3 Lower Profile Chip Stocks To Watch As The Semiconductor Sector Charges Higher

The semiconductor sector has been one of 2021’s strongest performing stock groups, riding the wave of a 'perfect storm'—explosive demand by consumers for computer and mobile equipment this past year, due to coronavirus lockdowns, and a global chip shortage altogether, which has sparked a massive surge in equipment spending to meet heightened demand.

Not surprisingly, the sector’s two main ETFs, VanEck Vectors Semiconductor ETF (NYSE:SMH) and the iShares Philadelphia Semiconductor Index (SOX), are up roughly 12% this year, outperforming both the S&P 500 and the NASDAQ Composite.

SMH SOX S&P & NASDAQ Chart

While heavyweights such as NVIDIA (NASDAQ:NVDA), Intel (NASDAQ:INTC), Advanced Micro Devices (NASDAQ:AMD), and Qualcomm (NASDAQ:QCOM) garner most of the focus, there are several other semiconductor-related stocks well worth considering beyond the mainstream names.   

As such, the three stocks below should continue to perform well in the months ahead given their growing dominance in the sector, and no signs of a decrease in demand for their products anytime soon.

1. Applied Materials

• Year-To-Date Performance: +59.3%
• Market Cap: $126.2 Billion

Applied Materials (NASDAQ:AMAT) is a leading provider of manufacturing equipment, services, and software to the semiconductor industry. The Santa Clara, California-based company has thrived this year, reaping the benefits of surging demand amid the global semiconductor shortage.

Year-to-date, Applied has seen its stock jump by around 59%. Even more impressive, shares of the chip equipment supplier have gained roughly 153% over the past 12 months, far outpacing the comparable returns of the broader market.  

AMAT stock ended at $137.50 on Tuesday, within sight of its all-time high of $145.66 touched on Apr. 5, giving the semiconductor equipment maker a market cap of $126.2 billion.

AMAT Daily Chart

Applied Materials reported blowout financial results last week, crushing expectations for both earnings and revenue for the fourth consecutive quarter amid broad-based strength across the global semiconductor industry.

The chip gear vendor posted earnings per share of $1.63 for its fiscal second quarter of 2021, easily topping forecasts for earnings of $1.51 per share and improving 83% from EPS of $0.89 in the same quarter a year earlier. Revenue jumped nearly 41% year-over-year to $5.58 billion, which was higher than the estimated $5.4 billion.

That marked the company’s best earnings and sales growth in four years.

For the current quarter, Applied Materials forecast earnings of $1.76 per share on revenue of $5.92 billion, based on the midpoint of its outlook. If confirmed, that would represent year-over-year growth of 66% in earnings and 35% in sales.

"We are confident in our ability to outperform our markets as large, secular trends create sustainable demand for semiconductors and our leadership in materials engineering becomes increasingly critical to deliver new chip technologies," the company said in its earnings statement.

2. ASML Holding (AS:ASML)

• Year-To-Date Performance: +37.8%
• Market Cap: $279.5 Billion

ASML Holding (NASDAQ:ASML) is a Dutch multi-national company specializing in the development and manufacturing of photolithography systems used primarily for the production of integrated circuits.

The Veldhoven, Netherlands-based chip gear maker—which counts companies such as Intel, Taiwan Semiconductor Manufacturing (NYSE:TSM), and Samsung Electronics (OTC:SSNLF) as some of its high-profile customers—is currently the world’s largest supplier of photolithography systems for the semiconductor industry.

Shares of the semiconductor equipment provider have prospered since the start of the year, jumping nearly 38% in 2021. Year-over-year, shares have gained 110%, buoyed by increased capital spending among global chip manufacturers.

ASML stock rose to a fresh record peak of $679.08 yesterday, before closing the session at $672.29, giving the large-cap company a valuation of $279.5 billion.

ASML Daily Chart

ASML's earnings and revenue from its  first quarter results posted on Apr. 21, showed tremendous improvement from the year-ago period.

Earnings per share jumped more than 300% from the same quarter a year earlier to $3.86, while revenue more than doubled to $5.25 billion. Analysts had expected the company—which has scored double-digit growth in profit and sales for four straight quarters—to report Q1 EPS of $3.07 on revenue of $4.81 billion.

As explained by CEO Peter Wennink on the earnings call:

"We are seeing a significant increase in demand from our customers across all market segments compared to three months ago and we expect another very strong year with demand across our entire product portfolio."

ASML boosted its outlook for the rest of the year, saying it now expects revenue growth of about 30% in fiscal 2021. It previously said it expected to achieve "double-digit" growth for the year.

"The buildup of the digital infrastructure with secular growth drivers such as 5G, AI and high-performance computing solutions fuels demand for advanced and mature nodes in logic (chips) as well as memory," the company said in its earning statement.

3. Lam Research

•  Year-To-Date Performance: +35.6%
•  Market Cap: $91.3 Billion

Lam Research (NASDAQ:LRCX) is a global supplier of wafer fabrication equipment and services to the semiconductor industry. Its products are designed for use in a range of electronic devices, including cell phones, computers, tablets, and networking equipment.

Shares of the Fremont, California-based company have climbed more than 35% year-to-date, benefitting from higher sales volumes for its chip-making equipment amid the global shortage and increased demand resulting from the COVID-19 work/learn from home restrictions.

LRCX stock—which is up about 145% over the last 12 months—settled at $640.37 last night, not far from its record peak of $669.00 reached on Apr. 8. At current levels, the semiconductor processing equipment manufacturer has a market cap of $91.3 billion.

LRCX Daily Chart

Lam reported strong fiscal third quarter earnings and sales growth when it posted its latest results on Apr. 21, thanks in large part to the ongoing surge in semiconductor equipment spending.

Earnings per share soared 88% from the year-ago period to $7.49, much better than expectations for EPS of $6.62. Revenue, meanwhile, jumped 54% year-over-year to $3.85 billon, beating estimates for sales of $3.72 billion.

That marked the sixth consecutive quarter of accelerating growth in earnings and sales.

"Lam’s growth trajectory continues with record revenue and earnings per share delivered in the March quarter,” said Tim Archer, Lam Research’s president and chief executive officer.

Adding to those encouraging numbers, Lam’s management sounded upbeat regarding its outlook for the final quarter of its fiscal year, underpinned by a strong wafer fabrication spending environment.

For the current quarter ending Jun. 27, Lam expects to earn an adjusted $7.50 per share on sales of $4.0 billion, easily surpassing consensus expectations for EPS of $6.78 and revenue of $3.72 billion.