In this piece, we will take a look at the ten best semiconductor equipment stocks to buy now.
Semiconductors are the modern-day equivalent of oil when it comes to the general well-being of the global economy. Tens of thousands of gadgets, computers, cars, and other items and products rely on a steady stream of chips to power up today’s world. As a result, chip manufacturers often have a steady flow of orders that they have to consistently churn out to ensure that a multitude of industries are not disrupted.
However, while chip manufacturers often see most media coverage, the complex nature of transforming sand into a chip capable of 20 petaflops of output requires thousands of steps. To execute these steps, manufacturers rely on a diverse set of suppliers for a myriad of products such as chip manufacturing machines, specialty chemicals, masks, design technologies, and other items. Firms that provide these products and technologies are called semiconductor equipment providers and their role in the industry is just as important as the chip manufacturers’ is.
To understand why semiconductor equipment stocks are important, consider the Biden Administration’s $280 billion CHIPS and Science Act. Signed by the President in 2022, it aims to ensure that the American semiconductor industry catches up to its peers in Taiwan and South Korea and is not dependent on any disruptions in the South China Sea. The biggest beneficiary of the CHIPS Act is the Taiwanese contract chip manufacturer that leads the world in manufacturing technologies. It ranked 4th on our recent list of trending AI stocks, and the firm has received $6.6 billion in direct funding and it is eligible for $5 billion in additional loans to set up advanced manufacturing facilities in Arizona.
Yet, even though the first of these facilities is set to start production in the first half of 2025, the fact that the firm’s operations are based in Taiwan is already creating problems. For starters, a report from Reuters suggests that the world’s leading AI GPU manufacturer (which ranked 3rd on our list above) might have to ship its GPUs to Taiwan for packaging after they’ve been manufactured in the US. This is because after the chips are manufactured, they have to be packaged to ensure power supply and communications with the rest of the computer system.
The packaging technologies for these advanced chips are called Chip-on-Wafer-on-Substrate (CoWoS), and for the Taiwanese firm, all of its packaging facilities are located in its home region. The need to ship the chips to Taiwan for packaging is not the only hurdle for the fab’s American manufacturing operations. Another problem, and one that is directly related to semiconductor equipment stocks, relates to the different chemicals that are required throughout the chip manufacturing process.
These chemicals include sulfuric acid, acetone, ammonium hydroxide, and others to ensure the purity of the silicon wafer throughout the fabrication process. However, according to a report from Macquarie Bank, since the Taiwanese fab relies on Taiwan-based firms for its chemical supply chain, the costs of manufacturing chips at the Arizona site could be 30% higher than in Taiwan. The higher costs stem from the fact that the chemical companies are hesitant to move to the US since they might be unable to enjoy economies of scale and the resulting cost benefits. The bank outlines that the lack of an American chemical supply chain that is qualified by the Taiwanese fab means that chemicals such as sulfuric acid might be costlier to ship internationally than their list price.
Therefore, it’s clear that semiconductor equipment firms play an equally important role in chip fabrication. Another important example of this fact is the Dutch chip manufacturing machinery provider that ranked 9th on a recent list of AI news and ratings that Wall Street was watching. This firm is the only company in the world capable of manufacturing high-end chip-making tools called EUV scanners. Without these tools, firms such as the Taiwanese fab cannot make leading-edge chips with feature sizes smaller than 7-nanometer. In fact, the rising threat of China utilizing Western technologies for military use has also led the US government to stop the chip manufacturing equipment provider from selling its equipment to China’s Semiconductor Manufacturing International Corporation (SMIC). The sanctions have dealt a sharp blow to Chinese chip manufacturing ambitions, with the latest chip from Huawei still being manufactured on the older 7-nanometer node. In contrast, the latest iPhone uses chips built through the 3-nanometer process technology.
A close up of a technician working on a semiconductor chip in a clean room.
Our Methodology
To make our list of the best semiconductor equipment stocks to buy, we ranked all US-listed semiconductor equipment stocks by the number of hedge funds that had bought the shares in Q3 2024 and picked out those with the highest number of investors.
Why are we interested in the stocks that hedge funds invest in? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. Amkor Technology, Inc. (NASDAQ:AMKR)
Number of Hedge Fund Holders In Q3 2024: 27
Amkor Technology, Inc. (NASDAQ:AMKR) is an Arizona-based semiconductor equipment provider that provides semiconductor testing, packaging, and other associated services. Its shares are down 17% year-to-date, which is unsurprising even though packaging technologies have gained importance in the chip industry because of AI chips. Amkor Technology, Inc. (NASDAQ:AMKR) depends to a large extent on the health of the smartphone industry. For the nine months ending in September, 49% of the firm’s revenue came from smartphones and communications devices. The market for these devices depends on consumer spending, and Amkor Technology, Inc. (NASDAQ:AMKR)’s shares dropped by a massive 18% in July after the firm’s midpoint third-quarter EPS guidance of $0.49 missed analyst estimates of $0.65. Naturally, the smartphone market has to recover for the firm to benefit from tailwinds. Amkor Technology, Inc. (NASDAQ:AMKR) has also won funding from the US government under the CHIPS Act for packaging, and it is also a TSMC partner for the Arizona site. Both these factors can help the firm in today’s AI-driven chip era.
Amkor Technology, Inc. (NASDAQ:AMKR)’s management commented on its TSMC deal during the Q3 2024 earnings call. Here is what they said:
“First of all, the MOU that we signed with TSMC, now is that it’s intended to offer our mutual customers a seamless manufacturing supply chain and a technology offering between Asia and the US and by standardizing on advanced packaging technology in the US versus Asia that offers these joint customers a seamless transition for dual qualification of specific devices. And that will happen in our Peoria factory, it will be for the Compute segment, but also for the Communications segment technologies. Now we have to remember that our Peoria factory, our Arizona factory is not captive to TSMCs, but we will run TSMC technology in that factory, specifically for joint customers.
And on top of that for other customers, Amkor will install Amkor advanced packaging technology. Now with respect to the test business, we see for test, specifically for AI devices, currently a high concentration of test in Taiwan. We believe that the industry is ready and looking for alternatives to derisk that supply chain. So we are definitely interested and actively pursuing to invest in test in general, but also specifically in that segment of test.”
9. Axcelis Technologies, Inc. (NASDAQ:ACLS)
Number of Hedge Fund Holders In Q3 2024: 29
Axcelis Technologies, Inc. (NASDAQ:ACLS) is a specialty semiconductor equipment provider that focuses on ion implementation technologies. Ion implementation is an indispensable part of chip fabrication, as the minute scale of the manufacturing technology increases the purity of the end chip product. However, Axcelis Technologies, Inc. (NASDAQ:ACLS)’s shares are down 39% year-to-date on the back of a broader slowdown in the semiconductor industry. The stock fell by 11% in August after the firm’s second-quarter earnings as sluggishness in the memory market and AC applications continued to remain a drawdown. Over the long term, the narrative will be driven by management’s goal of $1.6 billion in revenue for 2027. Axcelis Technologies, Inc. (NASDAQ:ACLS) is also a TSMC supplier, and the firm can benefit from a sustained recovery in the EV market because of its silicon carbide products.
Axcelis Technologies, Inc. (NASDAQ:ACLS)’s management commented on its silicon carbide products during the Q3 2024 earnings call. Here is what they said:
“Revenue from our power markets was approximately 57% of total, down sequentially from 63% in Q2 2024. Shipments to Silicon Carbide applications moderated in the third quarter. However, on a year-to-date basis for 2024, Silicon Carbide has been strong growing year-over-year reflecting continued build out of capacity. We expect fourth quarter revenue for Silicon Carbide to remain relatively consistent on a sequential basis. The long-term opportunity in silicon carbide remains an important growth driver for Axcelis. Yel [ph] estimates that silicon carbide market will grow from $2.7 billion in 2023 to $9.9 billion in 2029 or a 24% CAGR and ion implantation is one of the most critical manufacturing steps to make a silicon carbide device.
We are well positioned as the market leader in implant for silicon carbide given the breadth of our portfolio and focused investments we’ve made in this market for several years. We are deeply embedded in our customers technology roadmaps and widely engaged with customers to help them transition from 150 millimeters to 200 millimeters wafer capacity. In addition, we are seeing interest in our solutions to enable customer’s transition to trench MOSFETS. The transition to trench architecture is a tailwind for Axcelis given the need for deeper implants which require our high energy tools where we are the technology and market leader. From an end market perspective, we are keeping a close eye on the transition from 400 volts to 800 volts electric vehicles over time, which is enabled by silicon carbide, given better efficiency compared to traditional silicon.”