We recently compiled a list of the 10 Best Semiconductor Penny Stocks To Buy. In this article, we are going to take a look at where AXT, Inc. (NASDAQ:AXTI) stands against the other semiconductor penny stocks.
Semiconductors have propelled advancements in communications, computers, health care, military systems, transportation, clean energy, and a wide range of other uses. The United States is still at the forefront of cutting-edge manufacturing, design, and research because it invented semiconductor technology. The Semiconductor Industry Association reported $526.8 billion in sales in 2023. Over 70% of the sales made by American semiconductor companies go to foreign clients. In 2023, the US exported $52.7 billion worth of semiconductors, continuing to have a steady trade surplus in this commodity.
According to UN Comtrade DataBase, US imports of semiconductor devices were $26.83 billion, making it the world’s largest importer. On the other hand, China was the world’s top exporter of semiconductor devices in 2023, having shipped $61.32 billion worth of these goods.
The semiconductor industry is growing due to key trends like remote work, electric cars, and, AI, and McKinsey predicts that by 2030, the semiconductor market will reach $1 trillion, with the computing, wireless, and automotive sectors accounting for almost 70% of this growth.
Today, chipmakers are leaning towards 2 nm chips, however, developments from big tech companies indicate that by 2025-2027, it won’t go much beyond that. Hence, with the slowing of Moore’s Law, the semiconductor industry is shifting its focus to accelerated computing, especially in regards to AI. Moreover, there are promises on the software front as well, with AlphaTensor, developed by DeepMind, being touted as a finder for novel matrix-multiplication ways that could lead to the discovery of faster algorithms to speed up computing.
According to Fortune Business Insights, the global semiconductor market was valued at $611.35 billion in 2023 and is expected to grow at a CAGR of 14.9% from $681.05 billion in 2024 to $2062.59 billion by 2032. Regionally, Asia Pacific dominated the global industry, reaching $308.95 billion in 2023, exhibiting the highest growth in the market across the globe. The North American market is growing dynamically, mainly due to rising investments in research and development. The Semiconductor Industry Association (SIA) reveals that US semiconductor manufacturing companies have maintained a high level of R&D spending, allocating almost one-fifth of their total yearly revenue to this area. Innovations in chips were the main driver of this consolidation, which reached a record of $50.2 billion in 2021.
Supply chain challenges, due to the COVID-19 pandemic and geopolitical tensions, especially in China, revealed the United States’ reliance on foreign semiconductor suppliers, resulting in significant shortages. As a result, the US boosted its investment in domestic manufacturing and approved the $52 billion CHIPS and Science Act of 2022 in an effort to raise its share of global semiconductor production, which had fallen from 37% in 1990 to 12%. In order to improve regional capacities, businesses are constructing factories in the US. Through 2030, the value of US-based semiconductor projects that are underway, announced, or being considered ranges from $223 billion to more than $260 billion per Mckinsey.
On June 5th, the SIA revealed that global semiconductor industry sales totaled $49.1 billion in May 2024, up 19.3% from $41.2 billion in May 2023 and 4.1% from $47.2 billion in April 2024. The World Semiconductor Trade Statistics (WSTS) organization compiles monthly sales data, which represents a three-month moving average. Concerning revenue, SIA accounts for approximately two-thirds of non-US chip companies and 99% of the US semiconductor sector.
“The global semiconductor market has grown on a year-to-year basis during each month of 2024, and year-to-year sales in May increased by the largest percentage since April 2022,” said John Neuffer, SIA president and CEO. “The Americas market experienced particularly strong growth, with a year-to-year sales increase of 43.6%.
Sales YoY rose in the Asia Pacific/All Other region (13.8%), China (24.2%), and the Americas (43.6%), but plummeted in Japan (-5.8%) and Europe (-9.6%). The Americas (6.5%), China (5.0%), Asia Pacific/All Other (3.0%), and Japan (1.6%) had a rise in month-over-month sales in May, while Europe saw a decline (-1.0%).
Even if these numbers point to an improvement in the semiconductor supply chain, the chip scarcity that was caused by the COVID-19 pandemic in early 2020 may not have been fully resolved. According to automotive data experts at S&P Global, the chip shortage’s impact on new vehicle manufacturing will have subsided by the middle of 2023. Even though there were still supply constraints for chips, this is now the new normal, allowing automakers to forecast their availability and adjust production schedules appropriately.
Methodology:
In this article, we first used a stock screener, Finviz, to list down all semiconductor stocks trading under $5.00 (as of the writing of this article) with over 30% institutional ownership. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 920 hedge funds in Q1 2024 to gauge hedge fund sentiment for stocks. We have used the stock’s Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
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)
A close-up of a technician’s hands working on an advanced semiconductor substrate.
AXT, Inc. (NASDAQ:AXTI)
Number of Hedge Fund Investors: 19
AXT, Inc. (NASDAQ:AXTI) is an important backend semiconductor equipment provider since it offers substrates for chip makers to print circuits on and produce the final product. Products from this diverse company are utilized in communications, power management, data centers, solar, and autonomous applications.
Although AXT, Inc. (NASDAQ:AXTI) reported Q1 2024 results that were in line with forecasts, the company has seen volatility throughout the years and encountered certain difficulties. Despite good sequential growth in substrate revenues and positive Q2 expectations from management, the company’s cash balance dropped by around $12 million as a result of increased capital expenditures and temporary working capital needs. Concerns have been raised over the durability of the rebound and possible hold-ups in Tongmei’s Shanghai STAR Market listing. Investor anxiety is increased by reports from short sellers casting doubt on the company’s operations.
AXT, Inc. has attractive prospects while it is on the road to recovery. The company’s Q1/2024 results were in line with forecasts; all product lines showed excellent sequential growth, and demand for AI-related products contributed to a noteworthy 50% rise in indium phosphide sales. The strategic agility of the management is demonstrated by its proactive approach to decreasing inventory by $10 million and investigating the monetization of Chinese joint ventures.
Analysts maintain their confidence and estimate a positive near-term price objective of $5.38, with a potential upside of 43.47% and a “strong buy” rating. AXT’s gross profit grew by 7.36% in TTM from 2023, pointing to increased operational effectiveness and profitability. As long as AXTI maintains its focus on operational effectiveness and returns to profitability, it will be in a strong position to thrive in the semiconductor industry. Getting regulatory permission for Tongmei’s initial public offering (IPO) may unleash significant value and position AXT for profitability and future stock gains as it moves toward growth and financial stability.
At the end of Q1 of 2024, AXT, Inc. (NASDAQ:AXTI) was held by 19 hedge funds, with George Mccabe’s Portolan Capital Management holding the largest stake of 1,596,232 shares valued at a total of $7.32 million.
Overall AXTI ranks 2nd on our list of the best semiconductor penny stocks to buy. You can visit 10 Best Semiconductor Penny Stocks To Buy to see the other semiconductor penny stocks that are on hedge funds’ radar. While we acknowledge the potential of AXTI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AXTI 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. This article is originally published at Insider Monkey.