully managed costs. Second-quarter earnings per share (EPS) surged 41% to $1.86.

Based on the company's trailing-12-month EPS of $6.21, its stock now trades at a price-to-earnings (P/E) ratio of 31. That's on par with the 31 P/E of the Nasdaq-100 technology index, and substantially cheaper than the P/E of Nvidia, which is 117.

As Axcelis continues to work through its massive order backlog, investors should expect further growth in the top and bottom lines, which should lead to continued upside in its stock price

2. Cohu: Setting up for a return to growth

Shares of Cohu (COHU 3.71%) haven't fared quite as well as those of Axcelis or Nvidia, gaining just 19% so far in 2023. And the stock is currently down 25% from its all-time high.

Nonetheless, investors have plenty to look forward to since the company produces testing and handling equipment that is crucial to the quality-control process for most chipmakers.

Cohu serves customers that produce chips for a long list of applications, including healthcare, consumer electronics, and automobiles. Most of those segments have one thing in common: They are forever demanding chips that are smaller in size that also produce more power. That creates manufacturing complexities, and Cohu's equipment is instrumental in ensuring that the chips are structurally sound at each stage of the production process.

It uses advanced technologies to penetrate the chip wafer so that defects beneath the surface don't go unnoticed. Then it uses AI algorithms to determine whether those defects are cosmetic or structural. The former is often acceptable, whereas the latter can lead to a poorly functioning chip.

Cohu's business is going through a weak period at the moment as demand for consumer electronics slows. Due to elevated inflation and rising interest rates, people just aren't spending as much on big-ticket items like computers, televisions, or cars. As a result, revenue shrank by 8% in 2022, and it hasn't improved this year.

In this year's second quarter, revenue fell 22% year over year, and while the company remained profitable, its earnings were also down. According to Wall Street analysts, the remainder of 2023 won't bring much improvement. They expect $654 million in full-year revenue, a 19% decline compared to 2022.

However, the Street does expect Cohu to return to top- and bottom-line growth in 2024. Plus, the company has issued medium-term projections that point to an average of $1 billion in annual revenue over the next three to five years, with $4 in adjusted EPS. That indicates revenue could grow by 53% from 2023 estimates, and earnings by 131%.

Assuming Cohu does achieve $4 in EPS at some point in the next few years, that places its stock at a forward P/E of just 9.4. That's less than one-third of Axcelis' current valuation, implying Cohu stock will have to more than triple just to trade in line with its peers in the chip sector at that point. 

While there's no guarantee it surges that high, the stock does look like a great buy ahead of the new year with growth set to return across Cohu's business.