We recently compiled a list of the 12 Small-Cap Semiconductor Stocks to Buy Now. In this article, we are going to take a look at where Ultra Clean Holdings Inc. (NASDAQ:UCTT) stands against the other small-cap semiconductor stocks.
According to Deloitte’s 2025 global semiconductor industry outlook, released on February 4, 2025, the semiconductor industry is set for a much better 2025, with projected sales reaching $697 billion, representing an 11.2% year-over-year growth. This projection suggests the industry is on track to achieve the widely accepted goal of $1 trillion in sales by 2030. Deloitte analysts also highlight that “average” chip stock performance over the past two years has been a “tale of two markets”: Companies involved in the generative AI chip market have outperformed, while those in automotive, computer, smartphone, and communications semiconductors have lagged.
This growth story aligns with the significant expansion the semiconductor industry has experienced over the past decade, largely driven by advancements in artificial intelligence and high-performance computing. The entire supply chain, from lithography to equipment and packaging, has benefited from this surge, resulting in unprecedented demand for advanced semiconductors. While the majority of investments in these technologies have come from large-cap companies, small-cap companies are often leading the charge on the innovation front within the emerging technologies, and at the same time, offer diversification away from the crowded large-and-mega-cap stocks.
In November 2024, Francis Gannon, Co-chief Investment Officer at Royce Investment Partners, discussed his thesis on small-caps during an interview with Yahoo Finance. He noted that small-caps have been out of favor for an extended period, with the Russell 2000 reaching its peak three years ago and experiencing negative returns since then. Gannon believes the new Trump administration, reshoring efforts, leading innovation, and a favourable earnings season will significantly boost the small-cap companies, describing this shift as nothing short of a “revolution.”
In summary, semiconductors represent a long-term investment opportunity, with the small-cap segment garnering attention as a hot topic in recent months. Exciting return opportunities are anticipated in the coming years. With that, let’s explore the top 12 opportunities in the small-cap semiconductor space that we have identified for you.
Our Methodology
To identify the 12 small-cap semiconductor stocks to buy now, we screened U.S. listed semiconductor companies with a market capitalization between $300 million and $2 billion. The stocks were then arranged in ascending order of the number of hedge fund holders for each company, based on hedge fund data from Insider Monkey’s database as of Q3 2024.
Note: All pricing and market cap data is as of market close on February 7.
At Insider Monkey we are obsessed with 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 technician inspecting a series of critical ultra-high purity components.
Ultra Clean Holdings Inc. (NASDAQ:UCTT)
Market Capitalization: $1.7 billion
Number of Hedge Funds: 24
Ultra Clean Holdings Inc. (NASDAQ:UCTT) is a developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. The company’s product offerings include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics and process modules, high-level assemblies, and other precision components that ensure the integrity and performance of semiconductor manufacturing.
Over the long term, Ultra Clean Holdings Inc. (NASDAQ:UCTT) anticipates sustained growth in the semiconductor market it serves, driven by diverse, long-term industry demands. These demands include emerging CPU architectures that enable higher-performing servers, essential for cloud computing, artificial intelligence (AI), and machine learning applications. Additionally, it foresees that semiconductor original equipment manufacturers (OEMs) will increasingly rely on partners like Ultra Clean Holdings Inc. (NASDAQ:UCTT) to meet their growing capacity needs. As of Q3 2024, the company’s revenue was fairly concentrated, with two major suppliers accounting for around 52% of their total revenue. While higher concentration poses a risk, the company is focusing on expanding its customer base and cross-selling more offerings to existing customers, which should support long-term earnings growth.
Overall UCTT ranks 3rd on our list of the small-cap semiconductor stocks to buy. While we acknowledge the potential of UCTT 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 time frame. If you are looking for an AI stock that is more promising than UCTT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
