It’s quite reasonable to be suddenly interested in semiconductor stocks if you’ve been following business news. After all, semiconductor darling Nvidia(NASDAQ: NVDA) was recently up 226% over the past year and has averaged gains of 75% annually over the past decade. Who wouldn’t dream of enjoying such outsized returns?
Well, you might still invest in Nvidia, and many see a great future for the company, but its shares have arguably gotten ahead of themselves to some degree and don’t appear to be bargains. (Of course, if you’re buying for the long term, you may still do well with Nvidia.)
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Instead, consider some semiconductor stocks whose shares seem more attractively valued at recent levels. Here are three — plus a powerful exchange-traded fund (ETF).
Stock
5-Year Avg. Annual Return
10-Year Avg. Annual Return
ASML(NASDAQ: ASML)
21.74%
21.65%
Taiwan Semiconductor Manufacturing(NYSE: TSM)
31.10%
25.04%
Broadcom (NASDAQ: AVGO)
43.48%
35.55%
VanEck Semiconductor ETF(NASDAQ: SMH)
31.71%
26.60%
Source: Morningstar.com, as of Nov. 1, 2024.
It’s worth noting that you don’t necessarily need growth stocks in order to become a millionaire. Even a simple S&P 500 index fund can get you there. The S&P 500 has averaged annual gains of roughly 10% over long periods, and that’s a powerful growth rate over many years, as the table below demonstrates.
But you can certainly aim for a faster growth rate, and semiconductor stocks could deliver. If you average 15% annual growth with them, you can see how your money might grow over time in the table below:
$10,000 invested annually and growing for
Growing at 10%
Growing at 15%
10 years
$175,312
$233,493
15 years
$349,497
$547,174
20 years
$630,025
$1,178,101
25 years
$1,081,818
$2,447,120
30 years
$1,809,434
$4,999,569
35 years
$2,981,268
$10,133,457
40 years
$4,868,518
$20,459,539
Source: Calculations by author.
Now, let’s meet some promising semiconductor stocks.
ASML specializes in making the lithography equipment needed for semiconductor manufacturing, and it’s at the top in its field. (The equipment etches intricate circuitry onto silicon wafers, and it’s the only supplier of advanced extreme ultraviolet systems (EUVs). Its equipment is costly and lasts a long time, so that generates a lot of recurring servicing revenue.
In the company’s third quarter, revenue grew at a slower-than-expected rate, of just 20%, and that, along with some other disappointing numbers, sent shares down — to an enticing level. While the coming year may not feature robust growth, ASML looks like a winner over the long term. Its stock recently sported a forward-looking price-to-earnings (P/E) ratio of 28, below the five-year average of 35. It pays a dividend, too, recently yielding 1%.
You might not realize it, but many semiconductor companies simply design chips and then have them manufactured by others. Relatively few actually make chips, and among those, Taiwan Semiconductor (TSMC) is the world’s largest, with revenue market share topping 60%.
Recently valued at nearly $1 trillion, its growth prospects are good, in part because of its size and economies of scale. A particularly promising growth driver for TSMC and other chip specialists is the proliferation and growth of artificial intelligence (AI) technologies, which require more and more semiconductors. Another appealing aspect of TSMC is that it’s grown big enough and stable enough to pay a dividend, which recently yielded 1.3%. That may not seem like a lot, but TSMC’s payout has nearly doubled over the past five years.
One caution is that the company is based in Taiwan, so it’s vulnerable to interference from China. That’s tempered by a newly opened TSMC fabrication plant in Arizona, which is performing even better than plants in Taiwan.
Broadcom specializes not only in semiconductor chips but also software, and its operations are very diversified, including wireless and wired technology, optical products, mainframe software, cybersecurity, and storage, among many others. Its offerings are needed for AI operations, among other things, and business has been good lately, with third-quarter revenue jumping 47% year over year.
Broadcom is another dividend payer, with a recent yield of 1.2% and a payout that has also roughly doubled over the past five years. With a recent forward P/E of 20, a bit above the five-year average of 14, the stock isn’t a screaming bargain. It might still perform well for long-term investors — or if you want to play it safer, you might just add it to your watch list or buy into it incrementally over time.
Here’s one last investment to consider: the VanEck Semiconductor ETF. (ETFs are funds that trade like stocks.) If you can’t decide which semiconductor stocks to buy, this exchange-traded fund (ETF) will have you instantly invested in about 25 of them, including all three above — plus Nvidia, its largest holding. Its expense ratio (annual fee) is a reasonable 0.35%. And it happens to be the best-performing ETF over the past decade.
Take a closer look at any of these portfolio candidates that interest you.
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Selena Maranjian has positions in ASML, Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
