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 Valens Semiconductor Ltd. (NYSE:VLN) 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 digital circuit board with chips illuminated by LED lights.
Valens Semiconductor Ltd. (NYSE:VLN)
Number of Hedge Fund Investors: 13
HDBaseT technology from Valens Semiconductor Ltd. (NYSE:VLN) allows high-definition digital audio, video, Ethernet, USB, and power all through a single cable. Modern driver-assistance systems and infotainment are supported by their chipsets. With its headquarters located in Israel, it has operations in China, the United States, Japan, Germany, and Israel.
The 2022 stock decline of Valens Semiconductor Ltd. was caused by a significant cash burn rate. In 2021, the cash was $174.36 million; but, by 2023, it had plummeted to $142.02. Lately, an absence of fresh victories in vehicle design has resulted in missed opportunities for expansion. In addition, the firm had to deal with sluggish inventory consumption in the audio-video area and a cyclical slump in the automotive market. Despite a challenging Q1 2024 in which sales dropped 51.60% to $11.56 million from $23.9 million in the same quarter the previous year, Valens Semiconductor (NYSE: VLN) surprised analysts by reporting an EPS of $0.10, which was $0.03 more than their projected $0.07 per share. Moreover, the VLN exceeded projected sales and increased Q2 guidance due to predicted spikes in customer demand. Yet, the sharp decline in revenue in Q1 2024 underscores persistent market pressures and the unpredictability of maintaining profitability in the long run.
Notwithstanding the present difficulties, long-term development prospects are provided by Valens Semiconductor’s current partnership with Mercedes and its possible victories in car design competitions. With a positive adjusted EBITDA of $2.2 million in Q4 ’23, the firm hopes to increase profitability by streamlining operations. The audio-video sector continues to be a reliable source of revenue, enabling a slow but steady climb to 2023 levels by 2026. The business expects substantial revenue growth in the second half of 2024 due to the high level of demand for its high-performance USB 3.0 extension solution, the VS6320, in spite of macroeconomic headwinds and slow inventory digestion. Valens has the potential for future growth, with the company’s expected $5.5 billion total addressable market by 2029 due to its continued investment in its audio-video and automotive sectors. With $139.8 million in cash and no debt, Valens maintains a strong balance sheet despite a net loss in terms of revenue of $10 million.
Analysts have recommended a “strong buy” based on the average price objective of $4.00, implying that investors may potentially profit by 44.93% from the current stock price of $2.76.
In the first quarter of 2024, there were 13 hedge funds for Valens Semiconductor Ltd. (NYSE:VLN) in IM’s database. The company’s biggest shareholder is Seth Fischer’s Oasis Management, with 100,000 shares worth $235,000.
Overall VLN ranks 4th 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 VLN 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 VLN 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.