Semiconductor stocks are flying high — and analysts say these 11 still have room to rise

Published Mon, Jan 3 20226:40 PM ESTUpdated Tue, Jan 4 20223:46 AM EST

Semiconductors, the tiny chips found in everything from smartphones to washing machines, are big business. CNBC has asked analysts around the world to name their favorite chip stocks, as the sector's stunning growth looks set to continue. Eugene Hsiao, director of equity research at Haitong International in Hong Kong, told CNBC that while specific end-products — such as smartphones or PCs — may see softer demand going into 2022, he still expects strong performance from chip companies. Hsiao's top picks in the sector were front-end wafer equipment makers ASML and Lasertec . He noted that major chipmakers like Intel were ramping up their adoption of the extreme ultraviolet (EUV) tools ASML and Lasertec manufacture. "These are two companies that can benefit directly from investments in leading-edge technologies used in areas such as A.I. and cloud data centers," Hsiao said in an email. "Both companies have recently seen a sharp uptick in orders from EUV-related semiconductor equipment, which we believe is a shift that should continue regardless of wider sector cyclicality." Michael Roeg, an analyst at Belgian investment bank DeGroof Petercam, told CNBC that semiconductor production was expected to continue to surge over the next decade, and possibly beyond. Roeg has a buy rating on equipment manufacturers ASML and ASMI , and expects to see strong growth at both companies over the next five to 10 years. "ASML has no competition, and while ASMI has very large competitors, they aren't dominant in ALD," he said in a phone call. Roeg described ALD (atomic layer deposition), a technique used in the manufacturing of semiconductors, as one of the most cutting-edge manufacturing processes on the market — and one that's in high demand among big name chipmakers like Taiwan Semiconductor Manufacturing Company (TSMC). Despite a positive outlook, Roeg was skeptical that share prices would continue to boom at the rates investors have seen over the past two years. (ASML shares are up more than 150% over this period, for example.) "But it's not the end yet," he told CNBC. "I think a much more normal performance would be a better expectation." Safety vs. growth Harsh Kumar, managing director and senior research analyst at Piper Sandler, also said that he expects the semiconductor rally to begin cooling off in 2022. His top stock picks, he said in a phone call with CNBC, reflected a pivot toward safety over appreciation. Qualcomm was Kumar's first stock pick, as he said it was "still relatively cheap compared to the other players in the space of its size." "When you compare Qualcomm to technology leaders in a fundamental space, the multiple is 50 to 60% less than some of those companies, and the company is looking like it's on a very solid good track even going forward," he told CNBC. "We would [also] urge investors to look at Broadcom because of the extremely high level of profitability that that company has." Kumar also likes Marlin Technologies and ON Semiconductors in the mid-cap space, as well as Marvell Technology as a high growth opportunity. Supply bottleneck impact Warren Lau, senior analyst at Aletheia Capital, told CNBC he believes the longevity and strength of the semiconductor sector is likely to persist into 2022 and possibly 2023, thanks to ongoing supply constraints . This, he said, could give chipmakers the opportunity to raise their prices and improve profit margins. Lau's top stock picks included TSMC, which he described as one of the few chipmakers likely to receive most of the production equipment it needs amid supply issues due to its "sheer size and bargaining power." He also sees Infineon as an investment opportunity within the sector, noting that the company was likely to benefit from long-term growth in electric vehicle production. Meanwhile, its long term expansion strategy saw the firm ramp up its production capabilities in Europe this year, Lau noted. Qualcomm, Lau's third stock pick, was attractive for two key reasons, Lau told CNBC: the global adoption of 5G connectivity, and the company's diversification into new end markets. Lau added that Qualcomm's valuation remained at "a steep discount."

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