The 3 Best Semiconductor Stocks to Buy in January 2024

Stocks to buy

While Nvidia (NASDAQ:NVDA) may have stolen the spotlight when it comes to the best semiconductor stocks, it’s not the only idea out there. Not to pick on the graphics processing specialist – it’s doing just fine. However, with a trailing-year earnings multiple of nearly 72X, one has to wonder if a breather may be due.

Further, if such a slowdown materializes, a subsequent panic could have you holding the bag. As a recent stakeholder, that wouldn’t be ideal. On the other hand, you can consider the best semiconductor stocks that didn’t quite catch everyone’s attention. They’re underappreciated and undervalued but they’re also incredibly relevant.

Should the broader technology space continue to march higher, chip specialists could ride coattails. On that note, below are compelling ideas for best semiconductor stocks to consider.

Tower Semiconductor (TSEM)

In Ultra Modern Electronic Manufacturing Factory Design Engineer in Sterile Coverall Holds Microchip with Gloves and Examines it. Semiconductor stocks to sell

Source: Shutterstock

Based in Israel, Tower Semiconductor (NASDAQ:TSEM) manufactures integrated circuits (ICs) using specialty process technologies. Broadly, Tower represents a foundry service, meaning that it manufactures chips for other companies. Its acumen covers both analog and mixed-signal ICs, making the company vital for various industries. These applications include automotive, medical and industrial automation.

Just to give an idea of the size of the total addressable market, by year’s end, experts in the field project revenue in the IC sector to reach $500.7 billion. Further, the segment could expand at a compound annual growth rate (CAGR) of 6.22% to 2027. If so, by the forecast culmination, the ecosystem could command market volume of over $600 billion.

Just for context, TSEM’s market capitalization is a little over $3 billion.

Enticingly, Tower shares trade at a trailing-year earnings multiple of 6X. Further, they trade at a trailing-year revenue multiple of 2.13X. Both stats are undervalued. Lastly, analysts rate shares a moderate buy with a $36.50 average price target.

SkyWater Technology (SKYT)

Close-up Presentation of a New Generation Microchip. Gloved Hand Holding Piece of Technological Wonder. Semiconductor stocks are in the news.

Source: Shutterstock

Headquartered in Bloomington, Minnesota, SkyWater Technology (NASDAQ:SKYT) offers geopolitical relevance. Per its public profile, SkyWater is the only U.S.-owned, pure-play silicon foundry. That’s significant due to the disruption of the global semiconductor supply chain during the worst of the Covid-19 crisis. There are too many chokepoints that could crimp economic development. Thus, SkyWater provides a sense of confidence and relief.

While I don’t want to go down a rabbit hole, China’s overtures toward Taiwan presents huge risks. Let’s face it – Taiwan absolutely dominates the foundry market. Moreover, Allied Market Research points out that this sector reached a valuation of nearly $107 billion in 2022. Further, it could hit $231.5 billion by 2032, representing a CAGR of 8.1% from 2032.

It’s no wonder so many countries are jittery about the Taiwan independence issue. If it goes, the global economy could sink. And if that wasn’t enough to entice investors, SKYT trades at only 1.42X sales, below the sector median of 3X. With a unanimous strong buy rating, it’s one of the best semiconductor stocks.

Semtech (SMTC)

SMTC stock: The Semtech logo on a sign outside its building

Source: Shutterstock

Based in Camarillo, California, Semtech (NASDAQ:SMTC) is a supplier of analog and mixed-signal semiconductors. It also provides advanced algorithms for consumer, enterprise computing, communications, and industrial end markets. To be upfront, SMTC incurred considerable choppiness and volatility in 2023. I must say, it’s also not off to the most auspicious of starts to the new year.

Nevertheless, Semtech might make a case for the best semiconductor stocks on a comeback trail. With its acumen, the company provides various connectivity and signal conditioning applications. Many of its manufactured chips are integrated into audio/video, industrial, wireless, and data center functionalities. Unless you envision that all these market segments will become antiquated, SMTC carries at least some comeback credibility.

Also, SMTC trades for only 1.58X trailing-year revenue. While it may not have the most sterling financials, its revenue is above average and it’s consistently profitable. Finally, analysts rate shares a consensus strong buy with a $29.70 average price target.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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