Global semiconductor sales rose to a record high of $ 556 billion in 2021, up 26% from the previous year, when a record 1.15 trillion chips were shipped last year despite the industry facing a supply crisis.
It looks like 2022 may prove to be another landmark year for the semiconductor industry, with sales hitting $ 52.5 billion in February, up 32.4% from the same month in 2021. The sector generated $ 50.7 billion in revenue in January 2022, indicating that this market has got off to a warm start this year.
By 2030, global semiconductor sales are expected to exceed $ 1 trillion, so investors looking to add some long-term winners to their portfolios should take a closer look at this sector.
Nvidia (NVDA 3.25% ) and Skyworks solutions (SWKS 1.69% ) could make the most of the booming demand for semiconductors as they serve fast-growing niches such as data centers, wireless networks, smartphones and computers. Let’s look at the reasons why these semiconductor bearings could run up exponentially thanks to the semiconductor boom.
Nvidia ended the 2022 fiscal year (which ended January 30) with $ 26.9 billion in revenue, an increase of 61% over the previous year. That number pales in comparison to the $ 1 trillion revenue capability that Nvidia management says it sits on, spread across multiple verticals such as games, the automotive industry, chips and systems, artificial intelligence (AI) enterprise software, and what it calls the Omniverse. (its platform for 3D design).
For example, the data center business creates the need for more of the graphics processing units (GPUs) that Nvidia sells. Cloud service providers have increased their GPU deployments by a multiple of nine times in four years, a trend that has come to stay with accelerating AI and machine learning workloads. A third-party estimate predicts that the global data center accelerator market could hit $ 53 billion in revenue in 2027, compared to $ 4.2 billion in 2020.
Nvidia is in a solid position to take advantage of this market. GPUs are expected to account for nearly 40% of accelerator market revenue by 2027, and Nvidia reportedly controls more than 80% of data center GPUs. It is working to further strengthen its grip with its Grace chips to accelerate AI and high-performance computing (HPC) workloads.
All in all, data centers, AI enterprise software, and hyperscale computing provide an addressable $ 450 billion opportunity for Nvidia, and the company seems ready to get the most out of it.
The car market is another reason why Nvidia’s unique growth has come to stay. The company generated only $ 566 million in revenue from this segment in fiscal year 2022, but it sees an opportunity for $ 300 billion here. It has already amassed $ 11 billion in design gains (a design gain occurs when a company’s chips are designed into a product), a number that can increase significantly thanks to the huge ecosystem of car partners and original equipment manufacturers (OEMs) that Nvidia has built. up.
Throw the catalysts into Nvidia’s gaming and professional visualization companies, and it’s easy to see why earnings are expected to reach a compound annual growth rate (CAGR) of almost 31% over the next five years. But the stock was able to achieve faster growth given the huge size of the markets in which the company operates, helping this growth stock to become parabolic in the future.
2. Skyworks Solutions
Sales of 5G smartphones increased by 117% in 2021, according to market research firm IDC, and it is also expected to increase at an incredible pace in the long run. According to another estimate, global 5G smartphone sales are expected to record a 125% CAGR by 2025.
For investors looking to take advantage of this fast-growing market, Skyworks Solutions could be a solid bid as it delivers chips to leading smartphone OEMs such as. AppleSamsung, Live, Xiaomi, and Oppo – the top five providers of 5G smartphones across the globe, according to Strategy Analytics. Skyworks is therefore a pick-and-shovel game in the 5G smartphone market.
The company’s mobile business produced 68% of its total revenue in the first quarter of fiscal year 2022, which ended December 31, 2021. Apple was its largest customer last fiscal year with 59% of total revenue. This close relationship with Apple helped Skyworks close the 2021 fiscal year (ended October 1, 2021) with 52% revenue growth to a record $ 5.1 billion, while non-GAAP earnings per share. share rose 71% to $ 10.50 per share.
Apple’s expansion of its 5G smartphone series with the addition of the new iPhone SE should give Skyworks a shot in the arm. The new iPhone could increase Apple’s sales significantly by attracting budget-conscious customers. The smartphone maker is expected to sell at least 30 million units of iPhone SE this year, though the figure may be higher given the price of the device – which ultimately gives Skyworks a boost.
Rapid growth in 5G smartphone adoption can help Skyworks maintain its impressive momentum, as these devices feature more radio frequency (RF) content. Skyworks’ peers Qorvo points out that 5G smartphones have $ 5 to $ 7 extra RF content compared to their 4G counterparts. So in addition to stronger volumes in the 5G era, Skyworks’ revenue per smartphone will also increase with the higher content.
All this makes Skyworks Solutions a solid game on 5G smartphones. And investors can consider buying the stock right away as it is traded at only 15 times the subsequent earnings, a nice discount on Nasdaq-100‘s earnings multiple of 33.
This article represents the opinion of the author, who may disagree with the “official” recommendation position for a Motley Fool premium advisory service. We are motley! Questioning an investment dissertation – even one of our own – helps us all think critically about investing and make decisions that help us become wiser, happier and richer.