It's been a good year for a semiconductor stocks like Nvidia NVDA. Shares of the graphics-chip specialist have nearly tripled (up 185%).
But not all chip stocks have joined the party. Morningstar identifies five that are undervalued, according to its fair value estimates, and that have earned Morningstar moats.
A moat means the Morningstar analyst covering a company sees it having sustainable competitive advantages — for at least 10 years with a narrow moat and at least 20 years for a wide moat.
Here’s the fearsome fivesome, starting with the most undervalued.
Skyworks Solutions
SWKS, which makes chips for wireless devices
Morningstar moat rating: narrow. Morningstar fair value estimate: $155. Wednesday price quote: $85.25.
“Skyworks Solutions is a leading supplier of a variety of radio frequency components to smartphone makers and a host of other electronics device makers,” wrote Morningstar analyst Brian Colello.
“Although the company faces an intense competitive landscape, it should thrive as the handset industry focuses on 5G devices. We expect that industry to require higher radio-frequency dollar content per phone.”
NXP Semiconductors
NXPI, a leading supplier of high-performance mixed-signal products.
Morningstar moat rating: narrow. Morningstar fair value estimate: $240. Wednesday price quote: $169.20.
“It’s one of the largest suppliers of semiconductors for the automotive market and a significant player in the analog and mixed-signal chip markets generally,” Colello said.
“It has a strong position in the automotive, industrial, mobile, and communications infrastructure markets through a combination of switching costs and intangible assets.”
Microchip Technology
MCHP, a leading supplier of microcontrollers — semiconductors that act as the brains in common electronic devices, from garage door openers to electric shavers.
Morningstar moat rating: wide. Morningstar fair value estimate: $90. Wednesday price quote: $69.50.
“Microchip’s looming slowdown isn’t a new downdraft, but rather some headwinds that are on par with peers after several quarters of relative outperformance,” Colello said.
The company has suffered from a shifting product mix and a large backlog during the global chip shortage, he added.
Qualcomm
QCOM, which develops and licenses wireless technology and designs chips for smartphones
Morningstar moat rating: narrow. Morningstar fair value estimate: $140. Wednesday price quote: $109.30.
“We expect Qualcomm’s chip business and licensing business to continue generating healthy cash flow and reinforce the company’s narrow moat rating,” Colello wrote.
“Qualcomm should remain an industry leader in chipsets and intellectual property for 5G and below.” Qualcomm is poised to grow in the automotive and Internet of Things sectors, he said.
Advanced Micro Devices
AMD, which designs semiconductors for a variety of industries, including personal computers, gaming consoles and data centers.
Morningstar moat rating: narrow. Morningstar fair value estimate $125. Wednesday price quote: $107.
“AMD has a wealth of digital semiconductor expertise and is well positioned to prosper from favorable trends in data centers, artificial intelligence, and gaming,” Colello said. “We think Advanced Micro Devices benefits from intangible assets across a variety of products.”
