In this piece, we will take a look at the 10 small publicly traded semiconductor companies to buy.
The semiconductor industry has become one of the most important in the world, akin to the key role that oil plays in the global economy. While making this argument would have been tricky in 2022, 2023 and the onset of the artificial intelligence boom makes it much easier to say so. This is because chip companies sit right at the heart of the AI revolution due to their ability to transform literal sand on a beach into pieces of silicon that aim to meet or surpass human intelligence.
This criticality of semiconductors to the global economy and AI has translated into share price performance as well. Wall Street, always eager to catch the next big trend before it occurs, has piled into semiconductor stocks with no end in sight. Some of the biggest semiconductor firms in the world are up by 211% over the past twelve months, and their share price performance is matched by equally impressive revenue growth which would have been thought to be impossible just a couple of years back.
Semiconductor stock indexes which are made of the most consequential chip firms in the world have also gained value. Semiconductor stock indexes, maintained by the S&P and the Philadelphia Stock Exchange are up 17.26% and 57.94% respectively over the past twelve months. This burst of performance comes after a disastrous 2022 that saw big and small semiconductor stocks tumble in the wake of a historic demand and supply mismatch following the coronavirus pandemic. The semiconductor sector is highly cyclical, and between the start of 2022 and the market bottom in October, the S&P’s semiconductor stock index had lost 42% while Philly’s index was down by 43%.
When it comes to valuing semiconductor stocks, some investors prefer to use the price to earnings growth (PEG) ratio instead of the more popular price to earnings (P/E) ratio. The PEG ratio also accounts for earnings growth, and when we look at some fast growing semiconductor stocks with vastly different market capitalization and revenue base, the ratio hovers around 1.45 to 1.48 for both of them. This ratio can inform investors about the future trend of a firm’s stock based on its historic EPS growth to see whether there is an earnings growth trend that can be exploited.
As for investing in semiconductor stocks, some research shows that it might be worth it. One such paper comes from researchers in China who used a benchmark portfolio of US listed semiconductor stocks on the NASDAQ and NYSE with an enterprise value greater than $50 billion and generated a forecast portfolio using the free cash flow to the firm (FCFF) model to check whether future cash flows merit a current investment. Their study revealed that not only was the benchmark portfolio undervalued by 30.56%, but it had an even higher undervaluation of 37.29% when the P/E ratio was analyzed. Of course, the cutoff date for the research was April 2023, so some of the growth predicted in this model has already materialized by now.
Finally, before we head to our list of the top small publicly traded semiconductor companies, it’s also important to see what experts think about the future direction of the industry. Research from Gartner shows that global semiconductor revenue will grow by 17% in 2024 to sit at $628 billion, with the growth fueled by a whopping 66% growth in the memory industry. The product end of the semiconductor industry is broadly bifurcated into application processors (such as CPUs and GPUs) and memory products (such as RAM), and often, different firms dominate either area. The 17% Gartner growth estimate is matched by a 16% growth estimate from the World Semiconductor Trade Statistics (WSTS). McKinsey estimates that global semiconductor sales will reach $1 trillion by 2030.
Currently around two thirds of global semiconductor sales take place in Asia. About 75% of global wafer fabrication capacity is in 4 Asian countries: Taiwan, South Korea, China, and Japan. In August 2022, President Biden signed into law the CHIPS and Science Act of 2022, providing $39 billion in incentives over 5 years to bolster semiconductor manufacturing in the US. Overall, the semiconductor industry is very active both on the demand side and the supply side. There are some signs that this industry might be in bubble territory. According to Aswath Damodaran, semiconductor industry contains 63 firms and these firms have an average EV/EBITDA ratio of 31.6. This is the highest EV/EBITDA multiple among all industries tracked by Damodaran (only positive EBITDA firms are considered for these calculations).
With these details in mind, let’s take a look at some small publicly traded semiconductor companies. As compared to the giants, there might be greater growth runways to these firms, allowing the prescient investor to capitalize early on.
A close-up of a lithium-ion battery surrounded by a network of silicon nanowires.
Our Methodology
To make our list of the top small publicly traded semiconductor companies, we ranked semiconductor and semiconductor equipment stocks with a market cap lower than $2 billion by the number of hedge funds that had bought the shares in Q1 2024. Out of these, the top stocks were chosen.
Why are we interested in the 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. Arteris, Inc. (NASDAQ:AIP)
Number of Hedge Fund Investors In Q1 2024: 16
Arteris, Inc. (NASDAQ:AIP) is a small semiconductor licensing firm that provides technology blueprints for key areas of a chip that are called interconnects. These are circuits that connect various elements of a semiconductor with each other. This also makes Arteris, Inc. (NASDAQ:AIP) provide technologies that are used in the designs of systems on chips (SoCs). These are compact packages that integrate different elements such as memory and application processors on a single package. A key standout aspect of Arteris, Inc. (NASDAQ:AIP) is the fact that it is a merchant IP provider. This means that the firm’s products are available to a wide variety of chip designers, and it implies that should the strong trend of custom AI chip designs continue, then Arteris, Inc. (NASDAQ:AIP) could play a key role in the democratization of AI chip design and allow smaller players to emerge in the market.
One such example is Arteris, Inc. (NASDAQ:AIP)’s partnership with Mercedes Benz for the latter’s network on chip (NoC). During the firm’s latest earnings call, management commented on the deal and shared:
We are excited to be partnering in pioneering a reference with Mercedes Benz for its network-on-chip, and last level cache implementations as part of the ADU platform, addressing a full range of autonomous driving applications. Another collaboration in the first quarter, included expanding our RISC-V ecosystem support, to help offer on-chip connectivity for companies deploying the Damo-XuanTie processor IP in their SoCs. This collaboration underscores Arteris capability to support processor choices made by our customers, including the support of both Arm and RISC-V processors on the same SoC. Currently, certain macroeconomic dynamics, including geopolitical uncertainties and the U.S. BIS restrictions concerning China, U.S. trade, continue to impact our business, though we are not seeing further deterioration at this time.
While these dynamics do create near-term headwinds, we believe that the scale and scope of our long-term opportunity remains robust, supported by a strong product pipeline of new system IP technologies, and solid relationships with some of the largest electronics companies in the world, who continue to innovate in exciting areas such as generative AI and autonomous driving, using our Arteris system IP technologies. With that, I’ll turn it over to Nick, to discuss our financial results in more detail.
9. ACM Research, Inc. (NASDAQ:ACMR)
Number of Hedge Fund Investors In Q1 2024: 18
ACM Research, Inc. (NASDAQ:ACMR) is a mid sized specialized semiconductor equipment provider that deals with products that enable chip manufacturers to control quality and yield by cleaning the silicon wafers during fabrication. Its business model means that ACM Research, Inc. (NASDAQ:ACMR) benefits when there is a growth in global chip manufacturing. Right now, not only has the US government announced $280 billion in funding to develop semiconductors in America, but European, South Korean, Taiwanese, and Japanese governments have also either launched or might launch similar initiatives. The de globalization of semiconductor supply chains is a hot topic in the industry right now, and ACM Research, Inc. (NASDAQ:ACMR) stands to benefit particularly when it expands its presence globally. Another key to its success is maintaining customer relationships, cost advantages, and technological competence to ensure that current or potential competitors do not snatch market share.
However, ACM Research, Inc. (NASDAQ:ACMR) might be harmed if trade tensions between the US and China restrict US chip company sales in the country. During its Q1 2024 earnings call, management shared a lot of details about ACM Research, Inc. (NASDAQ:ACMR)’s international initiatives when it shared:
Our growth is also being driven by new entrants. On the international front, we plan to deliver ULTRA C v backside cleaning and a bevel etcher tool in the second quarter of 2024 to a large US manufacturer that qualify as the first SAP cleaning tool for revenue last year. This demonstrates a deepening relationship which we believe can lead to production orders across multiple product lines. Moreover, ACM brand and the reputation are gaining recognition among other US chip makers with new engagement and the potential opportunity to penetrate their global manufacturer sites. We recently hired additional seasonal marketing and sales professionals who bring establishing their relationship with key US semiconductor players.
In Europe, we install our first ever evaluation tool, the ULTRA C SAPS V cleaning tool at a major global semiconductor manufacturer in the fourth quarter last year. The initial feedback has been positive and we are optimistic that the volume production order possible by middle of the year. We think Korea we see opportunity with SK Hynix, high bandwidth memory HDM product. We see potential gains with our SAPS cleaning tool for high aspirational vehicles as well as ultra ECP for TSV applications. To support growth, we made a progress in our facility expending in China and other regions. Please turn to Slide 8. In China, construction of our Lingang production R&D center is nearly complete. We expect the production later this year. In Korea, we are making progress with key customers, we believe a strong commitment to Korea can improve our relationship with key Korean customers.
Our resource in Korea can also provide another basis to supporting international customer in the US, Europe and other parts of Asia. We recently hired a new leader to run our Korea operations, David Kim. He is a long-time veteran of SK Hynix, we are optimistic his experience and relationship will help adoption our technology and accelerate our business in the region. We continue to invest in our Oregon site to add to our service, support and demonstration capability for R&D and customer activity in the US and Europe. I would now provide our outlook. Please turn to Slide 9. We believe WFE spending in China will remain solid as the country continues on its goal to match its production capacity with the end-market consumption. We are focused on gaining market share in China, new product introduction and expanding our business to new customers in the USA, Korea, Europe and other Asia markets.
8. MaxLinear, Inc. (NASDAQ:MXL)
Number of Hedge Fund Investors In Q1 2024: 18
MaxLinear, Inc. (NASDAQ:MXL) is a specialized chip company that designs and sells communications SoCs. This places the firm at the mercy of the telecommunications sector, and its status as a semiconductor stock also means that MaxLinear, Inc. (NASDAQ:MXL) is vulnerable to the cyclical trends of the chip industry. On this front, as the telecommunications sector slowed down in 2023 and vendors were left with excess inventory, MaxLinear, Inc. (NASDAQ:MXL)’s revenue dropped by 38% annually to sit at $693 million. It spent the first quarter dealing with inventory digestion as well, with revenue dropping 62% annually. However, just as NVIDIA has bounced back from its 2022 revenue slump because of AI, MaxLinear, Inc. (NASDAQ:MXL) might also find that new and emerging technologies such as WiFi-7 and a growth in fiber and other network operations allow its revenue to rebound.
MaxLinear, Inc. (NASDAQ:MXL)’s management is optimistic about these trends too as they shared details for WiFi-7 and the ever crucial copper ethernet upgrade in the US during the latest earnings call:
Customers are expected to upgrade today’s more than 2 billion copper 1-gigabit Ethernet ports to 2.5 gigabit Ethernets speeds over time using the existing standard CAT-5 cabling. We are seeing exciting design win activity for our solution, including a Tier 1 North American enterprise OEM customer that is expected to ramp to production in the late 2024. As we look ahead, we believe our Ethernet business could reach $100 million over the next 18 to 24 months. Turning to broadband. We continue to gain traction in the fiber P — PON market with new design wins driving our growth. As many of you know, in 2023, we began ramping our single-chip integrated fiber PON plus 10-gigabit processor gateway SoC and connectivity solutions with the major Tier 1 North American service providers.
We’re now ramping a new opportunity with the second major Tier 1 North American service provider. Together, these wins confirm our competitive product offering and demonstrate significant growth opportunities for us in the coming years. Last year, our PON revenue was approximately $50 million. We expect to be able to more than double that over the next 2 years. In connectivity, our Wave700 single-chip tri-band, Quad MIMO WiFi 7 device continues to do extremely well in qualifications. We expect service providers to begin the initial rollout late this year with adoption peaking in 2 to 3 years. For MaxLinear WiFi 7 has the exciting potential to drive significant ASP growth and higher attach rates in our broadband access platform versus previous generations.
7. AXT, Inc. (NASDAQ:AXTI)
Number of Hedge Fund Investors In Q1 2024: 19
AXT, Inc. (NASDAQ:AXTI) is a key backend semiconductor equipment provider since it provides substrates that chip manufacturers use to print the circuits on and make the end product. A diversified firm, its products are used in data centers, power management, communications, solar, and autonomous applications. This means that AXT, Inc. (NASDAQ:AXTI) remains insulated from a downturn in one industry provided that other sectors continue to perform well. Its two key products are based on Indium and Gallium phosphides, and both are used to manufacture key products for AI and satellites. This means that as the demand for AI products grows, AXT, Inc. (NASDAQ:AXTI) might benefit since its products enable AI servers to transfer data at high speeds – a non negotiable component of an AI data center’s performance.
These trends appear to be already playing out in the market as AXT, Inc. (NASDAQ:AXTI)’s management share during its latest earnings call:
We review AI as an exciting catalyst for Indium phosphide in the years to come. As AI requires high-speed lasers and detectors for rapid data transfer with increased bandwidth, low attenuation and low distortion. Today, AI applications are primarily oxide pixels, which require a relatively small amount of substrate material. But as the industry moves to 800 gig and then 1.6 terabyte speed, we expect that there will be a necessary transition to indium phosphide. We are already seeing development work happening today with next-generation silicon photonics devices and electro-absorption modulated laser or EML for high-speed data center transceivers. Revenue from these applications contributed to our strong indium phosphide growth in Q1 and will help drive our expected growth in 2024.
Our gallium phosphide revenue grew 24% sequentially in Q1, reflecting increased demand across a broad base of applications, including power amplifiers, HPT applications for wireless our switches, high-power lasers and LEDs. We believe much of the excess inventory in the supply chain has been decided, and we are benefiting from a desire among our customers to diversify their supply base as the market recovers. For example, today, our share of the HPT market is relatively small, but we believe we have a great opportunity to increase our market share over time and are pleased with early customer traction. In addition, our 8-inch gallium site development efforts have led to a groundbreaking advancements in both of our defect densities and yields.
6. Ichor Holdings, Ltd. (NASDAQ:ICHR)
Number of Hedge Fund Investors In Q1 2024: 19
Ichor Holdings, Ltd. (NASDAQ:ICHR) is a specialized semiconductor equipment company that enables chip manufacturers to manage and control gasses during the manufacturing process. Like other chip equipment manufacturers, Ichor Holdings, Ltd. (NASDAQ:ICHR) is also entering the second half of 2024 amidst a slowdown in global wafer equipment. This slowdown was driven by a weak economy as well as inflation leading to slower smartphone and PC sales, and it is unsurprising that Ichor Holdings, Ltd. (NASDAQ:ICHR)’s shares are up by a mere 2% over the past 12 months. This indicates that the semiconductor stock boom fueled by AI has not materialized upstream into the supply chain. However, a recovery in the memory market, which also slumped last year, can help Ichor Holdings, Ltd. (NASDAQ:ICHR)’s stock and another catalyst could be the US CHIPS and Science Act since Ichor Holdings, Ltd. (NASDAQ:ICHR) is an American company.
Another key metric to watch for Ichor Holdings, Ltd. (NASDAQ:ICHR) is the capital expenditure trends in the industry which are updated every quarter. Its management is anticipating a demand recovery, as it shared during the latest earnings call:
We will remain optimistic for an improvement in the second half revenue volumes as the demand profile begins to build in advance of a stronger 2025 spending environment. That being said, our visibility remains limited to approximately 3 months given the return to normalized lead times in the supply chain. And with our current visibility, we are not yet seeing a meaningful uptick in demand for new systems serving the NAND market. The recovery in this market remains in the very early stages and recent reports indicate that the improvement year-to-date is chiefly focused on technology upgrades. Given the strong etch and deposition intensity characteristic of the NAND market, we look forward to a more meaningful improvement in NAND demand, driving a strong growth year for us in 2025.
5. Photronics, Inc. (NASDAQ:PLAB)
Number of Hedge Fund Investors In Q1 2024: 19
Photronics, Inc. (NASDAQ:PLAB) makes and sells one of the most important chip manufacturing materials, the photomask. A photomask is what allows companies like TSMC and Samsung to use NVIDIA’s chip designs and transfer them to a silicon wafer to manufacture a chip. A slowdown in the broader semiconductor market, covering display, mature nodes, and other regions led to a weak materials market in 2023. This was also evident in China, where businesses are struggling with an economic slowdown as well. Since the sector takes some time to recover after a slowdown, Photronics, Inc. (NASDAQ:PLAB) might struggle in the future as well. These trends were also evident during its latest earnings report, which saw the firm’s adjusted EPS of $0.46 miss analyst estimates of $0.55.
Photronics, Inc. (NASDAQ:PLAB)’s two key business divisions deal with integrated circuits (ICs) which cover CPUs and other chips and high end LPDs (liquid phase deposition) used in display manufacturing. The firm shared details for both these divisions during the latest earnings call where it shared:
IC sales improved quarter-over-quarter while LPD decreased. Compared with the first quarter, gross margin was similar and operational margin was largely lower as we had higher R&D expense driven by an increase in qualification activity. As a result, reported EPS was $0.58. On an adjusted basis, EPS was $0.46. Cash flow was good during the quarter and we further strengthened our balance sheet to position us to invest in the market [indiscernible] growth opportunity we have, especially in IC. I would like to recognize the dedication of the global Photronics team this quarter to achieve these results, especially those in Taiwan that responded to added challenges. Turning to the market, reversing a trend seen over the previous three quarters, our IC mainstream sales increased, mainly driven by market share gains.
High end was down primarily due to lower U.S. demand. Consistent with most of the end users, we see the overall semiconductor environment gradually improving into our fiscal Q3 and Q4 across most IC segments and regions. High end LPD was softer as AMOLED design demand has [indiscernible] ahead of new premium smartphones that should begin production ahead of fall launches. Longer term, we remain optimistic regarding positive demand trends for both IC and LPD. IC customers in Asia continue to migrate to smaller design nodes, including 32 and 28 nanometers. We are well positioned to capture this business. We also expect megatrends, such as AI, to drive chip design activity to handle AI workloads and edge processes. We expect a wide range of IC types be developed in support of this AI ecosystem from GPU, CPU and ASIC, to high band memory and power electronics.
4. Cohu, Inc. (NASDAQ:COHU)
Number of Hedge Fund Investors In Q1 2024: 20
Cohu, Inc. (NASDAQ:COHU) is a semiconductor equipment firm that allows chip manufacturers to test their final products for quality control. Since it is an undiversified firm that focuses primarily on testing equipment, the firm’s fortunes rest on the broader performance of the semiconductor industry which incorporates the automotive, smartphone, and other sectors. Cohu, Inc. (NASDAQ:COHU) might find it insufficient to benefit from an uptick of AI products alone, and as the global economy continues to take the strain from high interest rates, the firm has struggled on the financial front. Its latest earnings report saw Cohu, Inc. (NASDAQ:COHU) announce a mid point revenue guidance of $105 million, which fell below consensus analyst estimates of $108 million. The guidance miss means that the weakness in the equipment and materials sector that we’ve identified in other stocks part of our list of the top small semiconductor stocks also extends to Cohu, Inc. (NASDAQ:COHU).
As to when Cohu, Inc. (NASDAQ:COHU)’s management expects its fortunes to reverse, here’s what it had to say during the latest earnings call:
But what we’ve seen in particularly IoT devices, so talking about RF in the mobile space, we’ve seen a little bit of an improvement in orders in the fourth quarter revenue in the first quarter. As I mentioned before on the prior call, the prior question, sorry. The mobile segment is the only segment of our market that we saw an increased revenue quarter-over-quarter. Now that’s more particularly focus on the Android segment and some – as we understand customer. Our customers opportunity for sales in China and Korea not yet a broad-based recovery, so I think mobile will be incrementally better going forward. But realistically, I think a full-blown recovery is more of a late this year to 2025 story.
3. Magnachip Semiconductor Corporation (NYSE:MX)
Number of Hedge Fund Investors In Q1 2024: 22
Magnachip Semiconductor Corporation (NYSE:MX) is a small South Korean semiconductor company that makes and sells products used in displays, smartphones, and other consumer electronics products. This means that the firm’s performance is dependent on the global economy, and particularly in the heavily populated Asian continent. As a result, it’s unsurprising that Magnachip Semiconductor Corporation (NYSE:MX)’s revenue has failed to grow in 11 consecutive quarters. However, the firm is using this slowdown in the broader semiconductor industry to invest in new products. Magnachip Semiconductor Corporation (NYSE:MX) has launched new power management products, a new company in China, and a new MOSFET product in 2024 as it hopes to gear itself for future growth once the economic outlook improves.
Magnachip Semiconductor Corporation (NYSE:MX)’s management believes that the firm might have finally hit the proverbial bottom when it comes to performance. During the latest earnings call, the firm shared:
Looking ahead, the macro environment remains uncertain, however, we believe we hit the bottom in Q1 and we expect gradual improvement going forward as channel inventories are consumed. We expect sequential growth especially in industrial, automotive, and computing segments. Finally, we recognize our recent market performance and results have been disappointing. However, we want to assure our investors that we remain unwavering in our commitment to drive growth and maximize shareholder value as demonstrated by our decision to bring in fresh perspectives with the addition of Mr. Nathan to our Board. Further, we continue to execute our stock buyback program daily and I am confident that the net purchases across the challenging market will provide accretive returns to our shareholders on the other side of this downturn.
2. SMART Global Holdings, Inc. (NASDAQ:SGH)
Number of Hedge Fund Investors In Q1 2024: 23
SMART Global Holdings, Inc. (NASDAQ:SGH) is a semiconductor company whose primary line of business is selling memory products. The firm also LED chips to the display industry. SMART Global Holdings, Inc. (NASDAQ:SGH) also has a key stake in the AI infrastructure and high performance computing (HPC) industry through its Penguin Computing platform. The AI platform might be key for SMART Global Holdings, Inc. (NASDAQ:SGH)’s future, as the memory market is continuing to recover from 2023’s historic downturn. Penguin enables firms interested in setting up AI data centers to do so, and if the AI market grows as investors expect it to, then SMART Global Holdings, Inc. (NASDAQ:SGH) might see demand growth.
As was expected, SMART Global Holdings, Inc. (NASDAQ:SGH)’s management capitalized on the AI boom during its April 2024 earnings call as it opened the briefing by sharing:
We delivered solid financial results in the second quarter and continued to make great strides in our transformation into a provider of high-performance, high-availability solutions that enterprise customers need to deploy AI on-premise, at the edge and in the cloud. As one of the few players in the industry with decades-long experience in high-performance compute and specialty memory, SGH is uniquely positioned to help companies manage the complexity of AI implementation at scale. As a total solution provider, we offer our customers and partners innovative technology-agnostic hardware configurations, software that manages AI systems for maximum output and availability, and a professional services suite that enables our customers to achieve best-in-class performance and reliability.
1. Semtech Corporation (NASDAQ:SMTC)
Number of Hedge Fund Investors In Q1 2024: 33
Semtech Corporation (NASDAQ:SMTC) is a small but diversified semiconductor company that sells signals management products, integrated circuits used in data centers, and power protection chips. The product diversification means that Semtech Corporation (NASDAQ:SMTC) can continue to grow revenue if one segment continues to perform but others are disappointing. This trend was evident during the firm’s first quarter of fiscal 2025 results. These saw Semtech Corporation (NASDAQ:SMTC)’s data center revenue grow by 61% annually as the growth in AI orders translated well for a firm whose overall revenue grew by 44% annually to $206 million. Semtech Corporation (NASDAQ:SMTC) also seems to be laser focused on data centers, and a potential recovery in telecommunications, as its new CEO who took over in June 2024 has extensive experience in the industry.
Semtech Corporation (NASDAQ:SMTC)’s management commented on the AI trends that benefited the firm and the telecommunications opportunities ahead of it during the latest quarter at the earnings call. According to the firm:
In hyperscale data center applications, net sales more than doubled over last year with powerful secular trends in AI continuing to support our copper and optical portfolios. We believe AI is a trailblazer, which facilitates accelerated adoption of leading-edge technologies such as active copper cables, linear pluggable optics, and 1.6T optical modules in general compute applications. For our copper edge linear redrivers, our expectations for timing and market opportunity in 1.6T active copper cables remain consistent with last quarter. We are closely collaborating in the qualification process, which is largely progressing to plan. While qualifications are currently ongoing, cable suppliers have received purchase orders for designs specifying our chips, which we believe to be a good indication of progress.
While SMTC might be a small publicly traded semiconductor industry looking to tackle mega trends, our conviction lies in the belief that some 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 MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None.
