Chip Stocks Roar Back To Life As Inflation Eases; Diversification Across Industries Seen As Key

Chip stocks are roaring back to life, with several semiconductor and chip equipment stocks now appearing on the IBD 50.

They include Lattice Semiconductor (LSCC), Allegro MicroSystems (ALGM), Aehr Test Systems (AEHR), Axcelis Technologies (ACLS), STMicroelectronics (STM), Broadcom (AVGO) and Microchip Technology (MCHP).

The chip industry is building on a tech rally that began last week and gained strength as lower inflation rates seemed to indicate the Fed may tame its aggressive rate-hike policy.

The semiconductor industry could still be in for a rough year in 2023 amid declining sales of memory chips and PC processors, along with worries that other segments could turn south. However, some semiconductor stocks could buck the downturn.

Wall Street analysts lately have been making predictions for the 2023 chip sector, and many of those picks are stocks that focus on a diversification of industries, whether they make chips or they make equipment that helps chip producers produce them. Several of these stocks are part of the IBD Tech Leaders list and are among this week’s IBD 50 Stocks To Watch.

Midcap growth stock Lattice Semiconductor is one stock that is bouncing nicely off its 50-day moving average as it forms a cup-with-handle base with a 76.57 buy point. Its relative strength line is also climbing.

Chip Industry Sees Light At End Of Rate Hikes

The Hillsboro, Ore., designer of programmable gate arrays focuses on four key markets: data center, computing, automotive and industrial. Its logic chips are winning new designs due to exceptional qualities of small size, low power, reliability and ease of use.

On Dec. 5, Lattice officially debuted its newest chip design platform, Avant. Executives said the new product will double its total addressable market. Lattice’s trailing 12-month sales totaled $626 million.

Chip leader Allegro MicroSystems is one of the top stocks to watch in the nascent stock market uptrend. ALGM stock was little changed Friday, holding above its 50-day line following sharp gains for the week. Allegro shares are building a large cup-with-handle base with a 34.24 buy point, according to IBD MarketSmith chart analysis.

Allegro is a designer, developer and marketer of specialized integrated circuits used mostly in automobile and industrial markets. The devices also show up in a range of consumer and computer segments. The company’s product line includes integrated circuits for power management, such as chips designed to enhance the performance of motors used in electric vehicles.

Allegro MicroSystems (ALGM)

In the most recent quarter reported, announced Oct. 27, earnings and sales jumped 55% and 23%, respectively, vs. the year-ago period. It was the best EPS increase in a year, and the best sales performance in five quarters.

For the October-December quarter, Allegro is expected to earn 32 cents a share on sales of $245.2 million, for respective year-over-year increases of 68% and 31%.

This stock shows a 98 out of 99 Earnings Per Share Rating and an SMR Rating of A, according to IBD Stock Checkup.

Boasting a perfect 99 IBD Composite Rating, Allegro is the top-ranked stock in the chipmaker industry group.

Chip Equipment Stocks Join The Party

Axcelis is extended from an 80.34 cup-with-handle buy point. Investors should consider taking some profits on this stock because it has entered the 20%-25% profit-taking zone.

Axcelis stock not only made the IBD 50 but also made IBD Sector Leaders.

STMicroelectronics climbed six days in a row, as chip stocks rode along with the tech stock rally. The stock has retaken its 50-day line but still has not yet formed a base.

Chip equipment maker Aehr Test Systems rallied Friday, adding to gains since the company reported on Jan. 5 a better-than-expected rise in revenue for the November quarter. The stock is in buy range, from a 28.10 entry of a V-shape cup base, that goes up to 29.50. The RS line is at new highs.

Broadcom is near the 585.75 buy point of a large double bottom with handle. The stock was volatile after breaking out on Jan. 6 but it’s bounced back.

Microchip Technology is trying to form a base after regaining the 50-day line.

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