Among last year’s hardest-hit sectors were semiconductor stocks. The chip industry swung from a supply shortage to a glut as demand slowed following a pandemic-driven surge. The iShares Semiconductor ETF (NASDAQ:SOXX) lost 35% in 2022, down much more than the broader technology sector. However, SOXX is off to a strong start in 2023, gaining 25% year to date. And that is despite a number of chipmakers delivering disappointing results and forecasts. If this bullish momentum is signaling that the bottom is indeed in for the sector, now may be the perfect time for investors to add some undervalued semiconductor stocks to their portfolios.
Even if the recent run-up is a head fake, it is impossible to think of a world without chips. And the passage of the CHIPS and Science Act last year is a huge catalyst for the sector. The legislation allocates $52 billion in funding to bolster U.S. semiconductor manufacturing.
Therefore, it’s not so much a question of if the semiconductor sector will recover, but when. With that in mind, let’s take a look at three of the most undervalued semiconductor stocks to buy this month.
| QCOM | Qualcomm | $135.02 |
| INTL | Intel | $30.32 |
| NVDA | Nvidia | $211.00 |
Qualcomm (QCOM)
At the top of my list of undervalued semiconductor stocks to buy is Qualcomm (NASDAQ:QCOM). While the company predominately makes mobile processors and 5G wireless chipsets, it has been taking steps to diversify its business with a focus on the automotive chip market and Internet of Things technologies. This should help drive growth amid a slowing smartphone market and as the company’s relationship with Apple (NASDAQ:AAPL) appears to be coming to an end.
Qualcomm reported fiscal-first-quarter results on Feb. 2. While earnings came in ahead of analyst estimates, revenue fell short, declining 12% year over year to $9.46 billion. This was mainly due to an 18% drop in handset revenue from a year ago. But revenue for the firm’s automotive segment jumped 58% to $456 million.
Management warned that inventory levels could remain high through the first half of the year, and guidance for the current quarter was below what analysts were expecting. However, Qualcomm has been working to reduce operating costs in the face of macroeconomic uncertainty. And the stock held up following the revenue miss and disappointing forecast.
In fact, shares are up 32.5% since bottoming out two months ago. QCOM remains down 24% over the past year, though, with shares trading at just 13.6 times forward earnings. That is better than 77% of the semiconductor industry.
In late January, Barclays upped its rating on QCOM to “overweight” from “equal weight” and raised its target price to $150 from $120. That is 11% above where shares are currently trading. However, the stock could go much higher long term as the company’s growth in the auto and IoT sectors accelerates.
Intel (INTC)
Intel (NASDAQ:INTC) is the granddaddy of the chip market and the world’s second-largest chipmaker by revenue, following Taiwan Semiconductor Manufacturing Company (NYSE:TSM). Investors lost interest in Intel in 2022, with shares dropping 47%. However, it is off to a strong start in 2023, rising 15% despite a big earnings miss.
On Jan. 26, Intel reported worse-than-expected fourth-quarter revenue and earnings thanks to weak demand for PC chips. Its guidance for the current quarter also disappointed the Street. Management forecast an adjusted net loss of 15 cents per share on around $11 billion in revenue. Analysts were expecting a profit of 24 cents per share on $13.9 billion in revenue. Not only that, but Intel CEO Pat Gelsinger said the company could not provide a full-year forecast due to “the uncertainty in the current environment” with “persistent economic headwinds” expected through at least the first half of 2023.
You’d think investors would have punished the stock for such dismal results. Yet, after a brief sell-off, INTC is now trading back above pre-earnings levels. This tells me that pessimism has been baked into the shares.
Furthermore, Intel is set to benefit significantly from the CHIPS Act. The firm has embarked on a $20 billion project to build two semiconductor manufacturing plants in Ohio. In addition to state incentives and tax breaks, Intel is likely to receive billions in funding from the federal government under the CHIPS Act.
You would be wise not to count Intel out yet. Long-term investors are likely to see their patience rewarded. And a 5% dividend yield should make the wait much more tolerable.
Nvidia (NVDA)
Last but not least on today’s list of undervalued semiconductor stocks to buy is Nvidia (NASDAQ:NVDA), a leader in graphic processing units. Shares have lost nearly 40% since topping out in November 2021. However, the stock is up 44% year to date and 95% since bottoming out in mid-October. This indicates investors see value in NVDA shares.
Nvidia has yet to announce earnings this season, with the company expected to report on Feb. 22. Analysts are calling for a 21% drop in revenue and a 39% decline in earnings. It’s possible the company will disappoint — with its results, guidance or both — as many of its peers have done. However, unless the risk-on trade evaporates, it seems unlikely Nvidia will be punished more severely than other semiconductor stocks.
What’s most exciting about Nvidia from a growth standpoint is its role in powering artificial intelligence technologies, including autonomous vehicles and robots. According to Markets Insider, the buzz surrounding language tool ChatGPT has caused investors to flock to NVDA.
If you think ChatGPT and other AI applications are the way of the future, investing in NVDA s a no-brainer.
On the date of publication, Vandita Jadeja 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.