3 best semiconductor stocks in 2022

As you probably know, the semiconductor market has really been all over the place in recent years. Of course, you've got this surge in demand from people staying home during the pandemic to a worldwide chip shortage. And of course, now we have a horrible macro economy with the United States, even in the recession.

All of these things have caused the sector to be extremely volatile. And it's even crashed most semiconductor stocks out there, despite the fact that we all know that there is going to be surging demand over the long term for their chips, thanks to the rise of things like artificial intelligence, cloud computing, autonomous driving robotics, the Internet of Things, smart cities, so many things and really, the list goes on. 

In this article, I'm going to list for you guys some of my favorite semiconductor chip stocks in the market at today's prices. And I'm choosing one low-risk, one medium-risk, and one high-risk chip stock.

#1. Number

Starting with our low-risk option, the stock that I actually own myself with the Nvidia ($NVDA). Because this is easily my absolute favorite among all the different options that are out there and available for the long term. This has really been a high flyer over the past decade with not a lot of big drops to show for it. 

But more recently, it's been going through one of the largest crashes that I've personally ever seen in the stock as it has already lost close to half of its entire value. Yet when looking at Nvidia, you're talking about a global leader in markets that will likely be worth hundreds of billions of dollars in the future. 

First of all, Nvidia has for a long time dominated the high-end graphics market, with over 80% of their sales still coming from gaming and the data center. However, there are gigantic growth opportunities even in the smaller parts of their business that I'll touch on in just a second. 

Now, when looking at the entire discrete GPU market for PCs, Nvidia completely dominates it at around 80% market share while also controlling around 80% of the AI data center market as well. According to omdia research.

Together though, just the gaming and hyper-scale data center addressable markets alone present an estimated value of around $250 billion for Nvidia yet, their sales were only around 27 billion in all of last year combined.

But they're quickly benefiting from that opportunity as their data center revenue skyrocketed from a run rate of around 5 billion in 2020 to nearly triple that amount at 13 billion last year. overall sales also soared for Nvidia by over 50% in 2020, and over 60% in 2021, thanks to the pandemic boosts in demand. 

That growth is now coming down to 15% because of the tough comparison to the pandemic, which is why the stock has crashed by so much. But the fact that they're even growing at all is still a great sign.

And in my opinion, selling out of the stock right now, just because you might have believed that the pandemic booths would last forever is kind of ridiculous, in my opinion. 

I mean, you need to have a correction coming off of that before you can really start growing again as you did in the past. And again, this is just the gaming and Datacenter markets that we're talking about yet. And Vidya has just as big opportunities from markets that aren't even close to maturing yet. 

Take artificial intelligence, for example, which we all know how giant of a market that will be with many estimates putting AI in the trillions of dollars just in the next few years. And we also know that in order to run AI, you're going to need extremely powerful supercomputers which it just so happens that NVIDIA actually powers 70% of the current top 500 fastest supercomputers in the world, and over 90% of all new systems as well.

And one smaller segment where Nvidia using AI and machine learning is in robotics and autonomous driving to driving alone should be worth trillions of dollars according to allied markets research and Nvidia's drive platform that helps carmakers implement autonomous driving into their vehicles has already seen a sales pipeline grow to $11 billion worth of contracts with 35 of the largest automakers.

This includes, by the way, a partnership with Mercedes to launch Nvidia-powered cars in a couple of years that are aimed at being sort of like the iPhone of cars. There are also smart cities, which is a market that I think for some reason, nobody really seems to want to pay any attention to. 

But it's also estimated to be worth over $2 trillion by 2025. And Nvidia is investing heavily in that with their Metropolis vision AI platform that works on solutions for things like public safety, logistics, and traffic management, all of these things are going to be massive in the future. 

And I think he could give us some time, smart cities could be one of the biggest growth drivers for Nvidia over the long term. And finally, I'll just quickly mention to their Omniverse platform that maybe isn't as well known as the others. But I find it fascinating because it uses 3d rendering to create digital worlds as a replica of real life with extreme detail and accuracy. 

And it's even attracted Amazon as a customer who uses it to make changes to their fulfillment centers in the digital landscape, before spending time and money on making those changes to their physical real-world version. So basically, they make digital changes. 

And if they perceive those to be successful, or efficient or worthy of investment, then they go in and actually implement those changes in the real world. And I can see so many companies that would want to utilize those types of solutions. All of these reasons are great examples of why I think that NVIDIA is actually a pretty low-risk option if you are thinking long-term. 

#2. Number

Stock number two is our medium-risk option which I usually try to go with a dividend payer if possible, because even if there's good reason for the stock to be going down, well, at least you're getting a rising yield while you wait for the company to recover. And this time, I'm going with one of the invidious biggest competitors and rivals in Intel ($INTC).

Now as it stands, Intel is currently trading at some of the lowest prices that we've seen in years, and an even lower price in the 2020 crash, and after having now lost close to half of its entire value. Now to be clear, there is good reason for this, as Intel has been going through a very rough time here in recent years.

Especially having to deal with rival chip designer AMD, who has been stealing market share from them in the CPU market. For example, over the past year, Intel saw a seven-point drop from 79% down to 72%. While AMD actually saw a seven-point gain from 20%, up to 27%. So clearly a direct market shares is still there for AMD.

Now on top of that demand for Intel chips has gone down recently following the pandemic boom, where everyone was staying home either gaming, working or learning remotely. But personally, I don't see this one as a big enough issue, because I actually think that all of those remote activities will grow over time and over the long term. 

But for now, you're seeing a healthy correction there in that market. And that's causing Intel's revenue to drop by over 11% this year, before having a small rebound next year. That's to be expected, though, given the circumstances.

And meanwhile, this is still a very large and profitable company by 10s of billions of dollars, with more than six times the profits of rival AMD and more than two times the profits of rival Nvidia as well. 

Plus, there's new growth opportunities coming from not just the overall market expanding itself, but also from the chips act that was just recently passed by Congress here in the United States. See the United States is trying to basically desperately like claw their way into the hugely important semiconductor market. 

And if there's anything that the chip shortage has taught us, is that the US is too heavily reliant on other countries for their chips. Like, for example, like a prime example is Taiwan, which is basically at constant risk of being taken over by China. So the US wants to go in and they want to start developing a lot of chips themselves. 

So what did they do? Well, Congress decided to approve federal funding with 10s of billions of dollars to support the domestic manufacturing of new chips. And Intel happens to be taking full advantage of that by building two new giant factories in Ohio, which they've even said that with the new federal funding.

They may even be able to quadruple that amount to a total of eight factories in an effort to construct one of the largest if not the largest combined chip factory sites in the world. Plus, they've been working on innovation themselves, which is something that they've struggled to do against rivals like AMD and Nvidia in the past.

But evidence of Intel taking things more seriously can now be seen in their brand new discrete GPUs that they're making for the first time ever since about a quarter of a century ago. And they've already captured about 5% of that market despite barely entering and recently, plus, with the crash Intel stock is now trading around 40 to 50% cheaper than the rest of the sector.

Despite them being a leader in several different chip markets, not to mention that it also leaves them with one of the most attractive dividends in the entire market at over a 4% yield now, which by the way, over the past 20 years, there's only been a couple other times where that yield broke north of 4%. 

And one of those was during the Great Recession. In other words, what we're seeing right now with Intel stock is pretty rare. And my gut tells me that it's not going to last long term. Over time, I do think that the price does need to start going back up. Alone all the other things I mentioned. I gotta say Intel stock at these prices, it's looking super tempting.

#3. Number

The third and final stock of the day, which also be our high-risk option. And for this one, unlike NVIDIA or AMD, who mostly just develop their chips, I'm going with a company that also builds their own chips, and that is none other than Micron ($MU). Now whereas the spotlight is usually on Nvidia, Intel, and AMD for their more exciting graphics and processing chips.

Micron instead operates in the sort of less talked about but just as important markets have memory and storage chips. So think of things like the RAM, Memory on your computer or phone so that you can run more things smoothly at once, or the overall storage capabilities to hold as much data and pictures and apps and games and music as you want. 

These are some of the most important components of people's favorite electronics and Micron happens to be the third largest in the DRAM market, which is the area where micron generates the majority of its sales at around 23% market share just behind SK Hynix and Samsung. 

And the reason why I actually love this trade happily in the market specifically is that micron is the only US-based company out of the three while the other two leaders are from South Korea. That's a huge deal since it means that micron sensors be one of the largest beneficiaries of from the United States new chips act that we talked about earlier. 

In fact, Micron has already decided to launch a brand new $40 billion investment into building what they refer to as leading-edge memory manufacturing plants in the US. In a recent statement, micron said with the anticipated grants and credits made possible by the chips act, this investment will enable the world's most advanced memory manufacturing in America. 

And meanwhile, Micron is still operating in giant markets like the data center, mobile, PC, industrial, automotive and more. And these are markets that are growing by huge rates of around 20 to 50% in demand for their chips, leaving their total addressable market at over $160 billion, which is expected to soar to 330 billion by 2030. 

For reference Micron only does around 30 billion in sales right now, which is like $300 billion less than what their long term potential could be. And I don't have enough time to run through all of these different markets. But just to throw like a couple examples that you guys have different opportunities here.

Well, for example, in mobile, the rise of 5g is leading to a huge upgrade cycle for them since it's estimated that 5g phones require 50% more memory and double the storage than their 4g counterparts and it just so happens that this year 5g capable phones have already grown to make up over half of the market. 

So it's going to be a big deal for Micron to be able to sell those to all those new 5g phones are to develop it anymore 5g phones I should say. And when looking at automotive, which micron holds the number one market share of for memory and storage chips,

while the rise of autonomous electric vehicles are also going to drive giant demand for more components and high-performance chips so much so that micron refers to these as data centers on wheels. 

With all of these pros in mind though, why would I consider micron to be high risk? Well, the reason has to do entirely with the cyclicality and heavy macroeconomic dependence of the memory and storage markets.

which have caused microns financials to be super inconsistent and volatile for years with both 2019 and 2020 being significant declines on both the top and bottom lines from Micron. 

Even with that, though Micron is still a consistently very large and profitable company. And when business is booming, you'll see staggering numbers like 30 billion in sales with close to half of that going straight to net income profit, like it did in 2018. Last year was also a very large rebound year with over 30% revenue growth.

And that has been followed up on with another double-digit gain this year as well, next year, though, is expected to be a heavy decline of about 20% Because of the deteriorating economy, as well as a few other concerns. But that weakness is currently being priced into the stock as Micron has already crashed by almost 40%.

History shows us that buying on these large cyclical drops tends to reward shareholders with fairly decent gains over the long term, especially considering how dirt cheap the valuation is right now with a PE ratio that is over 60% cheaper than the sector and over 40% cheaper than their own five-year average as well. 

I'm not saying that the crashing is done yet. That's where all of the high risks really comes into this type of stock. But what I am saying is that I think looking out into the future over the next five to 10 years in the long term. I think this current downturn will be looked back on as a solid buying opportunity for Micron stock.