In this piece, we will take a look at the ten best semiconductor penny stocks to invest in right now.
With the age of artificial intelligence having made an indelible mark on the stock market, semiconductor stocks have been thrust into the spotlight. While it’s typically the stocks at the top of the semiconductor food chain, such as the AI GPU designer whose shares are up 740% since ChatGPT was made public or the Taiwanese contract chip manufacturer responsible for making AI GPUs or processors for Apple, that catch the media and public attention, the semiconductor industry is made of a plethora of other firms as well.
Broadly speaking, the semiconductor industry comprises firms upstream and downstream of the chip supply chain. Starting from the former category, these semiconductor stocks start from those that provide design intellectual properties and hardware used to manufacture chips. Moving further downstream, semiconductor fabrication firms such as the Taiwanese firm whose American Depository Receipts (ADRs) have gained 133% since ChatGPT’s public unveiling started to play a role. Finally, the downstream chip supply chain is made of designers who sell the products and others who assemble chips into the hardware needed for their proper functioning.
To invest in semiconductor stocks, an investor needs to know which supply chain category a stock belongs to. This is because industry dynamics often have a varying effect on stocks at different rungs of the supply chain. Additionally, when we talk about downstream stocks, then the markets that they cater to also play a role in the share price performance.
Stocks that are upstream are affected by broader industry trends and find it difficult to benefit from sector-specific tailwinds such as artificial intelligence. As an illustration, consider the performance of three upstream semiconductor stocks. The first stock ranks 7th on the list of 15 AI stocks shaping Wall Street, the second is 19th on Goldman Sachs’ list of top growth investors, while the third ranked 12th and was losing popularity among institutional investors according to Bank of America. The first two stocks are up 16% and 4% over the past twelve months while the third is up by a more modest 1%. Compared to the Philadelphia semiconductor stock index, a widely followed industry benchmark that has gained 32.2% over the same period, all three semiconductor stocks have underperformed.
A brief look at the three stocks’ business model sheds light on the reasons behind their lackluster performance. Starting from the worst stock whose shares are up by 1%. The firm provides semiconductor manufacturing equipment such as those used in wafer cleaning, etching, and film deposition. This means that it has exposure to the broader and non-AI sectors of the downstream semiconductor industry as well. Additionally, during its fiscal year 2024, 42% of the firm’s revenue came from the memory industry. These chips run parallel with integrated circuits in computers, and their demand has been depressed recently and only started to recover in mid-2024. It also has exposure to China, and semiconductor tensions between the US and China haven’t boded well for the stock either.
Similarly, the semiconductor stock that is up 16% over the past year also has notable exposure to China. During the nine months ending in July 2024, 40% of its revenue came from China. Yet, for the three months ending in July, this percentage dropped to 32% as US government restrictions against American chip firms from supplying products to China continued to affect it. This semiconductor firm provides products such as plasma abatement systems, epitaxy systems, film deposition systems, and etching masks. As a result, even if there are no US-Chinese tensions, the fact that China’s economy and industrial production have slowed naturally reduces the demand for its products.
On the downstream end of the semiconductor supply chain, there is a clear bifurcation between AI and non-AI stocks, or those with exposure to integrated circuits and GPUs, and those with no exposure. To understand how to consider two stocks of firms that manufacture semiconductors. The first is the Taiwanese firm which we’ve mentioned above. Its ADRs are up 87.2% year-to-date. The second ranks 16th on our BofA list shared above, and its shares are down 14.5% year-to-date. Starting from the former, during the third quarter, 51% of the firm’s revenue came from high-performance computing (HPC) products. These chips are involved in data centers, enterprise computing, and other workloads, and they also have wide exposure to the artificial intelligence industry. This firm also manufactures AI GPUs for Wall Street’s favorite GPU designer, and the culmination of its end markets coupled with the fact that its 3-nanometer manufacturing process is an industry leader has seen investor optimism surge surrounding its fortunes.
On the flip side, the semiconductor stock whose shares are down 14.5% has little exposure to HPC and AI chips. As of H1 2024, 53% of the firm’s $3.7 billion revenue came through products that it sold to the automotive industry. This firm is known for selling chips manufactured through silicon carbide. These chips are used to manage power in electric vehicles, and as EV demand has slowed down in 2024, investors have fled the stock in response. The semiconductor stock hasn’t been helped by the fact that slowing industrial activity led to a 21% industrial revenue drop during H1.
As should be clear by now, semiconductor stocks come in all flavors. One such flavor, when analyzing them through share prices, is the penny stock segment. These stocks belong to smaller companies that do not have sizable revenue to power their valuation. Yet, penny stocks, when prudently considered, also often have the chance for stronger returns due to their low prices. On the flip side, these stocks are prone to market manipulation, and since they’re not as frequently covered by analysts or the media, understanding the fundamental drivers of their share price is complex. With these details in mind, let’s take a look at some semiconductor penny stocks.
A leading semiconductor chip on a computer robot arm, reflecting the technology advances of the company.
Our Methodology
To make our list of the best semiconductor penny stocks, we ranked semiconductor and semiconductor equipment stocks under $5 by the number of hedge funds that had bought the shares in Q3 2024 and picked out the top stocks.
Why are we interested in stocks that hedge funds pile into? 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. Pixelworks, Inc. (NASDAQ:PXLW)
Number of Hedge Fund Holders In Q3 2024: 4
Pixelworks, Inc. (NASDAQ:PXLW) is an American semiconductor company that caters to the needs of the display, home entertainment, and other industries. The firm’s shares are down 39% year-to-date as the mobile market in particular has struggled due to weak consumer spending. Pixelworks, Inc. (NASDAQ:PXLW)’s shares fell by 35% in May 2024 when investors, with one eye on the future, punished the firm for weak second-quarter guidance. The firm’s second guidance projected a high-end $9 million which was lower than analyst estimates of $16.5 million while its high-end EPS guidance of -$0.13 fell short of analysts’ -$0.07. Pixelworks, Inc. (NASDAQ:PXLW) also relies on a large extent on China for its sales, and the weak Chinese economy has impacted the income statement. For the first half of this year, the firm’s China revenue fell by 66% to $2.8 million. Therefore, a recovery in the mobile market and China are key for the firm to generate tailwinds.
Pixelworks, Inc. (NASDAQ:PXLW)’s management commented on its project chips and economic weakness during the Q3 2024 earnings call:
“The overall demand for digital projector SoCs has remained reasonably stable in recent quarters, although end market demand for projector systems has continued to be relatively flat, primarily reflecting the prolonged period of macroeconomic uncertainty in China, as well as the U.S. and European education markets. As indicated last quarter, we’ve received initial purchase orders for our co-developed next-generation projector SoC from our lead customer. We have since begun initial volume production and remain on schedule to deliver the first production shipments of this new projector SoC during the fourth quarter. Based on previews of our customers’ planned product introductions, we continue to anticipate gradual, but healthy incremental adoption of our newest projector solution throughout 2025 and beyond.”
9. POET Technologies Inc. (NASDAQ:POET)
Number of Hedge Fund Holders In Q3 2024: 5
POET Technologies Inc. (NASDAQ:POET) is a Canadian semiconductor company that is primarily known for designing and selling optical interposers. These are unique chips that are used in communications and the firm benefits from being one of the few companies that makes these chips. However, POET Technologies Inc. (NASDAQ:POET) is also a risky stock as it has yet to turn a profit. The firm’s trailing twelve-month loss is $31.9 million while its revenue is just $119,000. Consequently, central to the firm’s hypothesis is its ability to commercialize its optical interposers and win large and consistent orders to put it on the path of profitability. On this front, POET Technologies Inc. (NASDAQ:POET) has entered into key deals with Mitsubishi and Taiwanese contract manufacturing giant Foxconn which should drive the stock moving forward.
8. Sequans Communications S.A. (NYSE:SQNS)
Number of Hedge Fund Holders In Q3 2024: 6
Sequans Communications S.A. (NYSE:SQNS) is a French specialty semiconductor company. The firm makes and sells baseband chips, radio frequency transceivers, and systems-on-chips (SoCs) that are used in 4G and 5G networks and gadgets. As a result, the firm’s performance depends on the health of the telecommunications and smartphone industries. Both of these are cyclical sectors and tend to perform well when the economy is robust. Since it’s a small and custom company, Sequans Communications S.A. (NYSE:SQNS) benefits when larger players are interested in acquiring it. The firm also suffers when the opposite is true, and this was the case in February when after Renesas terminated its acquisition deal for Sequans Communications S.A. (NYSE:SQNS), the stock tanked by 65%. Since then, it has only seen some tailwinds after Qualcomm acquired the firm’s 4G IoT tech, which also enabled Sequans Communications S.A. (NYSE:SQNS) to retire its debt and become cash-healthy. On a broader level, the firm’s hypothesis depends on its ability to develop new technologies and keep attracting larger players.
Sequans Communications S.A. (NYSE:SQNS)’s management commented on how the Qualcomm deal will help it for years to come during the Q3 2024 earnings call. Here is what they said:
“Starting with financial stability. I’m pleased to confirm that in October, we fully repaid all mature debt and it cleared all overdue payables to our suppliers. Our balance sheet is now nearly debt-free, marking a significant turning point in our ability to operate with a greater flexibility. With our strategy centered on massive IoT, we are now well positioned to make targeted investments in R&D, while effectively managing and reducing our cash burn rate in 2025. Combined with anticipated revenue growth next year, we are confident in our trajectory toward achieving breakeven by 2026. I want to recognize the incredible support we have received from our customers. Over the past year, our customers have remained steadfastly committed to Sequans despite our challenges.
As a result, we have retained almost 100% of our existing design win projects, representing a corresponding 3-year revenue pipeline that accounts for approximately $250 million of future revenue. These design wins cover a variety of IoT applications for multiyear deployments with must in the large markets of metering, tracking and fleet management. While previous financial challenges limited our ability to secure new project wins, this didn’t reduce our customer traction, particularly in our Cat 1bis Calliope 2 product. Now with a solid financial footing, we are back to work on the pipeline of opportunities and anticipate securing new design wins in 2025. In fact, both existing and potential new customers as well as partners were impressed by our Qualcomm transaction and they fully support our strategy post-deal.”
7. Mobix Labs, Inc. (NASDAQ:MOBX)
Number of Hedge Fund Holders In Q3 2024: 6
Mobix Labs, Inc. (NASDAQ:MOBX) is a California-based firm that sells communications products such as optical cables and 5G chips. Additionally, it is one of the fresh companies that went public through a special purpose acquisition company (SPAC). Mobix Labs, Inc. (NASDAQ:MOBX) completed its merger with Chavant in December, and throughout 2024, the firm has been selling its stock in private placements. This has led to a dilution of its equity, and Mobix Labs, Inc. (NASDAQ:MOBX)’s shares are down 73% year-to-date. On the financial front, its small size has enabled the company to post a sizable percentage of revenue growth. For the nine months ending on June 30, Mobix Labs, Inc. (NASDAQ:MOBX) has grown its revenue by 341% and recorded gains through changes in earnout liability to affect the bottom line profits.
6. Navitas Semiconductor Corporation (NASDAQ:NVTS)
Number of Hedge Fund Holders In Q3 2024: 8
Navitas Semiconductor Corporation (NASDAQ:NVTS) is an American semiconductor company that specializes in designing and selling power management products. Its products are used across a variety of applications such as data centers, electric vehicles, and solar systems. As a result, if you followed the intro to this piece, you wouldn’t be surprised to know that Navitas Semiconductor Corporation (NASDAQ:NVTS)’s shares are down 68% year-to-date. The firm has had a tough year which has seen it miss guidance estimates. Its third-quarter earnings marked the fourth consecutive time that it failed to meet its guidance. Consequently, Navitas Semiconductor Corporation (NASDAQ:NVTS)’s hypothesis is dependent on the recovery of power management demand in industrial markets and a broader economic recovery.
Navitas Semiconductor Corporation (NASDAQ:NVTS)’s management shared insights about its market observations during the Q3 2024 earnings call. Here is what they said:
“We’ve also increased our organizational focus on our three most strategic markets. AI data center, mobile and EV. We believe these three markets utilizing our industry leading GaN and silicon carbide technology along with complementary silicon controllers and isolators will be our largest revenue drivers over the coming years.
The technologies we create for these markets will have significant opportunities for cross selling into industrial, appliance, consumer, solar and energy storage markets. Looking forward, given continued softness in some of our end markets, combined with a couple of customer project delays, we anticipate a more muted outlook for the next couple of quarters. However, with the strength of our $1.6 billion plus customer pipeline and continued design win momentum, we expect solid growth to resume later next year. In addition, today’s announcements of our new low-voltage GaN technology, a dual sourcing partnership with Infineon and creation of a more efficient and focused organization all set Navitas on an improved path to growth and profitability.”
5. AXT, Inc. (NASDAQ:AXTI)
Number of Hedge Fund Holders In Q3 2024: 10
AXT, Inc. (NASDAQ:AXTI) is an upstream semiconductor firm that primarily makes and sells substrates. These products are used to manufacture chips on them, and AXT, Inc. (NASDAQ:AXTI)’s substrates revolve around communications, solar, robotics, and other associated applications. The stock has been on quite a ride this year. It fell by 37% in April after a research report alleged that the firm was facing tight financial conditions. AXT, Inc. (NASDAQ:AXTI)’s shares continued their downward momentum in November, as they fell by another 18% following a third-quarter revenue miss. While the firm raked in $23.6 million in revenue during Q3, analysts had expected it to bring in $25.5 million. Even though AXT, Inc. (NASDAQ:AXTI) is based in California, 99% of the firm’s long-term assets are in China. Additionally, 50.6% of the firm’s H1 2024 revenue came from the East Asian country, which creates a double-edged sword. While AXT, Inc. (NASDAQ:AXTI) can benefit from renewed Chinese focus on its domestic industry, the firm might also be caught in the crosshairs of geopolitical tensions between the US and China.
AXT, Inc. (NASDAQ:AXTI)’s management shared details about the state of its Chinese market during the Q3 2024 earnings call:
“Overall, the market recovery is somewhat lumpy, particularly given the weak economic conditions in China. But new fiscal stimulus in China announced in September could provide a catalyst for a truly market environment. This will benefit demand across a broad based of applications, including power amplifiers, HPT applications for wireless switches, high-speed power industrial labels, and LEDs. We continue to be encouraged by our relatively new traction in HPT applications by bringing the learning from our product that’s advancing in our 8-inch gallium arsenide development to our 6-inch gallium arsenide wafer production.”
4. Valens Semiconductor Ltd. (NYSE:VLN)
Number of Hedge Fund Holders In Q3 2024: 12
Valens Semiconductor Ltd. (NYSE:VLN) is an Israeli semiconductor company that provides chips for autonomous driving, cables for long-distance video transmission, and other associated technologies. The fact that its shares are down 22.9% year-to-date is unsurprising given that for the first six months of 2024, Valens Semiconductor Ltd. (NYSE:VLN)’s revenue has dropped by 48%. This has come on the back of economic troubles in China and Europe, as the firm’s products are dependent on the health of the electric vehicle industry and consumer spending. During H1 2023, 49% of Valens Semiconductor Ltd. (NYSE:VLN)’s revenue came from Germany, China, and Hungary. In H1 2024, the firm’s sales in the three respective countries dropped by 75%, 27%, and 53%, respectively. As a result, economic recovery in these three countries is key to Valens Semiconductor Ltd. (NYSE:VLN)’s hypothesis, especially since 63% of its H1 2024 revenue was pending in the form of receivables from six customers.
3. indie Semiconductor, Inc. (NASDAQ:INDI)
Number of Hedge Fund Holders In Q3 2024: 12
indie Semiconductor, Inc. (NASDAQ:INDI) is a specialty semiconductor company that sells a variety of camera and image sensors. These include cameras and LiDAR sensors, and they provide the firm with exposure to the budding autonomous driving market. indie Semiconductor, Inc. (NASDAQ:INDI) benefits from its product diversification since cameras and LiDAR have divided the car industry. While Tesla and Elon Musk are adamant that cameras provide the better solution, other car and autonomous systems manufacturers are betting on LiDAR. However, its exposure to the car industry coupled with the fact that worrying news such as token management salaries have made indie Semiconductor, Inc. (NASDAQ:INDI)’s shares lackluster in 2024. The stock is down 29% year-to-date, but the firm’s third-quarter earnings report marked a turnaround of sorts when the shares soared by 60% in the aftermath. This was on the back of several factors such as a 2025 guidance of $300 million for a 40% growth that met analyst estimates. However, with indie Semiconductor, Inc. (NASDAQ:INDI) having only $100 million in cash and $158 million in debt, the firm has to ensure it can generate sales or risk financial and share price trouble.
Baron Funds mentioned indie Semiconductor, Inc. (NASDAQ:INDI) in its Q3 2024 investor letter. Here is what the fund said:
“Indie Semiconductor, Inc. (NASDAQ:INDI) is a fabless designer, developer, and marketer of automotive semiconductors for advanced driver assistance systems (ADAS) and connected car, user experience, and electrification applications. Indie’s stock fell during the quarter as it guided 2024 revenue growth below Street expectations, as auto production is expected to be incrementally worse, and excess inventory in the automotive supply chains of its customers has delayed indie’s new chips from ramping into high-volume programs. Despite these near-term headwinds, indie is outperforming peers who are seeing significant year-over-year sales declines. It has not suffered a program cancellation for any intact car programs, and it continues to win new sockets in future car platforms, positioning the company for strong growth over the medium and long term, supported by its $6.3 billion design win backlog, of which $4.6 billion is in ADAS applications. Indie has several large-volume programs set to ramp beginning in early 2025, including a marquee radar-related win, the biggest program in the company’s history, which we believe will drive a return to outsized growth in 2025 (indie doubled revenue each year from 2021 through 2023). We believe indie can continue to significantly outpace the broader industry and will approach $1 billion in revenue by the end of this decade, all supported by its contracted visibility, and its stock will re-rate as rapid growth returns.”
2. GCT Semiconductor Holding, Inc. (NYSE:GCTS)
Number of Hedge Fund Holders In Q3 2024: 13
GCT Semiconductor Holding, Inc. (NYSE:GCTS) makes and sells a variety of products used in the communications industry. These include 5G chips, radio frequency chips, and internet-of-things (IoT) products that are used in items such as wireless dongles and other gadgets. Consequently, GCT Semiconductor Holding, Inc. (NYSE:GCTS) has broad exposure to consumer spending, and a global consumer spending slowdown amidst inflation and economic turbulence hasn’t translated well for the firm since its shares are down 64.7% since they started trading and by a whopping 94% since the post-SPAC peak. A slowing global economy is partly to blame for the firm’s woes as well since by H1 2024 end, its revenue had dropped by 35.6%. Fueling the revenue drop is Asian economic weakness, as GCT Semiconductor Holding, Inc. (NYSE:GCTS)’s revenue in its key markets of South Korea and China dropped by 33% and 91% during the period. Therefore, a recovery in the Asian connectivity market and the proliferation of advanced technologies such as 5G are key to GCT Semiconductor Holding, Inc. (NYSE:GCTS) being able to generate tailwinds.
1. Magnachip Semiconductor Corporation (NYSE:MX)
Number of Hedge Fund Holders In Q3 2024: 21
Magnachip Semiconductor Corporation (NYSE:MX) is a South Korean semiconductor firm that focuses on making and selling chips used in consumer-oriented products such as displays and smartphones. As of H1 2024, 74% of the firm’s revenue came from selling analog devices that are used in power management. These products are used in industrial and consumer applications, and a sluggish Asian economy has meant that Magnachip Semiconductor Corporation (NYSE:MX) has struggled and its shares are down 49%. This weakness has been pronounced particularly due to the firm’s reliance on ex-Korea Asia Pacific revenue which accounted for 57% of its H1 2024 sales and marked an 18% annual drop. Therefore, a recovery in the Asian economy and China should drive the hypothesis and create tailwinds for the shares.
Another key aspect for firms like Magnachip Semiconductor Corporation (NYSE:MX) is their channel inventory. Here’s what management shared on this front during the Q3 2024 earnings call:
“The Industrial segment continued to see a strong rebound in solar. The issues of excess distributor and customer inventory in China now is behind us in this business segment. In addition to solar inverters, demand for solar pumps are expanding the range of applications we address. The Industrial segment also saw growth from additional design wins in the China lighting market with our sixth-generation Super-Junction devices. Finally, the shift to high-speed e-motors for scooters and motorcycles is leading to an increase in Bill-of-Material content and carries the potential for stronger growth. While a relatively smaller contributor to PAS, the Automotive segment continues to show strength. We are building upon our past success in Korea with additional design wins and production ramps for automotive customers in Japan and China.”
MX is a penny semiconductor stock that hedge funds are buying. While we acknowledge the potential of MX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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