Apple Inc.’s (APPL) new multiyear agreement with Broadcom Inc. (AVGO) marks a significant milestone in the resurgence of the U.S. semiconductor industry and a lucrative new opportunity for tech investors.
The Apple-Broadcom deal reflects a growing trend of U.S. tech companies bringing their manufacturing operations back to the United States as part of a government-led effort to secure America’s tech supply chain.
Semiconductors are critical to all consumer technology, including smartphones, computers, TVs, and gaming consoles. These tiny microchips power everything modern tech offers, including software, the internet, touch screens, voice recognition, and more.
In 2022, Congress passed the CHIPS Act (Creating Helpful Incentives to Produce Semiconductors), allocating over $50 billion in funding to revitalize the U.S. semiconductor industry. At its peak in the 1990s, the U.S. controlled more than 40% of all semiconductor manufacturing worldwide. Despite its majority market share, that figure today is only 12% due to companies like Apple outsourcing their manufacturing overseas to countries like Taiwan and South Korea.
Semiconductors play a pivotal role in powering modern consumer technology, and with the rapidly growing demand driven by artificial intelligence, the U.S. is poised to revitalize its tech manufacturing capabilities.
But this story concerns more than just Apple—they were the first to make a deal. The increased focus on domestic manufacturing and investment in the U.S. semiconductor industry will create jobs, bolster the economy, and enhance the nation’s competitiveness.
Here’s how investors can benefit…
One company that investors should watch is Semtech (SMTC), a leading provider of analog and mixed-signal semiconductors, along with the advanced algorithms necessary for AI development.
Despite disappointing earnings and a share price down roughly 75% from its highs, industry analysts are predicting a sharp turnaround in next year’s revenue with 36.7% in projected growth, a significant increase over its current 2.1% annual growth.
Semtech is at a pivotal moment. An activist investor recently added two industry veterans to the board to drive long-term shareholder value, a new CEO is set to be announced this year, and the completion of the acquisition of Sierra Wireless promises strong synergies between product offerings and the potential to cross-sell customers.
Moreover, Semtech has several factors working in its favor. With the addition of two industry veterans to the board and the completion of the acquisition of Sierra Wireless, the company is well-positioned to drive long-term shareholder value. Furthermore, the appointment of a new CEO is expected later this year, bringing fresh leadership to guide Semtech’s growth strategy.
From a valuation perspective, Semtech appears attractive compared to its industry peers. The stock is trading at 3.38x EV/sales and 19.56x EV/EBITDA, lower than many industry counterparts. Additionally, Semtech’s historical trading levels indicate a potential upside.
Despite recent challenges, Semtech benefits from the expected surge in business, the appointment of new industry experts, and the completion of strategic acquisitions.
As the U.S. semiconductor industry regains momentum, Semtech’s attractive valuation and potential growth make it an enticing prospect for investors seeking exposure to the revitalized domestic tech manufacturing landscape.
I’ll be back next week with another stock pick for tech investors.
Director of Technology Investing Research, Money Map Press