Best Integrated Circuit Stocks to Buy for the Long Term

Stavros Tousios

March 6, 2024 3 min read

Integrated circuits, known as microchips or semiconductors, have recently attracted significant investment. It might even be a good time to dive into some of the best integrated circuit stocks to buy for the long term. High processing demand for new artificial intelligence (AI) tools pushes prices higher in a market where supply is struggling to keep up with orders. The imbalance between supply and demand has fueled huge spending on research and development (R&D) to address shortages. With billions of dollars going into expanding production capacity, investors wonder which may be the best integrated circuit stocks to buy and hold.

Nvidia’s price growth has undoubtedly benefited from massive profit increases. This was thanks to premium pricing for its high-demand graphics processing units (GPUs) that power many AI use cases. However, chipmakers can only sustain enormous profit margins for a while. Then, supply eventually catches up with orders.

The integrated circuit producers best positioned for ongoing value are those with diverse revenue streams across various applications beyond just AI. Let us examine some of the best integrated circuit stocks to buy, which offer balanced exposure to multiple growing tech trends.

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Applied Materials (AMAT)

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Applied Materials (NASDAQ:AMAT) is one of the best integrated circuit stocks to buy. The company provides manufacturing equipment and software solutions for the integrated circuit industry. With demand for chip manufacturing equipment increasing due to applications that support AI, chip manufacturing is projected to more than double by 2031.

AMAT’s share price quickly recovered after U.S. authorities requested information as part of efforts to restrict the export of integrated circuit manufacturing materials to China. The company’s focus on less advanced integrated circuits has allowed it to withstand volatility in the technology sector.

Despite the recent rise in its share price, AMAT still trades at a relatively modest price-to-earnings (P/E) ratio of 24.8x for a technology company. This is still below the 27.1x of the tech index, the Nasdaq.

Broadcom (AVGO)

broadcom (AVGO) logo outside office building

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Broadcom (NASDAQ:AVGO) is another one of the best integrated circuit stocks to buy. The company has gotten some attention recently because some of its integrated circuits can be used for AI applications. However, Broadcom also develops infrastructure for chips and software solutions. Only 20% of its revenue currently comes from AI technologies. This is still less than its software division.

The company expects to increase its revenue from AI over time, but it has a solid base of operations outside of what might be considered a volatile AI sector. Consequently, its earnings performance hasn’t seen meteoric increases.

Broadcom trades at a P/E of 42.4x. This is slightly below the average target price for the U.S. tech industry of 45.3x earnings. The company is scheduled to report its quarterly earnings on Thursday this week. Analysts expect a slight drop in profits to $10,25 despite a 32% increase in revenue as the company integrates its recent acquisition of Vmware.

ChipMOS (IMOS)

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ChipMOS (NASDAQ:IMOS), a Taiwan-based company listed in the U.S., is our third pick of the best integrated circuit stocks to buy. It manufactures high-precision integrated circuits and their related assemblies to control displays, such as computer monitors, televisions and others. The company recently tripled its EPS, with revenue growing 22%, as it looks to focus on its core competencies and reduce exposure to China.

However, ChipMOS’s stock price represents relative value within the technology sector. It trades at a P/E of just 17.5x while offering a dividend yield of 5.3%. As one of the best integrated circuit stocks to buy, ChipMOS has strong fundamentals and pays an attractive dividend.

On the date of publication, Stavros Tousios 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.

Stavros Tousios, MBA, is the founder and chief analyst at Markets Untold. With expertise in FX, macros, equity analysis, and investment advisory, Stavros delivers investors strategic guidance and valuable insights.